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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 June 30, 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
----------- ---------
Revenues ............................................ $96,082 $88,674
Operating costs:
Cost of products sold ............................. 76,266 71,646
Selling, general and administrative expenses ...... 4,609 4,957
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Operating income .................................... 15,207 12,071
Interest expense .................................... 10,309 7,699
Amortization of debt issuance costs ................. 155 132
Other, net .......................................... 300 74
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Net income .......................................... $4,443 $4,166
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Net income per Unit ................................. $0.24 $0.23
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SEE ACOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
--------- --------
Revenues ............................ $180,637 $186,508
Operating costs:
Cost of products sold ............. 143,148 152,641
Selling, general and
administrative expenses .......... 9,921 10,266
-------- --------
Operating income .................... 27,568 23,601
Interest expense .................... 18,554 15,221
Amortization of debt issuance
costs .............................. 281 248
Other expense (income), net ......... 126 (150)
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Net income .......................... $ 8,607 $8,282
-------- --------
-------- --------
Net income per Unit ................. $ 0.47 $0.45
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SEE ACOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................... $ 10,755 $ 10,292
Accounts receivable ............................. 42,026 32,576
Notes receivable ................................ 13,834 5,571
Inventories ..................................... 33,387 46,747
Deposits on timber cutting contracts ............ 8,037 9,399
Prepaid and other current assets ................ 6,345 5,395
-------- --------
Total current assets ......................... 114,384 109,980
Property, plant and equipment, net ................ 40,714 40,920
Timber, timberlands and roads, net ................ 526,489 320,063
Other assets ...................................... 11,767 5,542
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Total assets ................................. $693,354 $476,505
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable ................................... $17,000 $19,100
Accounts payable ................................ 14,587 10,938
Accrued expenses ................................ 11,953 10,469
Accrued interest ................................ 3,073 2,736
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Total current liabilities .................... 46,613 43,243
Long-term debt ................................... 550,000 326,000
Other non-current liabilities .................... 211 206
-------- --------
596,824 369,449
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Commitments and contingent liabilities
Partners' capital:
General partners .............................. (256) (152)
Limited partners (18,133,527 Units
outstanding) ................................. 96,786 107,208
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Total partners' capital ...................... 96,530 107,056
-------- --------
Total liabilities and partners' capital ....... $693,354 $476,505
-------- --------
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</TABLE>
SEE ACOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
--------- --------
Cash flows from operating activities:
Net income .............................................. $ 8,607 $ 8,282
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization ............ 18,561 14,397
Gain on sale of property ............................ (5,206) (2,688)
Other ............................................... 20 (1,252)
Net change in current assets and current
liabilities:
Accounts and notes receivable ....................... (11,040) (3,573)
Inventories ......................................... 13,701 10,192
Deposits on cutting contracts ....................... 1,362 1,141
Prepaid and other current assets .................... (956) (2,070)
Accounts payable and accrued expenses ............... 3,753 (7,191)
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Net cash provided by operating activities ................. 28,802 17,238
--------- --------
Cash flows from investing activities:
Additions to timberlands ................................ (209,902) (5,346)
Additions to timber cutting rights ...................... (12,842) (3,976)
Additions to equipment .................................. (5,069 (5,378)
Proceeds from sales of property ......................... 2,676 8,051
Restricted cash for future timberland acquisitions ...... -- (4,053)
Other investing activities .............................. (598) (448)
--------- --------
Net cash used in investing activities ..................... (225,735) (11,150)
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Cash flows from financing activities:
Net (decrease) increase in short-term borrowing ......... (2,100) 4,492
Proceeds from issuance of long-term debt ............... 264,000 10,000
Repayments of long-term debt ............................ (40,000) (3,000)
Distributions to partners ............................... (19,133) (10,469)
Other financing activities .............................. (5,371) (637)
--------- --------
Net cash provided by financing activities ................. 197,396 386
--------- --------
Net increase in cash and cash equivalents ................. 463 6,474
Cash and cash equivalents at beginning of period........... 10,292 6,421
--------- --------
Cash and cash equivalents at end of period................. $ 10,755 $ 12,895
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SEE ACOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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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 three and six months ended June 30, 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
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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 June 30, 1996, the average number of
Units outstanding was 18,133,527.
2. INVENTORIES
Inventories consisted of the following (in thousands):
JUNE 30, DECEMBER
1996 1995
---- ----
Finished goods $ 9,923 $12,557
Work-in-process 3,166 2,680
Logs 14,949 27,169
Supplies 3,434 3,600
LIFO effect 1,915 741
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Total $33,387 $46,747
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3. TIMBER AND TIMBERLANDS
On May 15, 1996, the Partnership purchased 207,000 acres of northwest
timberland from Cavenham Forest Industries for $205 million (the "Cavenham
Acquisition"). The Cavenham Acquisition was initially financed with a $250
million bank credit facility (the "Acquisition Facility") from a syndicate of
financial institutions, which has been subsequently renegotiated (see Note
4). The Acquisition Facility consisted of an acquisition term loan in the
principal amount of $150 million and a bridge term loan in the principal
amount of $100 million. On the closing of the Cavenham Acquisition, the
Partnership borrowed $210 million, including $5 million for closing and
financing costs, and an additional $40 million to repay outstanding long-term
bank borrowings under its previously existing bank acquisition facility,
which was terminated at closing. The acquisition term loan required
principal payments in varying amounts beginning on September 30, 1998 and was
scheduled to mature on June 30, 2002. The Acquisition Facility agreements
required that the Partnership raise at least $100 million through the sale of
additional Common Units, net of related issuance costs, by no later than June
30, 1997, and use the proceeds first to pay the bridge term loan.
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4. SUBSEQUENT EVENTS
On July 10, 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. The
distribution will total approximately $9.6 million (including $0.1 million to
the General Partners) and will be paid on August 14, 1996 to Unitholders of
record on July 19, 1996.
On August 1, 1996, the Partnership sold 7,455,330 additional common
units in a public offering (the "Offering"). Net proceeds from the Offering
totaled $132.6 million, which included $2.8 million from the General Partner.
The net proceeds were used to redeem the special allocation units for $4.1
million and to retire the debt incurred to fund the May 15, 1996 Cavenham
timberland acquisition (See Note 3). An additional 2,647,470 common units
were sold in the Offering by certain selling Unitholders.
On August 6, 1996, the Partnership renegotiated its Acquisition Facility
with a syndicate of banks for which Bank of America National Trust & Savings
Association acts as agent. The new acquisition facility (the "New
Acquisition Facility") allows the Partnership to borrow up to $125 million
for the acquisition of timberlands and related assets. The New Acquisition
Facility bears a floating rate of interest and is a three-year revolving
facility. At the end of the revolving period, the Partnership may elect to
convert any outstanding borrowings to a four-year term loan, requiring
principal payments equal to 25% of the outstanding principal balance on the
conversion date. The New Acquisition Facility contains certain restrictive
covenants, including limitations on harvest levels, land sales, cash
distributions and the amount of future indebtedness.
On August 13, 1996, the Partnership issued $91 million of new senior
notes (the "New Senior Notes"). The proceeds from the New Senior Note
issuance were used to repay bank indebtedness incurred in connection with the
Cavenham Acquisition under the Acquisition Facility. The New Senior Notes
bear an average rate of interest of 8.17%, are unsecured and require
semi-annual interest payments on August 1 and February 1 of each year through
2013. The New Senior Notes are redeemable prior to maturity, subject to a
premium on redemption based on interest rates of U.S. Treasury securities
plus 50 basis points, having a similar average maturity as the New Senior
Notes. The New Senior Notes have certain restrictive covenants, which are
similar to the existing Senior Note Agreements.
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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.
Effective April 1, 1996, the United States and Canadian governments
agreed to a five-year lumber trade agreement. The agreement 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
from the four major Canadian lumber producing provinces, which represents
approximately a 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.
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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. Second quarter 1996 industry composite
prices for lumber were 26% higher than prices realized in the second quarter
1995 and 16% higher than the first quarter 1996. The higher prices were
primarily the result of increased demand resulting from improved U.S. housing
starts.
Industry composite plywood prices were 10% lower in the second quarter
1996 as compared to the 1995 quarter and 1% higher compared to the first
quarter 1996. Plywood prices were generally lower in 1996 due to increased
supplies of Oriented Strand Board ("OSB"), which is a lower cost substitute
for certain plywood products.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of liquidity has been cash from
operations. During the first six months of 1996, net cash provided by
operating activities was $28.8 million, compared to $17.2 million for the
first six months of 1995. Cash from operating activities was $11.6 million
lower for the six months ended June 30, 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. The accounts and notes receivable balance
was $23.9 million higher at the end of the second quarter 1996 as compared to
1995 due primarily to higher sales volumes of lumber, logs and stumpage. At
June 30, 1996, the Partnership had $10.8 million of cash and cash
equivalents.
On May 15, 1996, the Partnership purchased 207,000 acres of timberland
located in Oregon and Washington states for $205 million (the "Cavenham
Acquisition"), plus $5 million for financing and closing costs. In connection
with Cavenham Acquisition, the Partnership renegotiated its bank credit
facility (the "Acquisition Facility") to allow it to borrow $250 million,
including $40 million to repay previously existing bank debt. The
Acquisition Facility consisted of a seven-year acquisition term loan in the
principal amount of $150 million and a bridge loan in the principal amount of
$100 million. The acquisition term loan required principal payments in
varying amounts beginning on September 30, 1998 and was scheduled to mature
on June 30, 2002. The Acquisition Facility agreements required that the
Partnership raise at least $100 million through the sale of additional Common
Units, net of related issuance costs, by no later than June 30, 1997, which
must be used first to pay the bridge term loan. At June 30, 1996, the
Partnership had $250 million of borrowings outstanding under this credit
facility.
On August 6, 1996, the Partnership sold 7,455,330 additional common
units in a public offering (the "Offering"). Net proceeds from the Offering
totaled $132.6 million, including $2.8
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million from the General Partners, which was used to redeem the special
allocation units for $4.1 million and to repay borrowings outstanding under
the Acquisition Facility.
Also, on August 6, 1996, the Partnership renegotiated its Acquisition
Facility to allow it to borrow up to $125 million for the acquisition of
timberlands and related assets (the "New Acquisition Facility"). The New
Acquisition Facility bears a floating rate of interest and is a three-year
revolving facility. At the end of the revolving period, the Partnership may
elect to convert any outstanding borrowings to a four-year term loan,
requiring principal payments equal to 25% of the outstanding principal
balance on the conversion date.
The Partnership also has a three year revolving credit facility (the
"Working Capital Facility") with a group of banks, which allows it to borrow
up to $40 million for working capital and general corporate purposes. The
Working Capital Facility bears a floating rate of interest and requires the
Partnership to repay all outstanding indebtedness under the facility for at
least 30 consecutive days during any twelve month period; this was last
completed during April and May 1996. At June 30, 1996, the Partnership had
$17.0 million of borrowings outstanding under this credit facility.
On August 13, 1996, the Partnership issued $91 million of Senior Notes
(the "New Senior Notes"). The proceeds from the New Senior Notes were used
to repay borrowings under the Acquisition Facility. The New Senior Notes
bear an interest rate of 8.17%, are unsecured and require semi-annual
interest payments on August 1 and February 1 of each year through 2013. The
New Senior Notes are redeemable prior to maturity, subject to a premium on
redemption based on interest rates of U.S. Treasury securities, plus 50 basis
points, having a similar average maturity as the New Senior Notes. The New
Senior Notes have certain restrictive covenants, which are similar to the
previously existing Senior Note Agreements.
In addition to the New Senior Notes, the Partnership has $300 million of
Senior Notes that were issued in connection with its initial public offering
of units. The 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 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 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 Partnership was in compliance with such covenants as of June 30, 1996.
On July 10, 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. The
distribution will total approximately $9.6 million (including $0.1
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million to the General Partners) and will be paid on August 14, 1996 to
Unitholders of record on July 19, 1996.
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 $227.8 million and $14.7 million for the six
months ended June 30, 1996, and 1995, respectively. Timber and timberland
capital expenditures of $222.7 million were primarily for the May 15, 1996
purchase of 207,000 acres of northwest timberland from Cavenham Forest
Industries for $205 million. See Note 3 to the Financial Statements for
further discussion of the Cavenham timberland purchase and related financing
activities. Other timber and timberland expenditures of $17.7 million were
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 $5.1 million
primarily were made to increase the efficiency and operating capacity of the
manufacturing facilities, to purchase logging machinery, and to replace and
retire older machinery and equipment. Crown Pacific funded its capital
expenditures from bank borrowings, internally generated funds, property
sales, and cash and cash equivalents.
Total 1996 capital expenditures, excluding purchases of timber and
timberland, should approximate $20.0 million of which $17.1 million is for
the construction of logging roads, reforestation of 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 manufacturing facilities and other
operating assets.
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RESULTS OF OPERATIONS
The following table summarizes sales, operating costs and operating
income (in thousands):
THREE MONTHS SIX MONTHS
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues................. $96,082 $88,674 $180,637 $186,508
Operating Costs.......... 80,875 76,603 153,069 162,907
------- ------- -------- --------
Operating Income......... $15,207 $12,071 $ 27,568 $ 23,601
------- ------- -------- --------
------- ------- -------- --------
The Partnership's Thompson Falls, Montana sawmill effectively closed in
December 1995 due to a fire and was subsequently sold in June 1996. In order
to enhance the comparability of the quarter's results, the Thompson Falls
sawmill's 1995 operations have been excluded from the analysis below.
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
Revenues totaled $96.1 million and $86.5 million for the quarters ended
June 30, 1996 and 1995, respectively. The $9.6 million increase in revenues
was primarily caused by higher sales volumes of plywood, lumber, logs and
stumpage, which were offset in part by lower prices for residual wood chips.
Plywood sales volume was lower in the 1995 quarter due to a labor strike that
temporarily curtailed production. Lumber sales volume was 17% higher in the
second quarter 1996 as compared to the prior year quarter due to higher
production volume and higher average lumber prices in the Partnership's
Inland Division. Log and stumpage sales volumes were 19% higher during the
1996 quarter due to increased harvest volume from the timberland obtained in
the Cavenham Acquisition. Prices for lumber sold from the Partnership's
Oregon and Inland manufacturing facilities during the three months ended June
30, 1996 were 7% lower and 7% higher, respectively, than the second quarter
1995. In addition, residual wood chip prices decreased by 64% in the second
quarter 1996 as compared to the 1995 quarter due to excess chip inventories
at regional pulp and paper mills caused by decreases in pulp and paper prices.
Cost of products sold totaled $76.3 million and $69.1 million for the
quarters ended June 30, 1996 and 1995, respectively. The $7.2 million
increase in costs and expenses was primarily due to higher sales volumes of
lumber, plywood, logs and stumpage. Second quarter 1996 operating margins
increased to 15.8% from 13.6% in the 1995 quarter due primarily to increased
sales volumes of higher margin logs and stumpage.
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Interest expense totaled $10.3 million and $7.7 million for the quarters
ended June 30, 1996 and 1995, respectively. Second quarter 1996 interest
expense was $2.6 million higher than the 1995 quarter due to $250 million of
borrowings principally related to the May 1996 timberland purchase.
FIRST SIX MONTHS OF 1996 COMPARED TO FIRST SIX MONTHS OF 1995
Revenues totaled $180.6 million and $178.9 million for the six months
ended June 30, 1996 and 1995, respectively. The $1.7 million increase in
revenues was primarily due to a $6.6 million increase in log and stumpage
sales, offset by lower lumber and residual wood chip prices. Lumber prices in
the Oregon and Inland regions for the six months ended June 30, 1996 were 11%
and 3% lower, respectively, than the 1995 period. Residual wood chip prices
decreased by 41% in the first half of 1996 as compared to the 1995 period due
to excess chip inventories at regional pulp and paper mills caused by
decreases in pulp and paper prices. External log and stumpage sales volumes
were 51% higher during the first six months of 1996 as compared to the 1995
period primarily due to harvest volumes from the recently acquired
timberlands and $5.2 million in stumpage sales in the Inland Region during
the first quarter of 1996.
Cost of products sold on a comparable mill basis totaled $143.1 million
and $144.4 million for the six months ended June 30, 1996 and 1995,
respectively. In response to low first quarter 1996 product prices, the
Partnership increased its harvest volumes of low-cost fee timber and reduced
the volume of higher cost externally purchased logs. This change in product
mix resulted in increased operating margins from 12.7% in the first half of
1995 to 15.3% in the 1996 period.
Interest expense totaled $18.6 million and $15.2 million for the six
months ended June 30, 1996 and 1995, respectively. The higher 1996 interest
expense primarily was from increased borrowings relating to the Cavenham
Acquisition.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In June 1996, the Partnership permanently closed its Albeni Falls, Idaho
sawmill due to its 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.
On July 10, 1996, the Partnership announced its intention to permanently
close its Redmond, Oregon plywood plant by the end of the third quarter. The
decision to close the plywood plant was based on a sharp decline in plywood
prices resulting from increased competition from lower cost panel substitutes
such as OSB. The closure is not expected to have a materially adverse impact
on the Partnership's financial position or the results of its operations.
The Redmond plywood plant represented 8% of the Partnership's 1995 revenues.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
4.5 Form of amended and restated Facility B Credit Agreement
(incorporated by reference from 4.5 on Form S-3
(registration # 33-05099)).
4.6 Form of amended and restated Credit Agreement (incorporated by
reference from 4.6 on Form S-3 (registration #33-05099)).
B. Reports on Form 8-K
Acquisition of Timberland dated May 15, 1996
Items 1, 2, 3, and 4 of Part II were not applicable and have been omitted.
14
<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 Chief
Financial Officer and Treasurer
(Duly Authorized Officer and Principal
Financial Officer)
August 14, 1996
15
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