UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 April 24, 1997: 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.
THE PACIFIC LUMBER COMPANY
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures S-1
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,862 $ 26,027
Receivables:
Trade 16,852 18,080
Other 2,004 2,514
Inventories 58,152 65,690
Prepaid expenses and other current assets 6,218 5,329
------------- -------------
Total current assets 99,088 117,640
Timber and timberlands, net of accumulated
depletion of $223,621 and $221,063,
respectively 323,160 324,986
Property, plant and equipment, net of accumulated
depreciation of $75,837 and $73,772,
respectively 94,746 95,515
Deferred financing costs, net 19,480 20,003
Deferred income taxes 33,079 34,639
Restricted cash 29,765 29,967
Other assets 7,417 6,424
------------- -------------
$ 606,735 $ 629,174
============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 3,652 $ 3,765
Accrued compensation and related benefits 7,528 9,673
Accrued interest 7,203 20,211
Deferred income taxes 10,173 10,173
Other accrued liabilities 1,034 2,325
Long-term debt, current maturities 18,319 16,258
------------- -------------
Total current liabilities 47,909 62,405
Long-term debt, less current maturities 544,779 555,596
Other noncurrent liabilities 26,568 25,887
------------- -------------
Total liabilities 619,256 643,888
------------- -------------
Contingencies
Stockholder's deficit:
Common stock, $.01 par value, 100 shares
authorized and issued - -
Additional capital 157,520 157,520
Accumulated deficit (170,041) (172,234)
------------- -------------
Total stockholder's deficit (12,521) (14,714)
------------- -------------
$ 606,735 $ 629,174
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales:
Lumber and logs $ 54,399 $ 50,109
Other 6,450 4,794
------------- -------------
60,849 54,903
------------- -------------
Operating expenses:
Cost of goods sold (exclusive of depletion
and depreciation) 34,723 30,612
Selling, general and administrative expenses 3,051 3,424
Depletion and depreciation 6,563 6,557
------------- -------------
44,337 40,593
------------- -------------
Operating income 16,512 14,310
Other income (expense):
Investment, interest and other income
(expense) 805 881
Interest expense (13,485) (13,716)
------------- -------------
Income before income taxes 3,832 1,475
Provision in lieu of income taxes (1,639) (591)
------------- -------------
Net income $ 2,193 $ 884
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,193 $ 884
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion and depreciation 6,563 6,557
Amortization of deferred financing
costs 523 603
Increase (decrease) in cash resulting
from changes in:
Receivables 1,534 5,365
Inventories, net of depletion 5,698 3,179
Prepaid expenses and other assets (1,872) 274
Accounts payable (39) 136
Accrued and deferred income taxes 1,639 591
Accrued interest (13,008) (13,239)
Other liabilities (2,755) (2,292)
Other 77 (4)
------------- -------------
Net cash provided by
operating activities 553 2,054
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,164) (2,480)
Net proceeds from sale of assets - 42
------------- -------------
Net cash used for investing activities (2,164) (2,438)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions, repurchases of and principal
payments on long-term debt (8,756) (8,494)
Restricted cash withdrawals, net 202 300
------------- -------------
Net cash used for financing activities (8,554) (8,194)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,165) (8,578)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,027 26,480
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,862 $ 17,902
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest 25,970 $ 26,352
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
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, 1996 (the "Form 10-K"). Any capitalized terms used
but not defined in these Condensed Notes to Consolidated Financial
Statements have the same meaning given to them in the Form 10-K. All
references to the "Company" include The Pacific Lumber Company and its
subsidiary companies unless otherwise noted 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, 1997, the
consolidated results of operations for the three months ended March 31,
1997 and 1996 and consolidated cash flows for the three months ended March
31, 1997 and 1996. Certain reclassifications of prior period information
have been made to conform to the current presentation. The Company is an
indirect, wholly owned subsidiary of MGI. MGI is a wholly owned subsidiary
of MGHI which is a wholly owned subsidiary of MAXXAM.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Lumber $ 44,440 $ 46,882
Logs 13,712 18,808
------------- -------------
$ 58,152 $ 65,690
============= =============
</TABLE>
3. RESTRICTED CASH
Restricted cash represents the amount held by the Trustee under
the indenture governing the Timber Notes of the Company's wholly owned
subsidiary, Scotia Pacific.
At March 31, 1997 and December 31, 1996, cash and cash
equivalents also includes $4,387 and $17,600, respectively, which is
restricted for debt service payments on the Timber Notes.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
7.95% Scotia Pacific Timber Collateralized
Notes due July 20, 2015 $ 327,418 $ 336,130
10-1/2% Pacific Lumber Senior Notes due March
1, 2003 235,000 235,000
Other 680 724
------------- -------------
563,098 571,854
Less: current maturities (18,319) (16,258)
------------- -------------
$ 544,779 $ 555,596
============= =============
</TABLE>
5. CONTINGENCIES
The Company's operations are subject to a variety of California
and federal laws and regulations dealing with timber harvesting, endangered
species and critical habitat, and air and water quality. Moreover, these
laws and regulations are modified from time to time and are subject to
judicial and administrative interpretation. Compliance with such laws,
regulations and judicial and administrative interpretations, together with
the cost of litigation incurred in connection with certain timber
harvesting operations of the Company, have increased the cost of logging
operations. The Company is subject to certain pending matters described
below which could have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity. There
can be no assurance that certain pending or future governmental
regulations, legislation, judicial or administrative decisions or
California ballot initiatives will not have a material adverse effect on
the Company.
In May 1996, the USFWS published the Final Designation of
critical habitat for the marbled murrelet, a coastal seabird, which
designated over four million acres as critical habitat for the marbled
murrelet. Although nearly all of the designated habitat is public land,
approximately 33,000 acres of the Company's timberlands are included in the
Final Designation, the substantial portion of such acreage being young
growth timberlands. In order to mitigate the impact of the Final
Designation, particularly with respect to timberlands occupied by the
marbled murrelet, the Company over the last few years has attempted to
develop the Murrelet HCP. Due to, among other things, the unfavorable
response of the USFWS to the Company's initial Murrelet HCP efforts, the
Company and its subsidiaries filed the Takings Litigation alleging that
certain portions of their timberlands have been "taken" and seeking just
compensation. Pursuant to the Headwaters Agreement entered into by the
Company, MAXXAM, the United States and California on September 28, 1996
described in Note 6 below, the Takings Litigation has been stayed at the
request of the parties.
It is impossible for the Company to determine the potential
adverse effect of the Final Designation on the Company's consolidated
financial position, results of operations or liquidity until such time as
various regulatory and legal issues are resolved; however, if the Company
is unable to harvest, or is severely limited in harvesting, on timberlands
designated as critical habitat for the marbled murrelet, such effect could
be materially adverse to the Company. If the Company is unable to harvest
or is severely limited in harvesting, it intends to seek just compensation
from the appropriate governmental agencies on the grounds that such
restrictions constitute a governmental taking. There continue to be other
regulatory actions and lawsuits seeking to have other species listed as
threatened or endangered under the ESA and/or the CESA and to designate
critical habitat for such species. For example, the NMFS has announced that
by April 25, 1997 it will make a final determination concerning whether to
list the coho salmon under the ESA in northern California, including,
potentially, lands owned by the Company. It is uncertain what impact, if
any, such listings and/or designations of critical habitat would have on
the Company's consolidated financial position, results of operations or
liquidity.
In 1994, the BOF adopted certain regulations regarding compliance
with long-term sustained yield ("LTSY") objectives. These regulations
require that timber companies project timber growth and harvest on their
timberlands over a 100-year planning period and establish a LTSY harvest
level that takes into account environmental and economic considerations.
Timber companies must submit an SYP which demonstrates that the average
annual harvest over any rolling ten-year period will not exceed the LTSY
harvest level and that the Company's projected timber inventory is capable
of sustaining the LTSY harvest level in the last decade of the 100-year
planning period. On December 17, 1996, the Company submitted a proposed SYP
to the CDF. The proposed SYP sets forth an LTSY harvest level substantially
the same as the Company's average annual timber harvest over the last six
years. The proposed SYP also indicates that the Company's average annual
timber harvest during the first decade of the SYP would approximate the
LTSY harvest level. During the second decade of the proposed SYP, the
Company's average annual timber harvest would be approximately 8% less than
that proposed for the first decade. The SYP, when approved, will be valid
for ten years. Thereafter, revised SYPs will be prepared every decade that
will address the LTSY harvest level based upon reassessment of changes in
the resource base and protection of public resources.
The proposed SYP assumes that the transactions contemplated by
the Headwaters Agreement (see Note 6) will be consummated and that the
Multi-Species HCP will permit the Company to harvest its timberlands
(including over the next two decades a substantial portion of its old
growth timberlands not transferred pursuant to the Headwaters Agreement) to
achieve maximum sustained yield. The SYP is subject to review and approval
by the CDF, and there can be no assurance that the SYP will be approved in
its proposed form. Until the SYP is reviewed and approved, the Company is
unable to predict the impact that these regulations will have on its future
timber harvesting practices. It is possible that the results of the review
and approval process could require the Company to reduce its timber harvest
in future years from the harvest levels set forth in the proposed SYP. The
Company believes it would be able to mitigate the effect of any required
reduction in harvest level by acquisitions of additional timberlands and
making corresponding amendments to the SYP; however, there can be no
assurance that the Company would be able to do so and the amount of such
acquisitions would be limited by the Company's available financial
resources. The Company is unable to predict the ultimate impact the
sustained yield regulations will have on its future financial position,
results of operations or liquidity.
Various groups and individuals have filed objections with the CDF
and the BOF regarding the CDF's and the BOF's actions and rulings with
respect to certain of the Company's THPs and other timber harvesting
operations, and the Company expects that such groups and individuals will
continue to file such objections. In addition, lawsuits are pending or
threatened which seek to prevent the Company from implementing certain of
its approved THPs or which challenge other operations by the Company. These
challenges have severely restricted the Company's ability to harvest old
growth timber on its property. To date, challenges with respect to the
Company's THPs relating to young growth timber and to its other operations
have been limited; however, no assurance can be given as to the extent of
such challenges in the future. The Company believes that environmentally
focused challenges to its timber harvesting and other operations are likely
to occur in the future, particularly with respect to virgin and residual
old growth timber. Although such challenges have delayed or prevented the
Company from conducting a portion of its operations, they have not had a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity. Nevertheless, it is impossible to
predict the future nature or degree of such challenges or their ultimate
impact on the Company's consolidated financial position, results of
operations or liquidity.
The Company is also involved in various claims, lawsuits and
proceedings. 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 that 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, results of operations or liquidity.
6. HEADWATERS AGREEMENT
On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California. The
Headwaters Agreement provides the framework for the acquisition by the
United States and California of approximately 5,600 acres of the Company's
timberlands commonly referred to as the Headwaters Forest and the Elk Head
Springs Forest (collectively, the "Headwaters Timberlands"). A substantial
portion of the Headwaters Timberlands consists of virgin old growth
timberlands. Approximately 4,900 of these acres are owned by Salmon Creek
and are part of the area commonly referred to as the "Headwaters Forest."
The remaining acreage is owned by Scotia Pacific (the Company having
harvesting rights on a portion of the acreage). The Headwaters Timberlands
would be transferred in exchange for (a) property and other consideration
(possibly including cash) from the United States and California having an
aggregate fair market value of $300 million and (b) approximately 7,755
acres of adjacent timberlands to be acquired by the United States and
California ( the "Elk River Timberlands") from a third party. The United
States and California would also acquire and retain an additional 1,900
acres of timberlands from such third party.
The Headwaters Agreement also provides, among other things, for
the expedited processing by the United States of a Permit (an incidental
take permit) to be based upon a Multiple-Species HCP covering (a) the
Resulting Pacific Lumber Timber Property (the property the Company will own
after consummation of the Headwaters Agreement) and (b) the Headwaters
Timberlands and the 1,900 acres of additional timberlands to be acquired
and retained by the United States and California (both as conserved
habitat). The agreement also requires expedited processing by California
of an SYP covering the Resulting Pacific Lumber Timber Property.
On December 5, 1996, the United States and California each
furnished a list of properties consisting of oil and gas interests,
timberlands and a variety of other real estate properties for the Company's
review and approval. Neither list was accompanied by the requisite
background information, although both lists did indicate that additional
information would be made available. On December 10, 1996, the Company
wrote to the United States and California, stating, among other things,
that the requisite background information had not been furnished,
requesting the missing information and indicating that certain of the
properties did not appear to be "available," as legislative action would be
required for exchange of certain of the properties. In February 1997, as
permitted by the Headwaters Agreement, the Company notified California that
its presented properties were not acceptable.
As part of the Headwaters Agreement, the Pacific Lumber Parties
agreed to not enter the Headwaters Forest or the Elk Head Forest to conduct
logging operations, including salvage logging (the "Moratorium"). The
Moratorium was to terminate if by July 28, 1997 the parties had not
achieved the Specified Items to their respective satisfaction. On March
11, 1997, the Pacific Lumber Parties agreed to amend the Headwaters
Agreement to extend the period of time during which these closing
conditions must be met to February 17, 1998. The extension is, however,
subject to the achievement of certain milestones toward completion of the
Headwaters Agreement. The parties have agreed to execute an amendment to
the Headwaters Agreement evidencing these modifications.
Closing of the Headwaters Agreement is subject to various
conditions, including (a) acquisition by the government of the Elk River
Timberlands from a third party, (b) approval of an SYP and a Multi-Species
HCP and issuance of a Permit, each in form and substance satisfactory to
the Company, (c) the issuance by the Internal Revenue Service and the
California Franchise Tax Board of closing agreements in form and substance
sought by and satisfactory to the Pacific Lumber Parties, (d) the absence
of a judicial decision in any litigation brought by third parties that any
party reasonably believes will significantly delay or impair the
transactions described in the Headwaters Agreement, and (e) the dismissal
with prejudice at closing of the Takings Litigation. The parties to the
Headwaters Agreement are working to satisfy these conditions; however,
there can be no assurance that the Headwaters Agreement will be
consummated.
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.
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
Form 10-Q. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions. This section and the Company's Form 10-K identify other
factors that could cause such differences. No assurance can be given that
these are all of the factors that could cause actual results to vary
materially from the forward-looking statements.
RESULTS OF OPERATIONS
The Company is engaged in forest products operations. Its
business is seasonal in that the Company generally experiences lower first
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, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- -------------
(IN MILLIONS OF DOLLARS,
EXCEPT SHIPMENTS AND
PRICES)
<S> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 13.0 10.4
Redwood common grades 36.6 38.1
Douglas-fir upper grades 2.5 2.2
Douglas-fir common grades 19.4 19.3
Other 3.0 1.9
------------- -------------
Total lumber 74.5 71.9
============= =============
Logs (2) 11.1 14.2
============= =============
Wood chips (3) 56.9 43.5
============= =============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,322 $ 1,386
Redwood common grades 541 505
Douglas-fir upper grades 1,211 1,153
Douglas-fir common grades 486 378
Logs (4) 400 453
Wood chips (5) 78 92
Net sales:
Lumber, net of discount $ 50.0 $ 43.7
Logs 4.4 6.4
Wood chips 4.4 4.0
Cogeneration power 1.0 .4
Other 1.0 .4
------------- -------------
Total net sales $ 60.8 $ 54.9
============= =============
Operating income $ 16.5 $ 14.3
============= =============
Operating cash flow (6) $ 23.1 $ 20.9
============= =============
Income before income taxes $ 3.8 $ 1.5
============= =============
Net income $ 2.2 $ .9
============= =============
<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>
Net sales
Net sales for the three months ended March 31, 1997 increased
from the three months ended March 31, 1996, principally due to higher
average realized prices for common grade redwood and Douglas-fir lumber,
and increased shipments of manufactured upper grade redwood lumber.
Operating income
Operating income for the three months ended March 31, 1997
increased from the three months ended March 31, 1996 principally due to the
increase in sales discussed above.
Income before income taxes
Income before income taxes for the first three months ended March
31, 1997 increased from the three months ended March 31, 1996 principally
due to the increase in operating income discussed above.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
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 ability of Pacific Lumber and Scotia
Pacific to incur additional indebtedness and liens, to engage in
transactions with affiliates, to pay dividends and to make investments. As
of March 31, 1997, under the most restrictive of these covenants,
approximately $21.5 million of dividends could be paid by the Company to
MGI.
As of March 31, 1997, $39.1 million of borrowings was available
under the Revolving Credit Agreement, of which $4.7 million was available
for letters of credit and $30.0 million for timberland acquisitions. No
borrowings were outstanding as of March 31, 1997, and letters of credit
outstanding amounted to $10.3 million.
As of March 31, 1997, the Company had consolidated long-term debt
of $515.0 million (net of current maturities and restricted cash deposited
in the Liquidity Account) as compared to $525.6 million at December 31,
1996. The decrease in long-term debt was due to principal payments on the
Timber Notes. The Company anticipates that cash from operations, together
with existing cash, cash equivalents and available sources of financing,
will be sufficient to fund its working capital and capital expenditure
requirements for the next year. With respect to its long-term liquidity,
the Company believes that its existing cash and cash equivalents, together
with its ability to generate sufficient cash from operations and to obtain
both short- and long-term financing, should provide sufficient funds to
meet its working capital and capital expenditure requirements. 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 timber harvesting practices, increased
competition from other lumber producers or alternative building products
and general economic conditions.
TRENDS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See above for cautionary information with respect to
such forward-looking statements.
The Company's operations are subject to a variety of California
and federal laws, regulations and judicial and administrative interpretations
dealing with timber harvesting, endangered species and critical habitat, and
air and water quality. Moreover, these laws and regulations are
modified from time to time and are subject to judicial and administrative
interpretation. Compliance with such laws, regulations and judicial and
administrative interpretations, together with the cost of litigation
incurred in connection with certain timber harvesting operations of the
Company, have increased the cost of logging operations. The Company is
subject to certain pending matters which could have a material adverse
effect on its consolidated financial position, results of operations or
liquidity. There can be no assurance that these pending matters or future
governmental regulations, legislation or judicial or administrative
decisions would not have a material adverse effect on the Company. See
Part II, Item 1. "Legal Proceedings" and Note 5 to the Condensed
Consolidated Financial Statements for further information regarding
regulatory and environmental factors affecting the Company's operations.
See also Note 6 to the Condensed Consolidated Financial Statements for the
recent agreement to extend the Headwaters Agreement to February 17, 1998.
Judicial or regulatory actions adverse to the Company, increased
regulatory delays and inclement weather in northern California,
independently or collectively, could impair the Company's ability to
maintain adequate log inventories and force the Company to temporarily idle
or curtail operations at certain lumber mills from time to time.
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.
With respect to the Marbled Murrelet action described under
"Timber Harvesting Litigation," on April 18, 1997, the U.S. Ninth Circuit
Court of Appeals reversed the trial court's decision which had
preliminarily enjoined eight already-approved THPs to the extent they rely
on the Federal Owl Plan. The Company had previously obtained regulatory
reapproval of six of the eight THPs and confirmed with the trial court
that six of those THPs were no longer subject to the preliminary
injunction.
With respect to the Redway action described under "Timber
Harvesting Litigation," the defendants' motion to dismiss is pending; trial
of the case is set for June 23, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
On March 12, 1997, the Company filed a Current Report
on Form 8-K (under Item 5), dated March 11, 1997, concerning an
agreement to amend the Headwaters Agreement to extend to February 17,
1998 the period of time during which the closing conditions must be met.
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: April 24, 1997 By: /S/ GARY L. CLARK
Gary L. Clark
Vice President - Finance and
Administration
<TABLE> <S> <C>
<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.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 15,862
<SECURITIES> 0
<RECEIVABLES> 16,852
<ALLOWANCES> 0
<INVENTORY> 58,152
<CURRENT-ASSETS> 99,088
<PP&E> 170,583
<DEPRECIATION> 75,837
<TOTAL-ASSETS> 606,735
<CURRENT-LIABILITIES> 47,909
<BONDS> 563,098
0
0
<COMMON> 0
<OTHER-SE> (12,521)
<TOTAL-LIABILITY-AND-EQUITY> 606,735
<SALES> 60,849
<TOTAL-REVENUES> 60,849
<CGS> 34,723
<TOTAL-COSTS> 34,723
<OTHER-EXPENSES> 9,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,485
<INCOME-PRETAX> 3,832
<INCOME-TAX> 1,639
<INCOME-CONTINUING> 2,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,193
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
