**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

** **

----

**FORM 10-Q**

----

 
| **(Mark One)** |   |   |
|----------------|--------|--------|

 
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|

** **

**Forthe quarterly period ended September 30, 2001**

 

**OR**

 
| **o** |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------|-----------------------------------------------------------------------------------------------|

** **

 

**For the transition period from _____ to _____**

 

**Commissionfile number 0-24976**

 

----

 

**CROWN PACIFIC PARTNERS, L.P.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                                |   | **93-1161833**                       |
|-----------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)             |   | (I.R.S. Employer Identification No.) |
|                                                                        |   |                                 |
| **121 SW Morrison Street, Suite 1500, Portland, Oregon**                    |   | **97204**                            |
| (Address of principal executive offices)                                    |   | (Zip Code)                           |
|                                                                        |   |                                 |
| Registrant's telephone number, including  area code:  **503-274-2300** |

** **

----

** **

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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  ý        No o

 

Indicate the number of shares outstanding of each of the issuer'sclasses of common equity, as of the latest practicable date.

 

| **Common Units** |   | **30,527,030**                     |
|------------------|--------|------------------------------------|
| (Class)          |   | (Outstanding at November 14, 2001) |

 

 

**CROWN PACIFIC PARTNERS, L.P.**

**FORM 10-Q**

**INDEX**

 
| PART I - FINANCIAL INFORMATION    |                                                                                               |
|-----------------------------------|----------------------------------------------------------------------------------------------------|
|                              |                                                                                               |
| Item 1.                           | Financial Statements                                                                               |
|                              |                                                                                               |
|                              | Consolidated Statement of Operations –  Three Month Periods Ended September 30, 2001 and 2000 |
|                              |                                                                                               |
|                              | Consolidated Statement of Operations – Nine Month Periods Ended  September 30, 2001 and 2000  |
|                              |                                                                                               |
|                              | Consolidated Balance Sheet – September 30, 2001 and December 31, 2000                         |
|                              |                                                                                               |
|                              | Consolidated Statement of Cash Flows – Nine  Months Ended September 30, 2001 and 2000         |
|                              |                                                                                               |
|                              | Notes to Consolidated Financial Statements                                                         |
|                              |                                                                                               |
| Item 2.                           | Management's Discussion and Analysis of  Financial Condition and Results of Operations             |
|                              |                                                                                               |
| Item 3.                           | Quantitative and Qualitative Disclosures  About Market Risk                                        |
|                              |                                                                                               |
| PART  II – OTHER INFORMATION |                                                                                               |
|                              |                                                                                               |
| Item  6.                          | Exhibits  and Reports on Form 8-K                                                                  |
|                              |                                                                                               |
| Signatures                        |
|                                   |                                                                                                    |  |  |

 

**PART I. FINANCIAL INFORMATION**

 

**Item1.  Financial Statements**

** **

**Crown Pacific Partners, L.P.**

 

**Consolidated Statement of Operations**

**(In thousands, except unit and per unit data)**

**(Unaudited)**

 
|                                          |   | **For the Three Months Ended** |    |
|-----------------------------------------------|--------|--------------------------------|---------|
|                                          |   | **September 30,**              |    |
|                                          |   | **2001**                       |    | **2000** |   |
| Revenues                                      |   | $                              | 163,926 |   | $ | 190,279 |   |
|                                          |   |                           |    |   |   |
| Operating costs:                              |   |                           |    |   |   |
| Cost of products sold                         |   | 153,639                        |    | 160,016 |   |
| Selling, general and administrative  expenses |   | 9,101                          |    | 9,860 |   |
|                                          |   |                           |    |   |   |
| Operating income                              |   | 1,186                          |    | 20,403 |   |
|                                          |   |                           |    |   |   |
| Interest expense                              |   | 15,294                         |    | 15,268 |   |
| Amortization of debt issuance costs           |   | 955                            |    | 240 |   |
| Other income, net                             |   | (2,199                         | )       | (1,740 | ) |
|                                          |   |                           |    |   |   |
| Net (loss) income                             |   | $                              | (12,864 | ) | $ | 6,635 |   |
|                                          |   |                           |    |   |   |
| Net (loss) income per unit                    |   | $                              | (0.42   | ) | $ | 0.22 |   |
|                                          |   |                           |    |   |   |
| Weighted average units outstanding            |   | 30,527,030                     |    | 30,410,906 |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

**Crown Pacific Partners, L.P.**

 

**Consolidated State****ment of Operations**

**(Inthousands, except unit and per unit data)**

**(Unaudited)**

** **
|                                          |   | **For the Nine Months Ended** |    |
|-----------------------------------------------|--------|-------------------------------|---------|
|                                          |   | **September 30,**             |    |
|                                          |   | **2001**                      |    | **2000** |   |
| Revenues                                      |   | $                             | 468,903 |   | $ | 636,267 |   |
|                                          |   |                          |    |   |   |
| Operating costs:                              |   |                          |    |   |   |
| Cost of products sold                         |   | 427,528                       |    | 541,011 |   |
| Selling, general and administrative  expenses |   | 27,782                        |    | 31,115 |   |
|                                          |   |                          |    |   |   |
| Operating income                              |   | 13,593                        |    | 64,141 |   |
|                                          |   |                          |    |   |   |
| Interest expense                              |   | 46,821                        |    | 44,071 |   |
| Amortization of debt issuance costs           |   | 1,928                         |    | 731 |   |
| Other income, net                             |   | (2,490                        | )       | (2,544 | ) |
|                                          |   |                          |    |   |   |
| Net (loss) income                             |   | $                             | (32,666 | ) | $ | 21,883 |   |
|                                          |   |                          |    |   |   |
| Net (loss) income per unit                    |   | $                             | (1.06   | ) | $ | 0.71 |   |
|                                          |   |                          |    |   |   |
| Weighted average units outstanding            |   | 30,519,799                    |    | 30,401,863 |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

**Crown Pacific Partners, L.P.**

 

**Consolidated Balance Sheet**

**(Inthousands, except unit data)**

** **

**Assets**

** **
|                                                                                                                      |   | **September 30,** |    | **December 31,** |       |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|------------------|------------|
|                                                                                                                      |   | **2001**          |    | **2000**         | ** ** |
|                                                                                                                      |   | **(Unaudited)**   |    |             |
| Current assets:                                                                                                           |   |              |    |             |       |
| Cash and cash equivalents                                                                                                 |   | $                 | 20,542  |             | $          | 14,537 |   |
| Accounts receivable, net of allowances of  $1,505 and $1,554                                                              |   | 110,082           |    | 113,560          |       |
| Notes receivable                                                                                                          |   | 3,898             |    | 4,502            |       |
| Inventories                                                                                                               |   | 43,495            |    | 58,560           |       |
| Deposits on timber cutting contracts                                                                                      |   | 1,657             |    | 2,811            |       |
| Prepaid and other current assets                                                                                          |   | 3,383             |    | 1,491            |       |
|                                                                                                                      |   |              |    |             |       |
| Total current assets                                                                                                      |   | 183,057           |    | 195,461          |       |
|                                                                                                                      |   |              |    |             |       |
| Property, plant and equipment, net of  accumulated depreciation of $43,780 and $38,805                                    |   | 69,957            |    | 79,162           |       |
| Timber, timberlands and roads, net                                                                                        |   | 615,649           |    | 633,926          |       |
| Intangible assets, net                                                                                                    |   | 34,505            |    | 34,182           |       |
| Other assets                                                                                                              |   | 11,054            |    | 12,448           |       |
|                                                                                                                      |   |              |    |             |       |
| Total assets                                                                                                              |   | $                 | 914,222 |             | $          | 955,179 |   |
|                                                                                                                      |   |              |    |             |       |
| **Liabilities and Partners' Capital**                                                                                     |   |
|                                                                                                                      |   |              |    |             |       |
| Current liabilities:                                                                                                      |   |              |    |             |       |
| Notes payable                                                                                                             |   | $                 | 36,000  |             | $          | 32,000 |   |
| Accounts payable                                                                                                          |   | 44,853            |    | 50,683           |       |
| Accrued expenses                                                                                                          |   | 13,919            |    | 20,315           |       |
| Accrued interest                                                                                                          |   | 13,711            |    | 10,711           |       |
| Current portion of long-term debt                                                                                         |   | 55                |    | 166              |       |
|                                                                                                                      |   |              |    |             |       |
| Total current liabilities                                                                                                 |   | 108,538           |    | 113,875          |       |
|                                                                                                                      |   |              |    |             |       |
| Long-term debt                                                                                                            |   | 685,425           |    | 688,965          |       |
| Other non-current liabilities                                                                                             |   | 270               |    | 729              |       |
|                                                                                                                      |   | 794,233           |    | 803,569          |       |
|                                                                                                                      |   |              |    |             |       |
| Commitments and contingent liabilities                                                                                    |   |              |    |             |       |
|                                                                                                                      |   |              |    |             |       |
| Partners' capital:                                                                                                        |   |              |    |             |       |
| General partners                                                                                                          |   | (88               | )  | 194              |       |
| Limited partners (30,527,030 and 30,410,906  units outstanding at September 30, 2001 and December 31, 2000, respectively) |   | 120,077           |    | 151,416          |       |
| Total partners' capital                                                                                                   |   | 119,989           |    | 151,610          |       |
|                                                                                                                      |   |              |    |             |       |
| Total liabilities and partners' capital                                                                                   |   | $                 | 914,222 |             | $          | 955,179 |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

**Crown Pacific Partners, L.P.**

 

**ConsolidatedStatement of Cash Flows**

**(In thousands)**

**(Unaudited)**

** **
|                                                                                                |   | **For the Nine Months Ended** |    |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                |   | **September 30,**             |    |
|                                                                                                |   | **2001**                      |    | **2000** |   |
| Cash flows from operating activities:                                                               |   |                          |    |   |   |
| Net (loss) income                                                                                   |   | $                             | (32,666 | ) | $ | 21,883 |   |
| Adjustments to reconcile net (loss) income  to net cash (used in) provided by operating activities: |   |                          |    |   |   |
| Depletion, depreciation and amortization                                                            |   | 31,523                        |    | 41,834 |   |
| Gain on sale of property                                                                            |   | (12,160                       | )       | (16,374 | ) |
| Net change in current assets and current  liabilities, net of the effects of business combinations: |   |                          |    |   |   |
| Accounts and notes receivable                                                                       |   | 3,603                         |    | (15,394 | ) |
| Inventories                                                                                         |   | 14,962                        |    | 2,514 |   |
| Deposits on timber cutting contracts                                                                |   | 1,154                         |    | (603 | ) |
| Prepaid and other current assets                                                                    |   | (1,468                        | )       | 1,018 |   |
| Accounts payable and accrued expenses                                                               |   | (9,516                        | )       | 1,192 |   |
| Net cash (used in) provided by operating  activities                                                |   | (4,568                        | )       | 36,070 |   |
|                                                                                                |   |                          |    |   |   |
| Cash flows from investing activities:                                                               |   |                          |    |   |   |
| Additions to timberlands                                                                            |   | (7,701                        | )       | (97,937 | ) |
| Additions to timber cutting rights                                                                  |   | (201                          | )       | (11,303 | ) |
| Additions to equipment                                                                              |   | (8,582                        | )       | (30,533 | ) |
| Proceeds from sales of property                                                                     |   | 24,610                        |    | 27,961 |   |
| Deposit received on future asset sale                                                               |   | -                             |    | 4,200 |   |
| Principal payments received on notes                                                                |   | 2,088                         |    | 1,112 |   |
| Purchase of a business                                                                              |   | -                             |    | (3,511 | ) |
| Other investing activities                                                                          |   | 13                            |    | (1,246 | ) |
| Net cash provided by (used in) investing  activities                                                |   | 10,227                        |    | (111,257 | ) |
|                                                                                                |   |                          |    |   |   |
| Cash flows from financing activities:                                                               |   |                          |    |   |   |
| Net increase in short-term borrowings                                                               |   | 4,000                         |    | 24,500 |   |
| Proceeds from issuance of long-term debt                                                            |   | 29                            |    | 109,444 |   |
| Repayments of long-term debt                                                                        |   | (3,680                        | )       | (815 | ) |
| Contributions of capital                                                                            |   | 45                            |    | 990 |   |
| Distributions to partners                                                                           |   | -                             |    | (52,497 | ) |
| Other financing activities                                                                          |   | (48                           | )       | 391 |   |
| Net cash provided by financing activities                                                           |   | 346                           |    | 82,013 |   |
|                                                                                                |   |                          |    |   |   |
| Net increase in cash and cash equivalents                                                           |   | 6,005                         |    | 6,826 |   |
| Cash and cash equivalents at beginning of  period                                                   |   | 14,537                        |    | 21,616 |   |
|                                                                                                |   |                          |    |   |   |
| Cash and cash equivalents at end of period                                                          |   | $                             | 20,542  |   | $ | 28,442 |   |

** **

See accompanying Notes to Consolidated Financial Statements.

 

**CROWN PACIFIC PARTNERS, L.P.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Inthousands, except per unit amounts or as otherwise indicated)**

**(Unaudited)**

 

**1:Organization and Basis of Presentation**

Crown Pacific Partners, L.P. (“Crown Pacific”or the "Partnership"), a Delaware limited partnership, through its99% owned subsidiary, Crown Pacific Limited Partnership (the "OperatingPartnership"), was formed in 1994 to acquire, own and operate timberlandsand wood product manufacturing facilities located in the northwest UnitedStates. The Partnership's business consists primarily of growing and harvestingtimber for sale as logs in domestic and export markets and the manufacturingand selling of lumber and other wood products.

 

The financial statements included in this Form 10-Q are unaudited andreflect the consolidated financial position, results of operations and cashflows of the Partnership.  Thesefinancial statements include all the accounts of the Partnership but do notcontain all of the information required by generally accepted accountingprinciples to be included in a full set of financial statements.  This Form 10-Q should be read in conjunctionwith the financial statements in the Partnership's 2000 annual report on Form10-K, which includes a summary of significant accounting policies of thePartnership.  In the opinion ofmanagement, all material adjustments necessary to present fairly the results ofoperations for the three and nine-month periods ended September 30, 2001 and2000 have been included.  All suchadjustments are of a normal and recurring nature and all significantintercompany transactions have been eliminated.  The results of operations for any interim period are notnecessarily indicative of the results of operations for the entire year.

 

Net (loss) income per unit was calculated using the weighted averagenumber of common units outstanding divided into net (loss) income, afteradjusting for the General Partner interest.** **TheGeneral Partner (loss) income allocation was $(129) and $66 for the threemonths ended September 30, 2001 and 2000, respectively, and $(327) and $219 forthe nine months ended September 30, 2001 and 2000, respectively.  There is no difference between basic anddiluted earnings per unit.

 

**Note2: Inventories**

Inventories at manufacturing locations,consisting of lumber and logs, are stated at the lower of LIFO cost ormarket.  Supplies and inventoriesmaintained at non-manufacturing locations are valued at the lower of averagecost or market.  Inventories consistedof the following:

 
|                    |   | **September 30, 2001** |   | **December 31, 2000** |   |
|-------------------------|--------|------------------------|--------|-----------------------|--------|
| Lumber                  |   | $                      | 7,804  |                  | $      | 12,363 |   |
| Logs                    |   | 5,967                  |   | 16,232                |   |
| Supplies                |   | 3,149                  |   | 4,355                 |   |
| LIFO adjustment         |   | 2,042                  |   | 1,792                 |   |
| Manufacturing inventory |   | 18,962                 |   | 34,742                |   |
| Wholesale products      |   | 24,533                 |   | 23,818                |   |
| Total                   |   | $                      | 43,495 |                  | $      | 58,560 |   |

 

**Note 3:Timber, Timberlands and Roads**

In the first quarter of each year, the Partnership performs an updateof its timber inventory system.  Theupdate resulted in a net increase in depletion costs for the first nine monthsof 2001 of approximately $0.6 million, or $0.02 per unit, and a net increase indepletion costs for the first nine months of 2000 of approximately $1.1million, or $0.03 per unit, with no impact on cash flow.

 

**Note 4: Supplemental Cash Flow Information**

Supplemental disclosure of cash flow information is as follows:
|                                             |   | **Nine months ended September 30,** |       |
|--------------------------------------------------|--------|-------------------------------------|------------|
|                                             |   | **2001**                            | ** ** | **2000** | ** ** |
| Cash paid during the period for interest         |   | $                                   | 44,199     |   | $ | 39,863 |   |
| Business assets acquired with Partnership  units |   | 1,000                               |       | 1,200 |   |
| Note received for sale of property               |   | 1,500                               |       | - |   |
|                                                  |        |                                     |            |  |  |  |  |

 

**Note5: Segment Reporting**

The Partnership classifies its operations into three fundamentalbusinesses: (1) Timberlands, consisting of the sale of logs to the Partnership’smanufacturing facilities and to third parties, and the sale of timber andtimberlands to third parties;  (2)Manufacturing, consisting of the manufacture of logs into lumber and the saleof residual chips to pulp and paper mills; and (3) Wholesale Marketing,consisting of the trading of various forest products and distribution of lumberand panel products through the Partnership’s professional contractor serviceyards.  Corporate and Other includes general corporate overhead andexpenses (such as LIFO) not allocated to the segments and miscellaneousoperations not significant enough to be classified as a separate segment. ThePartnership does not show assets by segment, as historic costs are not used bymanagement to allocate resources or assess performance.  Transfers between segments are generallyat prices which management believes reflect current market prices.  The following summarizes the Partnership’ssegment information:

 
|                         |   | **Three Months Ended September 30,** |    | **Nine Months Ended September 30,** |   |
|------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|
| **Revenues (in  thousands)** |   | **2001**                             |    | **2000**                            |   | **2001** |   | **2000** |   |
| Timberlands:                 |   |                                 |    |                                |   |   |   |   |   |
| Trade                        |   | $                                    | 16,792  |                                | $      | 54,997 |   | $ | 57,539 |   | $ | 123,975 |   |
| Intersegment                 |   | 21,873                               |    | 13,471                              |   | 70,634 |   | 121,884 |   |
|                         |   | 38,665                               |    | 68,468                              |   | 128,173 |   | 245,859 |   |
| Manufacturing:               |   |                                 |    |                                |   |   |   |   |   |
| Trade                        |   | 41,409                               |    | 29,935                              |   | 113,990 |   | 153,847 |   |
| Intersegment                 |   | 4,328                                |    | 2,342                               |   | 11,667 |   | 9,857 |   |
|                         |   | 45,737                               |    | 32,277                              |   | 125,657 |   | 163,704 |   |
| Wholesale  Marketing:        |   |                                 |    |                                |   |   |   |   |   |
| Trade                        |   | 105,458                              |    | 101,740                             |   | 296,597 |   | 347,952 |   |
| Intersegment                 |   | 6,731                                |    | 7,658                               |   | 20,705 |   | 31,914 |   |
|                         |   | 112,189                              |    | 109,398                             |   | 317,302 |   | 379,866 |   |
| Corporate and  Other:        |   |                                 |    |                                |   |   |   |   |   |
| Trade                        |   | 267                                  |    | 3,607                               |   | 777 |   | 10,493 |   |
| Intersegment                 |   | (156                                 | )       | 582                                 |   | 395 |   | 2,285 |   |
|                         |   | 111                                  |    | 4,189                               |   | 1,172 |   | 12,778 |   |
| Total:                       |   |                                 |    |                                |   |   |   |   |   |
| Total Revenue                |   | 196,702                              |    | 214,332                             |   | 572,304 |   | 802,207 |   |
| Less  Intersegment           |   | (32,776                              | )       | (24,053                             | )      | (103,401 | ) | (165,940 | ) |
| Net Revenue                  |   | $                                    | 163,926 |                                | $      | 190,279 |   | $ | 468,903 |   | $ | 636,267 |   |

 

 
|                                 |   | **Three Months Ended September 30,** |    | **Nine Months Ended September 30,** |   |
|--------------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|
| **Operating income  (in thousands)** |   | **2001**                             |    | **2000**                            |   | **2001** |   | **2000** |   |
| Timberlands                          |   | $                                    | 1,980   |                                | $      | 24,472 |   | $ | 15,304 |   | $ | 62,789 |   |
| Manufacturing                        |   | (1,053                               | )       | (3,080                              | )      | (1,636 | ) | 2,402 |   |
| Wholesale                            |   | 3,322                                |    | 3,811                               |   | 9,527 |   | 12,076 |   |
| Corporate and  Other                 |   | (3,063                               | )       | (4,800                              | )      | (9,602 | ) | (13,126 | ) |
| Operating  Income                    |   | 1,186                                |    | 20,403                              |   | 13,593 |   | 64,141 |   |
| Interest  Expense                    |   | (15,294                              | )       | (15,268                             | )      | (46,821 | ) | (44,071 | ) |
| Other                                |   | 1,244                                |    | 1,500                               |   | 562 |   | 1,813 |   |
| Net (Loss)  Income                   |   | $                                    | (12,864 | )                                   | $      | 6,635 |   | $ | (32,666 | ) | $ | 21,883 |   |

 

**Note 6: Bank Agreement Amendments**

On April 20, 2001 and again onNovember 7, 2001, the Company’s acquisition and working capital bank facilitieswere amended to modify the cash flow to interest expense coveragecovenant.  Given the Partnership’sdecision to preserve its timber assets until log and land prices improve, andthe fact that weak lumber prices continued to adversely affect itsmanufacturing segment results, relief from this covenant requirement wasrequired.

 

With these latest modifications, thePartnership received adequate liquidity and covenant relief necessary in orderto follow its operating plan through 2002. As a result of these amendments, the Partnership’s revolving creditfacility line was reduced to its then current outstanding level of $40 million(including letters of credit) and was secured by the Partnership’s accountsreceivable and inventories and the acquisition facility line was reduced to itsthen outstanding balance of $199.3 million. The November amendment eliminated the cash flow to interest expense coveragecovenant and replaced it with required levels of cash flow at quarterlycompliance dates beginning December 31, 2001. The amendments also allowed the use of certain funds from dispositionsto be used for operations and required the payoff of both bank facilities byDecember 2002. Pursuant to the November amendments to the agreements, theinterest rate paid by the Partnership under these facilities is either LIBORplus 3.50 percentage points or prime plus 2.50 percentage points.

 

The Partnership incurred an amendment fee ofapproximately $1.1 million for the April amendments, which was recognizedratably over the second and third quarters of 2001 as amortization of debtissuance costs in the accompanying consolidated statement of operations.  Fees for the November amendment, includingadvisor fees and expenses, should approximate $2.6 million and will berecognized ratably through November 2002, the expiration date of the bankfacilities.

 

The Partnership believes that,through certain asset sales and/or refinancing, it will be able to meet theNovember 2001 amended covenants and compliance dates for the duration of theagreements.

 

**Note7:  Strategic Alliance**

On September 28, 2001, the Partnership completed a strategic alliancewith Louisiana-Pacific Corporation (“LP”). The strategic alliance involved the sale of the Partnership’s BonnersFerry, Idaho sawmill to LP, for net proceeds to the Partnership ofapproximately $8.0 million (including certain working capital accounts), thecollection of receivables of approximately $9.7 million and the provision of along-term log supply commitment from the Partnership’s 251,000 acre Idaho treefarm to supply LP’s mills in the northern Idaho region.  In addition, LP subleased the Bonners Ferrysawmill, the cost of which the Partnership estimates has a net present value of$18.0 million.******Note 8:  Mill Closures**

In August 2001, the Partnership announced that its Coeur d’Alene, Idahoand Prineville, Oregon sawmills will be closed during the fourth quarter of2001.  The Partnership is in the processof liquidating the Coeur d’Alene sawmill related assets, including plant,property and equipment.  The Prinevillesawmill equipment will be mothballed indefinitely on site.  These closures and related inventory andasset dispositions are expected to provide net proceeds of approximately $15.0million and decrease operating losses during the fourth quarter of 2001 andduring the full year of 2002.

 

**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**General**

Crown Pacific's principal operations consist of the growing andharvesting of timber, the sale of logs and the processing and sale of lumberand other wood products.  ThePartnership’s ability to implement its business strategy over the long term andits results of operations depend upon a number of factors, many of which arebeyond its control.  These factorsinclude general industry conditions, domestic and international prices andsupply and demand for logs, lumber and other wood products, seasonality andcompetition from other supplying regions and substitute products.

 

**Forward-LookingStatements**

Information contained in Item 2 and other sections of this reportinclude forward-looking statements including statements regarding thePartnership’s expectations, hopes, beliefs, intentions or strategies regardingthe future that are not purely historical, but are based on assumptions that inthe future may prove not to be accurate. These assumptions include harvest volumes, species mix, prices for logsand lumber, demand for housing and levels, timing and amounts received forstumpage, property and asset sales. The Partnership’s business and prospectsare subject to a number of risks, including the volatility of global timber andlumber prices and supplies, factors limiting harvesting of timber includingcontractual obligations, governmental restrictions, weather and accesslimitations, as well as the substantial capital expenditures required to supplyits operations.

 

Additional factors that could affect future performance includeenvironmental risks, operating risks normally associated with the timberindustry, competition, government regulation and economic changes in theregions where the Partnership’s products are sold, including Southeast Asia andJapan.  Other risk factors include theability of the Partnership to implement its business strategy and the value ofthe U.S. dollar against foreign currencies. These and other risks are described in the Partnership’s registrationstatements and reports filed from time to time on forms 10-K, 8-K and 10-Q andreports to unitholders, which are available from the Partnership or the UnitedStates Securities and Exchange Commission.

 

**FinancialCondition**

The Partnership’s primary sources of liquidity have been cash providedby operating activities, including stumpage and property sales, as well as debtand equity financings.

 

Cash used by operating activities was $4.6 million in the first ninemonths of 2001 and resulted primarily from a net loss of $13.3 million (net ofnon-cash expenses of $19.4 million), an increase in prepaids and other currentassets of $1.5 million and a decrease in accounts payable and accrued expensesof $9.5 million, offset by a decrease in accounts and notes receivable of $3.6million, a decrease in inventories of $15.0 million and a decrease in timberdeposits of $1.1 million. Working capital decreased to $74.5 million atSeptember 30, 2001 compared to $81.6 million at December 31, 2000.  The increase in cash during the thirdquarter of 2001 primarily reflects the sale of the Bonners Ferry sawmill, netproceeds on an aircraft disposition and reductions in both accounts receivableand inventory balances.The $3.6 million decrease in accounts receivable and the $15.0 million decreasein inventories are primarily the result of the Partnership’s efforts tomaximize cash flow, the planned closure of its Coeur d’Alene and Prinevillefacilities and the collection of a significant stumpage receivable associatedwith the sale of the Bonners Ferry Sawmill during the third quarter of2001.  The Partnership expectsinventories to decrease further in the fourth quarter of 2001 as it sells offthe remaining inventory at its Coeur d’Alene and Prineville sawmills.

 

Net cash provided by investing activities of $10.2 million resultedprimarily from$24.6 million proceeds from the sale of timberland and other fixed assets andthe collection of $2.1 million of notes receivable, offset by the use of $7.9million for additions to timberlands and timber cutting rights and $8.6 million used for additions toequipment.

 

Net cash provided by financing activities of $346,000 resultedprimarily from a $4.0 million net increase in short-term borrowings, offset bynet repayments on long-term debt of $3.7 million.

 

Cash necessary to enable the Partnership to pay for capitalexpenditures and to satisfy interest and principal payments on indebtedness, issignificant.  Additions to plant andequipment totaled $8.6 million in the first nine months of 2001, primarily fora new planer mill at the Partnership’s Gilchrist, Oregon facility, replacementaircraft and environmental related improvements and are expected to total lessthan $9.0 million during all of 2001. Additions to timber and timberlandpurchases are evaluated as opportunities arise and totaled $7.9 million in thefirst nine months of 2001. The Managing General Partner expects that capitalexpenditures will be funded by a combination of any or all of the following:property and asset sales, cash generated from operations, current funds or bankborrowings.  Based upon the amendmentsto the bank facilities discussed in Note 6, the Partnership believes it hasadequate liquidity to fund its operating plan. The Partnership does not expect to make cash distributions from itscurrent funds or from cash generated by operating activities untilsignificantly improved market conditions will support a sustained quarterlydistribution.

 

The Partnership received proceeds of $8.0 million in the fourth quarterof fiscal 2001 related to the sale of its Bonners Ferry sawmill.  In addition, the Partnership anticipatesadditional proceeds to be received as a result of plans to close the Coeurd’Alene sawmill and further asset sales planned over the next several quarters.  These proceeds will be used primarily for thereduction of currently outstanding bank debt and note maturities as they occur.

 

The Partnership has a $40million revolving credit facility with a group of banks for working capitalpurposes and stand-by letters of credit that expire on December 1, 2002.  The credit facility bears a floating rate ofinterest and is secured by accounts receivable and inventory.  At September 30, 2001, the Partnership had$35.0 million outstanding under this facility, with a weighted average interestrate of 7.92%.The Partnership has a $199.3 million, three-year credit line with a group ofbanks to provide for the acquisition of timber, timberlands and related assetsand capital expenditures. The acquisition facility bears a floating rate ofinterest, is unsecured and expires December 1, 2002.  At September 30, 2001, the Partnership had $199.3 millionoutstanding under this facility, with a weighted average interest rate of6.68%.

 

The $40 million working capitalfacility and the $199.3 million acquisition facility were amended in April 2001and again in November 2001.  See Note 6to the financial statements included in this Form 10-Q for more informationabout the amendments.

 

The Partnership's 9.78%, 9.60%,8.17% and 7.8% senior notes, issued in 1994, 1995, 1996 and 1998, respectively,are unsecured and require semi-annual interest payments through 2018.  These senior notes, with an aggregate $486million principal amount, require the Partnership to make an aggregateprincipal payment of $37.5 million on December 1, 2002, and annual principalpayments in various amounts from December 1, 2003 through 2018.  The senior notes are redeemable prior tomaturity, subject to a premium on redemption based on interest rates of U.S.Treasury securities having a similar average maturity as the senior notes, plus50 basis points.

 

C.P. Air, a subsidiary of the Partnership,borrowed $2.8 million in January 2000 to finance a new aircraft.  The debt was paid off during the thirdquarter of 2001 upon the sale of the aircraft.

 

All of the Partnership's seniornote agreements and bank lines of credit contain certain restrictive covenants,including limitations on harvest levels, land sales, cash distributions, theamount of future indebtedness and other financial ratios.  After giving effect to the amendmentsdescribed in Note 6 above, the Partnership was in compliance with suchcovenants at September 30, 2001.

 

**New Accounting Pronouncements**

In June 2000, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards No. 138, “Accounting for Certain Derivative Instruments and CertainHedging Activities-an amendment of FASB Statement No. 133” (“SFAS 138”).  In June 1999, the FASB issued Statement ofFinancial Accounting Standards No. 137, “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS 137”). SFAS 137 is an amendment to Statement of Financial Accounting StandardsNo. 133, “Accounting for Derivative Instruments and Hedging Activities”.  SFAS 137 and 138 establish accounting andreporting standards for all derivative instruments.  SFAS 137 and 138 are effective for fiscal years beginning afterJune 15, 2000.  The Partnership does notcurrently have any derivative instruments and, accordingly, the adoption ofSFAS 137 and 138 in the first quarter of 2001 did not have an impact on itsfinancial position, results of operations or cash flows.

 

In June 2001, the FASB issuedStatement of Financial Accounting Standards No. 141 (“SFAS 141”), “BusinessCombinations,” and Statement of Financial Accounting Standards No. 142 (“SFAS142”), “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used forall business combinations initiated after June 30, 2001.  Use of the pooling-of-interests method willbe prohibited on a prospective basis only. SFAS No. 142 changes the accounting for goodwill from an amortizationmethod to an impairment-only approach. Thus, amortization of goodwill,including goodwill recorded in past business combinations, will cease uponadoption of that Statement, which for the Partnership will be on January 1,2002.  The Partnership does not expectthat the adoption of SFAS 141 will have a significant impact on the financialcondition or results of operations of the Partnership.  The Partnership is currently evaluating whatthe effects of adopting SFAS 142 will be on its financial position and resultsof operations.In October 2001, the FASB issued Statement of Financial Accounting StandardsNo. 144 ("SFAS 144"), "Accounting for the Impairment or Disposalof Long-Lived Assets," which addresses financial accounting and reportingfor the impairment or disposal of long-lived assets. This Statement supersedesSFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of," and APB Opinion No. 30,"Reporting the Results of Operations -- Reporting the Effects of Disposalof a Segment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions for the Disposal of a Segment of aBusiness."  The Partnership iscurrently reviewing the effects of adopting SFAS 144 on its financial positionand results of operations.

 

**Results of Operations**

 

**Three Months EndedSeptember 30, 2001 compared to Three Months Ended September 30, 2000**

 

**General**

Revenues during the third quarter ended September 30, 2001 decreased$26.4 million, or 13.9%, to $163.9 million, from $190.3 million in the samequarter of 2000.  The decrease isprimarily a result of reduced fee harvest levels, fewer high-margin stumpagesales and minimal property sale activity during the third quarter of 2001compared to the prior year, partially offset by increased lumber salesactivity.

 

Cost of sales as a percentageof sales increased to 93.7% in the third quarter of 2001, compared to 84.1% inthe same quarter of 2000.  The increaseis primarily the result of a decreased revenue base over which to spread fixedcosts, increased depreciation, (principally the Partnership’s Gilchrist, Oregonmill) and fewer high margin stumpage and property sales.  The increase was partially offset by lowerpurchased log and lumber costs and lower per unit manufacturing costs.

 

Selling, general andadministrative expenses (“SG&A”) decreased 7.7% to $9.1 million (5.6% ofrevenues) in the third quarter of 2001, compared to $9.9 million (5.2% ofrevenues) in the third quarter of 2000. The decrease is primarily the result oflower salaries and wages, professional fees and public relations expense in thethird quarter of 2001 compared to the prior period, which includes the resultsof other operations, which were disposed in the third quarter of 2000.  The increase as a percentage of sales is dueto the decrease in net revenues in the third quarter of 2001 compared to thethird quarter of 2000.

 

Interest expense for the thirdquarter of 2001 was at the same level as the prior year period.

 

Amortization of debt issuance costs of$955,000 for the three months ended September 30, 2001 includes $578,000 offees, which totaled approximately $1.1 million, for amendments made to thePartnership’s working capital bank facilities in April 2001.

 

Other income, net includes a net gain of $2.4million on the sale of assets, interest income on notes receivable, rentalincome and other miscellaneous income.

The Partnership pays no significant income taxes and does notinclude a provision for income taxes in its financial statements.

 

**Timberlands**

Total external log sales, including property and stumpage sales,decreased 69.5% to $16.8 million, or 10.2% of revenue in the third quarter of2001, compared to $55.0 million, or 28.9% of revenue in the third quarter of2000.  The decrease in external salesreflects significantly less property sales and log sales volume, which include stumpagesales volume.  These factors werepartially offset by an increase in average log sales realization.  Additionally, the Partnership utilized morefee timber internally rather than selling to third party customers.  This decision also alleviated price pressureon external log pricing by curtailing available supplies in local logmarkets.  The Partnership expects thefourth quarter of 2001 internal consumption to be lower than the third quarterof 2001 due primarily to the sale of the Bonners Ferry sawmill and the closureof the Coeur d’Alene and Prineville facilities.

 

Overall operating income from timberlands, including property sales,decreased 91.9% to $2.0 million in the third quarter of 2001 from $24.5 millionin the third quarter of 2000, primarily as a result of significantly less propertysales, a decrease in log sales volume and a large decrease in high-marginstumpage sales volume, partially offset by an increase in average salesrealization, a lower per unit non-fee and purchased log costs and lower segmentoverhead expense in the third quarter of 2001 compared to the third quarter of2000.

 

***DomesticLog Sales***

Average external domesticprices received for logs sold from the various tree farms, including stumpage,but excluding pulpwood, were as follows (dollars per thousand board feet(“MBF”)):

 
|             |   | **Quarter Ended September 30,** |       |     |   |
|------------------|--------|---------------------------------|------------|----------|--------|
| **Tree Farm**    |   | **2001**                        | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon           |   | $                               | 250/MBF    |     | $      | 440/MBF |   | (43.2 | )% |
| Inland           |   | $                               | 451/MBF    |     | $      | 249/MBF |   | 81.1 | % |
| Hamilton         |   | $                               | 422/MBF    |     | $      | 466/MBF |   | (9.4 | )% |
| Olympic          |   | $                               | 363/MBF    |     | $      | 471/MBF |   | (22.9 | )% |
| Weighted average |   | $                               | 416/MBF    |     | $      | 285/MBF |   | 46.0 | % |

 

Decreases at the Oregon,Hamilton and Olympic tree farms reflect the impact of weak lumber markets onlog pricing, increased supply in the marketplace, mix changes and anunwillingness of sawmills to build log inventories given the continuingvolatility in the lumber markets.

 

The increase in average external prices at the Inland tree farm isprimarily the result of favorable mix changes and sales type (i.e. deliveredlogs versus stumpage sales).

 

Domestic external log salesvolumes, excluding pulpwood, decreased 74.0% in the third quarter of 2001 to30.4 million board feet (MMBF), compared to 116.8 MMBF in the same quarter of2000, primarily as a result of a planned decrease in fee harvest levels.  The reduction in harvest levels reflects thePartnership’s ongoing strategy to preserve its timber asset base until marketconditions improve.

 

The domestic externalvolume, including stumpage, but excluding pulpwood, from each of the Partnership’s treefarms was as follows (in MBF):

 
|               |   | **Quarter Ended September 30,** |       |     |   |
|--------------------|--------|---------------------------------|------------|----------|--------|
| **Tree Farm**      |   | **2001**                        | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon tree farm   |   | 4                               |       | 234      |   | (98.3 | )% |
| Inland tree farm   |   | 9,589                           |       | 101,858  |   | (90.6 | )% |
| Hamilton tree farm |   | 13,253                          |       | 7,134    |   | 85.8 | % |
| Olympic tree farm  |   | 7,565                           |       | 7,562    |   | 0.0 | % |
| Total              |   | 30,411                          |       | 116,788  |   | (74.0 | )% |

 

***ExportLog Sales***

Sales of logs to customers involved in exporting activities (excludedfrom total log sales volume above) were approximately $229,000 in the thirdquarter of 2001, compared to $1.9 million for the same quarter of 2000.  The average realization for export logsremained relatively flat at $658/MBF in the third quarter of 2001 compared to$655/MBF in the third quarter of 2000. Sales volumes of export logs decreased 88.0% to 348 MBF in the thirdquarter of 2001 compared to 2,900 MBF in the third quarter of 2000.  The decrease in volume is primarily a resultof soft demand.

 

***PropertySales***

Revenue and operating incomefrom property sales in the third quarter of 2001 were $1.0 million and$546,000, respectively, compared to $16.2 million and $8.9 million,respectively, in the third quarter of 2000. The Partnership has no planned property sales during the fourth quarterof 2001.

 

**Manufacturing**

External revenues from the Partnership’s sawmills, excluding sales oflumber products through the wholesale marketing segment, were $41.4 million, or25.3% of sales in the third quarter of 2001, compared to $29.9 million, or15.7% of sales in the same quarter of 2000. The increased revenues reflect a 35.3% increase in external lumber salesvolume, a 2.6% increase in average external lumber sales realizations andhigher chip revenue.  The increasedvolume reflects the absence of downtime in the current year period at twoPartnership sawmills compared to the prior year period and increased productionat the Gilchrist facility during the current year period.  The Partnership expects lumber sales todecrease in the fourth quarter of 2001 due to the sale of the Bonners Ferrysawmill and the closure of the Coeur d’Alene and Prineville sawmills.

 

The operating loss from themanufacturing segment decreased to $1.1 million in the third quarter of 2001from $3.1 million in the third quarter of 2000.  The decrease in the loss is primarily a result of higher revenueas discussed above and lower unit manufacturing costs.

 

Average prices received forexternal lumber sales, excluding sales to the wholesale marketing segment, inthe various regions were as follows:

 
|             |   | **Quarter Ended September 30,** |       |     |   |
|------------------|--------|---------------------------------|------------|----------|--------|
| **Region**       |   | **2001**                        | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon           |   | $                               | 326/MBF    |     | $      | 456/MBF |   | (28.5 | )% |
| Inland           |   | $                               | 323/MBF    |     | $      | 293/MBF |   | 10.2 | % |
| Washingtonn      |   | $                               | 290/MBF    |     | $      | 250/MBF |   | 16.0 | % |
| Weighted average |   | $                               | 315/MBF    |     | $      | 307/MBF |   | 2.6 | % |

 

The lower average lumberrealizations for the Oregon region primarily reflect changes in theproduct mix. As a result of prevailing log supplies, both Oregon sawmillsproduced a much larger percentage of lower priced pine dimension grade lumberinstead of higher priced pine shop grade lumber during 2001 compared to 2000.

 

The increased average lumberrealizations for both the Inland and Washington regions reflect improvedproduct mix and better overall market pricing.

 

External lumber sales volumesincreased 35.3% in the third quarter of 2001 to 116.8 MMBF compared to 86.3MMBF in the same period of 2000. External sales volumes from the various regions were as follows (inMBF):

 
|       |   | **Quarter Ended September 30,** |       |     |   |
|------------|--------|---------------------------------|------------|----------|--------|
| **Region** |   | **2001**                        | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon     |   | 46,273                          |       | 15,971   |   | 189.7 | % |
| Inland     |   | 36,412                          |       | 38,809   |   | (6.2 | )% |
| Washington |   | 34,125                          |       | 31,560   |   | 8.1 | % |
| Total      |   | 116,810                         |       | 86,340   |   | 35.3 | % |

 

The increased volume from the Oregon region primarily reflectsincreased production and efficiencies at the Gilchrist facility.  The increased volume from the Washingtonregion reflects increased production at the Port Angeles studmill.

 

The decrease at the Inland millreflects a larger percentage of the production being utilized iAnternally forsale at the Partnership’s wholesale facilities and decreased production at theBonners Ferry sawmill.

 

By-product revenues accountedfor 2.7% of revenue in the third quarter of 2001, compared to 1.8% of revenuein the third quarter of 2000.  Residualwood chip prices decreased to $72 per bone dry unit (BDU) in the third quarterof 2001 compared to $75/BDU in the third quarter of 2000. The 4.0% loweraverage realization reflects the impact of lower pulp industry demand andpricing in the Washington lumber region. Woodchip volume increased 27.7% to 49,996 BDUs in the third quarter of2001 compared to 39,143 BDUs in the third quarter of 2000.  The higher volume reflects the impact ofincreased lumber production in the Oregon and Inland regions during the thirdquarter of 2001 compared to 2000.

 

**Wholesale Marketing**

The Partnership’s wholesaleoperations involve sales of lumber and other wood products, much of which arenot manufactured by the Partnership. Sales from the wholesale operations totaled $105.5 million, or 64.3% ofsales in the third quarter of 2001, compared to $101.7 million, or 53.5% ofsales in the third quarter of 2000.

 

Operating income from wholesaleoperations decreased 12.8% to $3.3 million in the third quarter of 2001 from$3.8 million in the third quarter of 2000. The decrease in operating income isprimarily the result of lower profit contributions from the Alliance, Desertand Cheshire operations during the current quarter, reflecting the impact oflower revenues and higher operating expense at the Desert operation, higher rawmaterial and operating costs at the Alliance operation and higher raw materialcosts at the Cheshire operation.  Alloperations were significantly impacted by a decline in demand after theterrorist events of September 11, 2001.

 

**Results of Operations**

**Nine Months EndedSeptember 30, 2001 compared to Nine Months Ended September 30, 2000**

 

**General**

Revenues during the nine months ended September 30, 2001 decreased26.3% to $468.9 million, from $636.3 million in the same period of 2000.  The decrease reflects the impact of lowerlog and lumber sales realizations, lower log volume and lower property saleactivity compared to the first nine months of 2000.

 

Cost of sales as a percentageof sales increased to 91.2% in the first nine months of 2001, compared to 85.0%in the same period of 2000.  Theincrease is primarily the result of a decreased revenue base over which tospread fixed costs and increased depreciation, primarily due to additions madeto the Partnership’s Gilchrist, Oregon mill, which were only partially offsetby lower log and lumber costs and lower per unit manufacturing costs.

 

Selling, general and administrative expenses decreased 10.7% to $27.8million (5.9% of revenues) in the first nine months of 2001, from $31.1 million(4.9% of revenues) in the same period of 2000. The decrease is primarily aresult of lower salaries and wages, professional fees and public relationsexpense for the first nine months of 2001 compared to the prior year period,which included the results of other operations that were disposed in September2000.  The increase as a percentage ofsales is due to the significantly decreased sales in the first nine months of2001 compared to the first nine months of 2000.

 

Interest expense increased 6.2%to $46.8 million in the first nine months of 2001, from $44.1 million in thefirst nine months of 2000.  The increaseis a result of higher debt balances in the first nine months of 2001 dueprimarily to an increase in short-term borrowings and the fact that $27.0million of spending related to the installation of a new small log line andplaner mill were outstanding for the entire first nine months of 2001, but notthe entire first nine months of 2000.

 

Amortization of debt issuance costs of $1.9for the nine months ended September 30, 2001 includes $1.1 million of fees foran amendment made to the Partnership’s working capital bank facilities in April2001.

 

Other income, net includes a net gain of $2.4million on the sale of assets, interest income on notes receivable, rentalincome and other miscellaneous income.

 

The Partnership pays no significant income taxes and does not include aprovision for income taxes in its financial statements.

 

**Timberlands**

Total external log sales, including property and stumpage sales,decreased 53.6% to $57.5 million, or 12.3% of revenue in the first nine monthsof 2001, compared to $124.0 million, or 19.5% of revenue in the first ninemonths of 2000.  The decrease reflectssignificantly lower average realizations, lower consumption of logs at thePartnership’s sawmills and a planned decrease in fee harvest levels andproperty and stumpage sales.

 

Overall operating incomefrom timberlands, including property sales, decreased 75.6% to $15.3 million inthe first nine months of 2001 from $62.8 million in the first nine months of2000, primarily as a result of a decrease in external log sales volume and a decrease inaverage external sales realizations compared to the first nine months of 2000and reduced property sales, which were partially offset by lower non-fee andpurchased log volume and unit costs during the current period.

 

***DomesticLog Sales***

Average external domesticprices received for logs sold from the various tree farms, including stumpagebut excluding pulpwood, were as follows (dollars per thousand board feet(“MBF”)):

 
|             |   | **Nine Months Ended September 30,** |       |     |   |
|------------------|--------|-------------------------------------|------------|----------|--------|
| **Tree Farm**    |   | **2001**                            | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon           |   | $                                   | 157/MBF    |     | $      | 492/MBF |   | (68.1 | )% |
| Inland           |   | $                                   | 428/MBF    |     | $      | 268/MBF |   | 59.7 | % |
| Hamilton         |   | $                                   | 441/MBF    |     | $      | 454/MBF |   | (2.9 | )% |
| Olympic          |   | $                                   | 373/MBF    |     | $      | 466/MBF |   | (20.0 | )% |
| Weighted average |   | $                                   | 332/MBF    |     | $      | 344/MBF |   | (3.5 | )% |

 

Decreases at the Oregon andOlympic tree farms reflect the impact of weak lumber markets on log pricing,increased supply in the marketplace and changes in the mix of both species andsales type (i.e. stumpage versus delivered logs).

 

The increase in averagerealization at the Inland tree farm is primarily the result of favorable mixchanges and sales type (i.e. delivered logs versus stumpage sales).

 

Domestic external log salesvolumes decreased 58.2% in the first nine months of 2001 to 101.5 million boardfeet (“MMBF”), compared to 243.0 MMBF in the first nine months of 2000,primarily as a result of decreased fee harvest volume and increased internalconsumption.

 

The external volume of logs sold, excluding pulpwood, from each of thePartnership’s tree farms was as follows (in MBF):

 
|               |   | **Nine Months Ended September 30,** |       |     |   |
|--------------------|--------|-------------------------------------|------------|----------|--------|
| **Tree Farm**      |   | **2001**                            | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon tree farm   |   | 33,159                              |       | 23,119   |   | 43.4 | % |
| Inland tree farm   |   | 19,349                              |       | 156,433  |   | (87.6 | )% |
| Hamilton tree farm |   | 28,788                              |       | 29,517   |   | (2.5 | )% |
| Olympic tree farm  |   | 20,244                              |       | 33,974   |   | (40.4 | )% |
| Total              |   | 101,540                             |       | 243,043  |   | (58.2 | )% |

 

The increase at the Oregon tree farm is a result of increased stumpagesale activity in the first quarter of 2001.

 

The decreases at the Inland,Hamilton and Olympic tree farms are a result of planned reductions in theoverall fee harvest program and stumpage sale activity during the first ninemonths of 2001 compared to the same period of 2000.

*** ***

***Export Log Sales***

Sales of logs to customers involved in exporting activities (excludedfrom total log sales volume above) were approximately $1.4 million in the firstnine months of 2001, compared to $5.1 million in the first nine months of2000.  The average realization forexport logs decreased 12.8% to $566/MBF in the first nine months of 2001compared to $649/MBF in the first nine months of 2000.  Sales volumes of export logs decreased 67.5%to 2.6 MMBF in the first nine months of 2001 compared to 7.9 MMBF in the firstnine months of 2000.  The decreases inrealization and volume are primarily a result of the impact of increasedsupplies in the marketplace and soft demand.

 

***PropertySales***

Revenue and operating incomefrom property sales in the first nine months of 2001 were $13.5 million and$9.7 million, respectively, compared to $25.7 million and $15.1 million, respectivelyin the first nine months of 2000.  Thereare no property sales planned in the fourth quarter of 2001.

 

**Manufacturing**

External revenues from the Partnership’s sawmills, excluding sales oflumber products through the wholesale marketing segment, were $114.0 million,or 24.3% of sales in the first nine months of 2001, compared to $153.8 million,or 24.2% of sales in the first nine months of 2000.  The decreased revenues reflect a 9.8% decrease in external lumbersales volume and a 20.8% decrease in average external lumber salesrealizations.  The lower sales volumereflects lower production volume, while the lower realization reflects both mixchanges and weak markets.

 

Operating income from themanufacturing segment decreased to a loss of $1.6 million in the first ninemonths of 2001 from income of $2.4 million in the first nine months of2000.  The decrease is primarily aresult of the decrease in revenue discussed above and higher overhead costs(primarily as a result of increased depreciation at the Gilchrist, Oregonsawmill), partially offset by lower unit manufacturing costs and lower unit logcosts compared to the first nine months of 2000.

 

Average prices received forexternal lumber sales, excluding sales to the wholesale marketing segment, inthe various regions were as follows:

 
|             |   | **Nine Months Ended September 30,** |       |     |   |
|------------------|--------|-------------------------------------|------------|----------|--------|
| **Region**       |   | **2001**                            | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon           |   | $                                   | 318/MBF    |     | $      | 556/MBF |   | (42.8 | )% |
| Inland           |   | $                                   | 309/MBF    |     | $      | 341/MBF |   | (9.4 | )% |
| Washingtonn      |   | $                                   | 280/MBF    |     | $      | 287/MBF |   | (2.4 | )% |
| Weighted average |   | $                                   | 304/MBF    |     | $      | 384/MBF |   | (20.8 | )% |

 

The lower realizations reflect thecombination of weak lumber markets and mix changes.

 

The lower average lumberrealizations for the Oregon region reflect the combination of product mix andlower year-over-year lumber pricing.  Asa result of prevailing log supplies, both Oregon sawmills are now producing amuch larger percentage of lower priced pine dimension grade lumber instead ofhigher priced pine shop grade lumber compared to the same period in 2000.

 

External lumber sales volumes decreased 9.8% in the first ninemonths of 2001 to 329.8 MMBF compared to 365.5 MMBF in the same period of2000.  External sales volumes from thevarious regions were as follows (in MBF):

 
|       |   | **Nine Months Ended September 30,** |       |     |   |
|------------|--------|-------------------------------------|------------|----------|--------|
| **Region** |   | **2001**                            | ** ** | **2000** |   | **% Change** | ** ** |
| Oregon     |   | 128,048                             |       | 98,620   |   | 29.8 | % |
| Inland     |   | 105,984                             |       | 166,599  |   | (36.8 | )% |
| Washington |   | 95,765                              |       | 100,255  |   | (4.5 | )% |
| Total      |   | 329,797                             |       | 365,474  |   | (9.8 | )% |

 

The increased volume from theOregon region reflects higher efficiencies at the Gilchrist sawmill as the newsmall log line and planer mill ramp-up to practical production capacity andgain efficiencies.

 

The decreases at the Inland and Washington mills reflect lowerproduction volumes due to modified one-shift production schedules during partof the 2001 period at both Inland sawmills and at the Marysville studmill,which were partially offset by increased production at the Port Angelesstudmill.

 

By-product revenues accounted for 2.8% of revenue in the first ninemonths of 2001, compared to 2.0% of revenue in the first nine months of2000.  Residual wood chip pricesincreased to $72 per bone dry unit (“BDU”) in the first nine months of 2001compared to $69/BDU in the first nine months of 2000. The higher averagerealization reflects higher demand and market pricing in both the Inland andOregon lumber regions.  Woodchip volumedecreased 3.9% to 148,896 BDUs in the first nine months of 2001 compared to155,004 BDUs in the first nine months of 2000. The lower volume reflects the impact of lower lumber production from thePartnership’s sawmills during the first nine months of 2001.

 

**Wholesale Marketing**

The Partnership’s wholesaleoperations involve sales of lumber and other wood products, much of which werenot manufactured by the Partnership. Sales from the wholesale operations totaled $296.6 million, or 63.3% ofsales in the first nine months of 2001, compared to $348.0 million, or 54.7% ofsales in the first nine months of 2000. Operating income from wholesale operations decreased 21.1% to $9.5 millionin the first nine months of 2001 from $12.1 million in the first nine months of2000.  The decreases in revenue andoperating income are primarily the result of significantly lower buildingmaterial prices, which offset the benefit of the Reno yard capacity expansion,completed in the first quarter of 2001. Operating income was further affected by increased operatingexpenses.  These factors were partiallyoffset by favorable raw material purchase prices. As part of a defensiveintegration strategy, the Partnership increased its sales volume of internallyproduced lumber through this segment by 49.0% in the first nine months of 2001compared to the first nine months of 2000.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

The Partnership’s onlyfinancial instruments with market risk exposure are its variable rate lines ofcredit.  At September 30, 2001, thePartnership had $234.3 million outstanding under its lines of credit with aweighted average interest rate of 6.87%. A hypothetical 10 percent increase in interest rates to 7.56% wouldincrease interest expense in the last quarter of 2001 by approximately $0.4million.

 

**PARTII - OTHER INFORMATION**

 

**Item 6. Exhibits and Reports on Form 8-K**

 

**(a) The exhibitsfiled as part of this report are listed below and this list is intended toserve as the exhibit index:**

Exhibit No. and Description

10.1         Second Amendment,dated November 7, 2001, to Amended and Restated Credit Agreement dated December1, 1999.

10.2         Second Amendment,dated November 7, 2001, to Amended and Restated Facility B Credit Agreementdated December 1, 1999.

 

**(b)Reports on Form 8-K:**

There was one report on Form 8-K filed during the quarter endedSeptember 30, 2001, pursuant to Item 5. Other Events dated August 21, 2001 andfiled September 6, 2001, relating to a strategic alliance and the upcomingclosure of two of the Partnership’s mills.

 

**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 theundersigned thereunto duly authorized.

 
| Date:  | November 14, 2001 | .      | CROWN PACIFIC PARTNERS, L.P                                               |
|--------|-------------------|--------|---------------------------------------------------------------------------|
|   |              |   |                                                                      |   |   |   |
|   |              |   | By:                                                                       | Crown Pacific Management Limited Partnership, as General Partner |
|   |              |   |                                                                      |   |   |   |
|   |              |   | By:                                                                       | /s/ Richard D. Snyder |
|   |              |   | Richard D. Snyder                                                         |
|   |              |   | Senior Vice President and Chief Financial Officer                         |
|   |              |   | (Duly Authorized Officer and Principal Financial and Accounting  Officer) |
|        |                   |        |                                                                           |  |  |  |  |  |