<PAGE>
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24976
CROWN PACIFIC PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 93-1161833
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 S.W. Morrison Street, Suite 1500
Portland, Oregon 97204
(Address of principal executive office, Zip Code)
(503) 274-2300
(Registrant's telephone number including area code)
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
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
FOR THE QUARTER ENDED
MARCH 31, MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenues ..................................................... $84,555 $97,834
Operating costs:
Cost of products sold ...................................... 66,882 80,995
Selling, general and administrative expenses ............... 5,312 5,309
---------- ----------
Operating income ............................................. 12,361 11,530
Interest expense ............................................. 8,245 7,522
Amortization of debt issuance costs .......................... 126 116
Other income, net ............................................ (174) (224)
---------- ----------
Net income ................................................... $4,164 $4,116
---------- ----------
---------- ----------
Net income per Unit .......................................... $0.23 $0.22
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $13,676 $10,292
Accounts receivable ........................................ 32,845 32,576
Notes receivable ........................................... 9,443 5,571
Inventories ................................................ 44,476 46,747
Deposits on timber cutting contracts ....................... 8,190 9,399
Prepaid and other current assets ........................... 5,723 5,395
---------- -----------
Total current assets .................................... 114,353 109,980
Property, plant and equipment, net ........................... 41,656 40,920
Timber, timberlands and roads, net ........................... 328,005 320,063
Other assets ................................................. 6,301 5,542
---------- -----------
Total assets ............................................ $490,315 $476,505
---------- -----------
---------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable .............................................. $15,100 $19,100
Accounts payable ........................................... 9,614 10,938
Accrued expenses ........................................... 13,507 10,469
Accrued interest ........................................... 10,107 2,736
---------- -----------
Total current liabilities ............................... 48,328 43,243
Long-term debt .............................................. 340,000 326,000
Other non-current liabilities ............................... 206 206
---------- -----------
388,534 369,449
---------- -----------
Commitments and contingent liabilities
Partners' capital:
General partners ......................................... (204) (152)
Limited partners (18,133,527 Units outstanding) .......... 101,985 107,208
---------- -----------
Total partners' capital ................................. 101,781 107,056
---------- -----------
Total liabilities and partners' capital ................. $490,315 $476,505
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
FOR THE QUARTER ENDED
MARCH 31, MARCH 31,
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $4,164 $4,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization ............... 9,005 6,261
Gain on sale of property ............................... (2,073) (224)
Other .................................................. 1 35
Net change in current assets and current
liabilities:
Accounts and notes receivable .......................... (2,758) (3,920)
Inventories ............................................ 2,271 8,535
Deposits on cutting contracts .......................... 1,209 2,263
Prepaid and other current assets ....................... (328) (993)
Accounts payable and accrued expenses .................. 8,725 (7,475)
--------- ----------
Net cash provided by operating activities .................... 20,216 8,598
--------- ----------
Cash flows from investing activities:
Additions to timberlands ................................... (2,924) (3,988)
Additions to timber cutting rights ......................... (12,842) -
Additions to equipment ..................................... (2,456) (3,425)
Proceeds from sales of property ............................ 979 2,862
Other investing activities ................................. (116) (412)
--------- ----------
Net cash used in investing activities ........................ (17,359) (4,963)
--------- ----------
Cash flows from financing activities:
Net decrease in short-term borrowing ....................... (4,000) (508)
Proceeds from issuance of long-term debt .................. 32,000 -
Repayments of long-term debt ............................... (18,000) -
Distributions to partners .................................. (9,436) -
Other financing activities ................................. (37) (409)
--------- ----------
Net cash provided by (used in) financing activities .......... 527 (917)
--------- ----------
Net increase in cash and cash equivalents .................... 3,384 2,718
Cash and cash equivalents at beginning of period............... 10,292 6,421
--------- ----------
Cash and cash equivalents at end of period..................... $13,676 $9,139
--------- ----------
--------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Crown Pacific Partners, L.P. (the "Partnership"), a Delaware limited
partnership, through its 99% owned subsidiary, Crown Pacific Limited Partnership
(the "Operating Partnership") owns and operates timberland and wood product
manufacturing operations in the northwestern United States. Crown Pacific
Management Limited Partnership (the "Managing General Partner") manages the
businesses of the Partnership and the Operating Partnership. The Managing
General Partner owns a 0.99% general partner interest in the Partnership and the
remaining 1% General Partner interest in the Operating Partnership. Crown
Pacific, Ltd., the Special General Partner of the Partnership, together with the
Managing General Partner, comprise the General Partners of the Partnership. The
Special General Partner owns the remaining .01% general partner interest in the
Partnership and a 14.8% limited partnership interest in the Partnership. As
used herein, "Partnership" and "Crown Pacific" refer to the Partnership and the
Operating Partnership taken as a whole.
The accompanying financial statements reflect the consolidated financial
position, results of operations and cash flows of the Partnership. The
consolidated financial statements include all the accounts of the Partnership.
All significant intercompany transactions have been eliminated.
The financial statements included in this Form 10-Q are unaudited and do
not contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. The
financial statements in the Partnership's 1995 annual report on Form 10-K
include a summary of significant accounting policies of the Partnership and
should be read in conjunction with this Form 10-Q. In the opinion of
management, all material adjustments necessary to present fairly the results of
operations for the quarters ended March 31, 1996 and 1995 have been included.
All such adjustments are of a normal and recurring nature. The results of
operations for any interim period are not necessarily indicative of the results
of operations for the entire year.
The taxable income, deductions, and credits of the Partnership are
allocated to the Unitholders based on the number of Units held, purchase price
and the holding period. Distributions of cash to a Unitholder are considered a
non-taxable return of capital to the extent of the Unitholder's basis in the
Units (as such basis is increased by the allocable share of the Partnership's
income). Any such distributions in excess of the Unitholder's basis in the
Units will result in taxable gain. However, Unitholders will be required to
include in their income tax filings their allocable share of the Partnership's
taxable income, regardless of whether cash distributions are made. For tax
exempt entities, such as IRAs, a portion of the Partnership's taxable income is
treated as Unrelated Business Taxable Income ("UBTI"). To the extent a tax
exempt entity has
4
<PAGE>
more than $1,000 of UBTI, it may be required to pay federal
income taxes.
Net income per Unit was calculated using the average number of Common and
Subordinated Units outstanding divided into net income, after adjusting for the
General Partner interest. At March 31, 1996, the average number of Units
outstanding was 18,133,527.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods $12,707 $12,557
Work-in-process 3,008 2,680
Logs 23,737 27,169
Supplies 4,009 3,600
LIFO effect 1,015 741
------- -------
Total $44,476 $46,747
------- -------
------- -------
</TABLE>
3. NOTE RECEIVABLE
In the first quarter 1996, the Partnership sold 14.6 MMBF of standing
timber located in northeastern Washington for $1 million cash and a $3 million
promissory note (the "Note"). At March 31, 1996, the uncollected balance of the
Note was $3 million. The Note bears interest at 8%, is secured by the related
timber, and is required to be paid in full on December 31, 1996. In addition,
all proceeds from the harvesting of the timber must be first applied to the
Note.
4. COMMITMENTS
On March 12, 1996, the Partnership agreed in principle to purchase 207,000
acres of northwest timberland for $205 million. Subsequently, on April 15,
1996, the Partnership signed a purchase agreement, which is expected to close by
May 15, 1996. The purchase will be initially financed with bank borrowings.
5
<PAGE>
5. SUBSEQUENT EVENT
On April 16, 1996, the Board of Control of the Managing General Partner
authorized the Partnership to make a distribution of $0.524 per Unit, the First
Target Distribution as defined by the Partnership Agreement. This represents an
increase of $0.014 per Unit from the fourth quarter 1995 distribution of $0.51
per Unit. The distribution will total approximately $9.6 million (including
$0.1 million to the General Partners) and will be paid on May 14, 1996 to
Unitholders of record on May 3, 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The Partnership, through the Operating Partnership, owns and operates
timberland properties and wood product manufacturing operations located in the
northwestern U.S. The Partnership's primary business consists of the growing and
harvesting of timber for sale as logs in domestic and export markets, and the
manufacture and sale of lumber, plywood and other wood products.
EVENTS AND TRENDS AFFECTING OPERATING RESULTS
MARKET FORCES. The demand for logs and manufactured wood products depends
upon international and domestic market conditions, the value of the U.S. dollar
in foreign exchange markets, competition and other factors. In particular, the
demand for logs, lumber and plywood is affected by residential and industrial
construction, and repair and remodeling activity. These activities are subject
to fluctuations due to changes in economic conditions, tariffs, interest rates,
population growth and other economic, demographic and environmental factors.
Since 1988, the supply of timber for sale to domestic conversion facilities
in the Pacific Northwest has been most directly affected by the availability of
federal timber. Environmental and other similar concerns have reduced the
volume of timber under contract to be harvested from federal lands. Since the
beginning of 1990, this removal of supply has caused a number of conversion
facilities that were heavily dependent on federal timber to close. Companies who
own and/or control significant amounts of fee timber, like Crown Pacific, are
believed to have a competitive advantage over those who rely solely on outside
timber purchases.
On April 2, 1996, the United States and Canadian governments announced a
five year lumber trade agreement. The agreement, effective April 1, 1996, is
intended to reduce the volume of Canadian lumber imported into the United
States. The agreement allows for up to 14.7 billion board feet of Canadian
lumber imports, which represents an approximate 10% decrease from 1995 import
levels. Annual exports in excess of 14.7 billion board feet will be subject to
an export tax paid to the United States government.
SEASONALITY. Log volumes in the Inland and Washington Regions are typically
at their lowest point in the second quarter of each year during spring break-up,
when warming weather thaws and softens roadbeds, restricting access to logging
sites. Winter logging activity in these regions typically takes place at lower
elevations, where predominantly lower quality and second growth trees are found,
affecting the volume of higher quality export logs sold during this time of the
year.
7
<PAGE>
Demand for manufactured products is generally lower in the fall and winter
when activity in the construction, industrial and repair and remodeling markets
is lower, and higher in the spring and summer quarters when these markets are
more active. Working capital varies with seasonal fluctuations. Log
inventories increase going into the winter season to prepare for reduced harvest
during spring break-up.
CURRENT MARKET CONDITIONS. First quarter 1996 industry composite prices
for lumber were 8% lower than prices realized in the first quarter 1995. The
lower prices were the result of lower demand caused by severe winter weather
across most of the U.S. as well as increased supplies of lower cost Canadian
lumber imports.
Industry composite plywood prices were 13% lower in the first quarter 1996
as compared to the 1995 quarter primarily due to decreased demand for wood
products caused by the severe winter weather conditions during the first quarter
1996. In addition, the lower grade panel markets were adversely affected by
increased production of Oriented Strand Board ("OSB"), which is a lower cost
substitute in certain plywood applications.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of liquidity has been cash from
operations. First quarter 1996 net cash provided by operating activities was
$20.2 million, compared to $8.6 million in the 1995 quarter. Cash from
operating activities was $11.6 million lower in the first quarter 1995
primarily due to the unusual cash requirements related to the initial public
offering on December 22, 1994. The 1996 change in working capital is more
representative of the Partnership's normal operations. At March 31, 1996,
the Partnership had $13.7 million of cash and cash equivalents.
The Operating Partnership has a three year revolving credit facility with a
group of banks, which allows it to borrow up to $40 million for working capital
and general corporate purposes. The revolving credit facility bears a floating
rate of interest and requires the Operating Partnership to repay all outstanding
indebtedness under the facility for at least 30 consecutive days during any
twelve month period, which was last completed in November 1995. At March 31,
1996, the Operating Partnership had $15.1 million of borrowings outstanding
under this credit facility, which was repaid in April 1996.
The Operating Partnership has an Acquisition Facility with a group of banks
which allows it to borrow up to $100 million for the acquisition of additional
timber or timberland. The Acquisition Facility bears a floating rate of
interest and is a revolving facility for a three year period. At the end of the
revolving period, December 31, 1997, the Operating Partnership may elect to
convert any outstanding borrowings under the facility to a four-year term loan,
requiring annual principal payments of 25% of the outstanding principal balance
on the conversion date. At March 31, 1996, the Operating Partnership had $40
million of borrowings outstanding under the Acquisition Facility.
8
<PAGE>
The Operating Partnership's Senior Notes are unsecured and require semi-
annual interest payments on June 1 and December 1 of each year, through 2009.
The Senior Notes are redeemable prior to maturity subject to a premium on
redemption, which is based on interest rates of U.S. Treasury securities, plus
50 basis points, having a similar average maturity as the Senior Notes. The
Senior Note agreements require the Operating Partnership to make annual
principal payments of $37.5 million on December 1 of every year beginning in
2002 and continuing through the year 2009.
The Operating Partnership's Senior Notes and bank credit facilities contain
certain restrictive covenants, including limitations on harvest levels, property
sales, cash distributions and the amount of future indebtedness. The Operating
Partnership was in compliance with such covenants as of March 31, 1996.
On April 16, 1996, the Board of Control of the Managing General Partner
authorized the Partnership to make a distribution of $0.524 per Unit, the First
Target Distribution as defined by the Partnership Agreement. This represents an
increase of $0.014 per Unit from the fourth quarter 1995 distribution of $0.51
per Unit. The distribution will total approximately $9.7 million (including
$0.1 million to the General Partners) and will be paid on May 14, 1996 to
Unitholders of record on May 3, 1996.
The SAUs were created to receive the cash flow that was expected to be
generated by the Partnership as a result of accelerated harvest levels and
favorable prices that were expected to prevail through 1997. Prices have
declined from third quarter 1994 levels, and as a result the SAUs have not
received any cash distributions from the Partnership. Any distributions with
respect to SAUs in 1996 and 1997 will be dependent upon various factors,
which include future sales prices and volumes.
Cash required to meet the Partnership's quarterly cash distributions (as
required by the Partnership Agreement), capital expenditures and to satisfy
interest and principal payments on indebtedness will be significant. The
Managing General Partner expects that the debt service will be funded from
current operations. The Partnership expects to make cash distributions from
current funds and cash generated from operations. Capital expenditures are
expected to be funded by current funds, cash generated from operations, property
sales, and/or bank borrowings.
CAPITAL EXPENDITURES
Capital expenditures were $18.2 million and $7.4 million for the quarters
ended March 31, 1996, and 1995, respectively. Timber and timberland capital
expenditures of $15.8 million were primarily for the purchase of additional
timber cutting rights and timberlands, the construction and repair of logging
roads, and the reforestation of the timberlands. Plant and equipment capital
expenditures of $2.4 million were primarily made to increase the efficiency and
operating capacity of the Conversion Facilities, to purchase logging machinery,
and to replace and retire older machinery and equipment. Crown Pacific funded
its capital expenditures from internally generated
9
<PAGE>
funds, property sales, bank borrowings and cash and cash equivalents.
Total 1996 capital expenditures, excluding purchases of timber and
timberland, should approximate $18.4 million of which $15.5 million is for the
construction of logging roads, reforestation of the timberlands, and
improvements to increase the efficiency and productive capacity of the Company's
operations. The remaining $2.9 million is for the ongoing replacement and
maintenance of the conversion facilities and other operating assets.
On March 12, 1996, the Partnership agreed in principle to purchase 207,000
acres of northwest timberland for $205 million. Subsequently, the Partnership
signed a purchase agreement on April 15, 1995, which is expected to close by May
15, 1996. The purchase will be initially financed with bank borrowings.
RESULTS OF OPERATIONS
The following table summarizes sales, operating costs and operating income
(in thousands):
<TABLE>
QUARTER ENDED
MARCH 31,
-------------
1996 1995
-------- --------
<S> <C> <C>
Sales.................................................... $84,555 $97,834
Operating Costs.......................................... 72,194 86,304
-------- --------
Operating Income........................................ $12,361 $11,530
-------- --------
-------- --------
</TABLE>
The Partnership's Thompson Falls, Montana sawmill effectively closed in
December 1995 due to a fire. The Partnership has subsequently signed a letter
of intent to sell the facility in June 1996. In order to enhance the
comparability of the quarter's results, the Thompson Falls 1995 operations have
been excluded from the analysis below.
Revenues, on a comparable mill basis, totaled $84.6 million and $92.4
million for the quarters ended March 31, 1996 and 1995, respectively. The $7.8
million decrease in revenues was primarily caused by generally lower prices and
lower sales volumes of plywood and lumber. The lower plywood sales volume was a
result of a temporary curtailment of plywood production due to low prices.
Lumber sales volumes, on a comparable mill basis, were 5% lower in the first
quarter 1996 as compared to the prior year quarter due to unusually severe
winter weather slowing mill production levels. Prices were generally lower in
1996 compared to 1995 across all product lines due primarily to lower demand
caused by the severe 1996 winter weather conditions across much of the U.S. that
slowed construction activity. Prices for lumber sold from the Partnership's
Oregon and Inland conversion facilities were 15% and 10% lower, respectively,
than the first quarter 1995. The lower prices and volumes were offset in part
by a $4 million timber sale in the Partnership's Inland Region.
10
<PAGE>
Cost of products sold, on a comparable mill basis, totaled $66.9 million
and $75.0 million for the quarters ended March 31, 1996 and 1995, respectively.
The $8.1 million decrease in costs and expenses was primarily due to lower sales
volumes of lumber and plywood. Also, in response to the first quarter 1996 low
product prices, the Partnership increased its harvest volumes of low cost fee
timber and reduced the volume of higher cost externally purchased logs. As a
result, first quarter 1996 operating margins increased to 21% from 17% in the
1995 quarter.
Interest expense totaled $8.2 million and $7.5 million for the quarters
ended March 31, 1996 and 1995, respectively. First quarter 1996 interest
expense was $0.7 million higher than the 1995 quarter due primarily to $40
million of borrowings related to recent purchases of timberland and timber
cutting rights.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 16, 1996, the Partnership announced its intention to permanently
close the Albeni Falls, Idaho sawmill as of June 30, 1996. The decision to close
the mill was based upon the mill's inefficient cost structure coupled with
management's decision to further balance the Inland Region's fee harvest with
the region's mill requirements. The closure is not expected to have a
materially adverse impact on the Partnership's financial position or the results
of its operations. Over the long term, the closure is anticipated to decrease
the Partnership's reliance on third party log purchases, which were necessary to
supply the mill. The Albeni Falls sawmill represented 17% of the Partnership's
1995 lumber production and 9% of 1995 revenues.
In December 1995, the sawmill in Thompson Falls, Montana experienced a fire
and was closed. The Partnership has since agreed to sell the facility, in its
current condition, which is expected to result in an insignificant loss. The
sale is scheduled to close in June 1996 and will not have a materially adverse
impact on the Partnership's financial position or the results of its operations.
The Thompson Falls sawmill represented 7% of the Partnership's 1995 lumber
production and 4% of 1995 revenues.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None.
B. Reports on Form 8-K
None.
Items 1, 2, 3, and 4 of Part II were not applicable and have been omitted.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
CROWN PACIFIC PARTNERS, L.P.
----------------------------
(Registrant)
By: Crown Pacific Management
Limited Partnership,
as General Partner
By: Richard D. Snyder
--------------------------------
Vice President and Interim Chief
Financial Officer and Treasurer
(Duly Authorized Officer and Principal
Financial Officer)
May 13, 1996
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,676
<SECURITIES> 0
<RECEIVABLES> 42,288
<ALLOWANCES> 70
<INVENTORY> 44,476
<CURRENT-ASSETS> 114,333
<PP&E> 369,661
<DEPRECIATION> 0
<TOTAL-ASSETS> 490,315
<CURRENT-LIABILITIES> 48,328
<BONDS> 340,000
0
0
<COMMON> 101,781
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 490,315
<SALES> 84,555
<TOTAL-REVENUES> 84,555
<CGS> 72,194
<TOTAL-COSTS> 72,194
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,245
<INCOME-PRETAX> 4,164
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,164
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
