**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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

** **

**For the quarterly period ended March 31, 2002**

** **

**OR**

** **

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

** **

 

**For thetransition period from             to       **

** **

**Commissionfile number 0-24976**

** **

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

(Exact name of registrantas specified in its charter)

 

| **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** |

 

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Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes ý                    Noo

 

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 May 10,  2002) |

 

 

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

**FORM 10-Q**

**INDEX**

 
| PART I - FINANCIAL  INFORMATION |
|---------------------------------|
|                            |
| Item 1.                         | Financial Statements  (unaudited) |
|                            |   |
|                            | Consolidated  Statement of Operations — Quarters Ended March 31, 2002 and 2001 |
|                            |   |
|                            | Consolidated Balance Sheet  — March 31, 2002 and December 31, 2001 |
|                            |   |
|                            | Consolidated Statement  of Cash Flows - Quarters Ended March 31, 2002 and 2001 |
|                            |   |
|                            | 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                      |
|                                 |  |  |

 

1

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**PART I - FINANCIAL INFORMATION**

 

**Item. 1.**** Financial Statements**

 

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

** **

**ConsolidatedStatement of Operations**

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

**(Unaudited)**

 
|                                          |   | **For the Quarter Ended March 31,** | ** ** |
|-----------------------------------------------|--------|-------------------------------------|------------|
|                                          |   | **2002**                            |       | **2001** | ** ** |
|                                          |   |                                |       | **(As restated)** |   |
| Revenues                                      |   | $                                   | 122,775    |   | $ | 138,819 |   |
|                                          |   |                                |       |   |   |
| Operating costs:                              |   |                                |       |   |   |
| Cost of products  sold                        |   | 112,264                             |       | 127,165 |   |
| Gain on sale of  assets held for sale         |   | (6,020                              | )          | — |   |
| Selling, general  and administrative expenses |   | 8,459                               |       | 9,388 |   |
|                                          |   |                                |       |   |   |
| Operating income                              |   | 8,072                               |       | 2,266 |   |
|                                          |   |                                |       |   |   |
| Interest expense                              |   | 14,206                              |       | 15,914 |   |
| Amortization of  debt issuance costs          |   | 1,066                               |       | 232 |   |
| Other income,  net                            |   | (268                                | )          | (123 | ) |
|                                          |   |                                |       |   |   |
| Net loss                                      |   | $                                   | (6,932     | ) | $ | (13,757 | ) |
|                                          |   |                                |       |   |   |
| Net loss per  unit                            |   | $                                   | (0.22      | ) | $ | (0.45 | ) |
|                                          |   |                                |       |   |   |
| Weighted average  units outstanding           |   | 30,527,030                          |       | 30,505,095 |   |

 

The accompanying notes are anintegral part of this financial statement.

 

Note:                   2001 amounts have been restated to reflect a change inaccounting from the Last-in, First-out (LIFO) to the average method of costinginventory.

 

2

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

** **

**Consolidated Balance Sheet**

**(Inthousands, except unit data)**

**(Unaudited)**

**Assets**

 
|                                                                                                    |   | **March 31,  2002** |       | **December 31,  2001** | ** ** |
|---------------------------------------------------------------------------------------------------------|--------|---------------------|------------|------------------------|------------|
|                                                                                                    |   |                |       | **(As restated)**      | ** ** |
| Current assets:                                                                                         |   |                | ** ** |                   | ** ** |
| Cash and cash  equivalents                                                                              |   | $                   | 6,356      |                   | $          | 9,219 |   |
| Restricted cash                                                                                         |   | 132,828             |       | —                 |       |
| Accounts  receivable, net of allowances of $1,370 and $1,000                                            |   | 83,850              |       | 85,120                 |       |
| Notes receivable                                                                                        |   | 4,818               |       | 7,194                  |       |
| Inventories                                                                                             |   | 36,362              |       | 33,626                 |       |
| Deposits on  timber cutting contracts                                                                   |   | 1,962               |       | 1,441                  |       |
| Prepaid and  other current assets                                                                       |   | 2,973               |       | 3,177                  |       |
| Property held  for sale                                                                                 |   | 58,866              |       | 184,405                |       |
|                                                                                                    |   |                |       |                   |       |
| Total current  assets                                                                                   |   | 328,015             |       | 324,182                |       |
|                                                                                                    |   |                |       |                   |       |
| Property, plant  and equipment, net of accumulated depreciation of $31,354 and $29,541                  |   | 54,948              |       | 55,756                 |       |
| Timber,  timberlands and roads, net                                                                     |   | 429,360             |       | 433,183                |       |
| Goodwill                                                                                                |   | 34,272              |       | 34,272                 |       |
| Other assets                                                                                            |   | 9,235               |       | 8,970                  |       |
|                                                                                                    |   |                |       |                   |       |
| Total assets                                                                                            |   | $                   | 855,830    |                   | $          | 856,363 |   |
|                                                                                                    |   |                |       |                   |       |
| **Liabilities  and Partners’ Capital**                                                             |   |
|                                                                                                    |   |                |       |                   |       |
| Current  liabilities:                                                                                   |   |                |       |                   |       |
| Notes payable                                                                                           |   | $                   | 24,500     |                   | $          | 19,000 |   |
| Accounts payable                                                                                        |   | 29,636              |       | 31,557                 |       |
| Accrued expenses                                                                                        |   | 12,056              |       | 12,708                 |       |
| Accrued interest                                                                                        |   | 13,601              |       | 10,132                 |       |
| Current portion  of long-term debt                                                                      |   | 170,000             |       | 174,064                |       |
|                                                                                                    |   |                |       |                   |       |
| Total current  liabilities                                                                              |   | 249,793             |       | 247,461                |       |
| Long-term debt                                                                                          |   | 515,473             |       | 511,406                |       |
| Other  non-current liabilities                                                                          |   | 270                 |       | 270                    |       |
|                                                                                                    |   | 765,536             |       | 759,137                |       |
|                                                                                                    |   |                |       |                   |       |
| Commitments and  contingent liabilities                                                                 |   |                |       |                   |       |
|                                                                                                    |   |                |       |                   |       |
| Partners’  capital:                                                                                |   |                |       |                   |       |
| General partners                                                                                        |   | (385                | )          | (315                   | )          |
| Limited partners  (30,527,030 units outstanding at March 31, 2002 and December 31, 2001,  respectively) |   | 90,679              |       | 97,541                 |       |
| Total partners’  capital                                                                           |   | 90,294              |       | 97,226                 |       |
|                                                                                                    |   |                |       |                   |       |
| Total  liabilities and partners’ capital                                                           |   | $                   | 855,830    |                   | $          | 856,363 |   |

 

The accompanying notes are an integral part of thisfinancial statement.

 

Note: 2001 amounts have been restated to reflect a change in accountingfrom the LIFO to the average method of costing inventory.

 

3

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

 

**ConsolidatedStatement of Cash Flows**

**(Inthousands)**

**(Unaudited)**

 
|                                                                                            |   | **For the Quarter Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                            |   | **2002**                            |       | **2001** | ** ** |
|                                                                                            |   |                                |       | **(As restated)** |   |
| Cash flows from  operating activities:                                                          |   |                                |       |   |   |
| Net loss                                                                                        |   | $                                   | (6,932     | ) | $ | (13,757 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities:                    |   |                                |       |   |   |
| Depletion,  depreciation and amortization                                                       |   | 8,293                               |       | 11,523 |   |
| Gain on sale of  property                                                                       |   | (6,096                              | )          | (4,416 | ) |
| Net change in  current assets and current liabilities, net of effects of business  combination: |   |                                |       |   |   |
| Accounts and  notes receivable                                                                  |   | 1,270                               |       | 6,218 |   |
| Inventories                                                                                     |   | (2,736                              | )          | (1,920 | ) |
| Deposits on  timber cutting contracts                                                           |   | (521                                | )          | 316 |   |
| Prepaid and  other current assets                                                               |   | (773                                | )          | 69 |   |
| Accounts payable  and accrued expenses                                                          |   | 1,629                               |       | (12,235 | ) |
| Net cash used by  operating activities                                                          |   | (5,866                              | )          | (14,202 | ) |
|                                                                                            |   |                                |       |   |   |
| Cash flows from  investing activities:                                                          |   |                                |       |   |   |
| Additions to  timberlands                                                                       |   | (1,440                              | )          | (2,340 | ) |
| Additions to  timber cutting rights                                                             |   | (476                                | )          | (397 | ) |
| Additions to  equipment                                                                         |   | (951                                | )          | (3,555 | ) |
| Proceeds from  sales of property                                                                |   | 131,515                             |       | 6,434 |   |
| Principal  payments received on notes                                                           |   | 2,376                               |       | 444 |   |
| Other investing  activities                                                                     |   | (15                                 | )          | (1,000 | ) |
| Net cash  provided (used) by investing activities                                               |   | 131,009                             |       | (414 | ) |
|                                                                                            |   |                                |       |   |   |
| Cash flows from  financing activities:                                                          |   |                                |       |   |   |
| Net increase in  short-term borrowings                                                          |   | 5,500                               |       | 6,000 |   |
| Proceeds from  issuance of long-term debt                                                       |   | 116                                 |       | — |   |
| Repayments of  long-term debt                                                                   |   | (113                                | )          | (1,090 | ) |
| Contributions of  capital                                                                       |   | —                              |       | 1,045 |   |
| Change in  restricted cash                                                                      |   | (132,828                            | )          | — |   |
| Other financing  activities                                                                     |   | (681                                | )          | (10 | ) |
| Net cash (used)  provided by financing activities                                               |   | (128,006                            | )          | 5,945 |   |
|                                                                                            |   |                                |       |   |   |
| Net decrease in  cash and cash equivalents                                                      |   | (2,863                              | )          | (8,671 | ) |
| Cash and cash  equivalents at beginning of period                                               |   | 9,219                               |       | 14,537 |   |
|                                                                                            |   |                                |       |   |   |
| Cash and cash  equivalents at end of period                                                     |   | $                                   | 6,356      |   | $ | 5,866 |   |

 

The accompanying notes are an integral part of thisfinancial statement.

 

Note: 2001 amounts have been restated to reflect a change in accountingfrom the LIFO to the average method of costing inventory.

 

4

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands, except per unit amounts or as otherwiseindicated)**

**(Unaudited)**

 

**1: Organization and Basis ofPresentation**

CrownPacific Partners, L.P. (“Crown Pacific” or the “Partnership”), a Delawarelimited partnership, through its 99% owned subsidiary, Crown Pacific LimitedPartnership (the “Operating Partnership”), was formed in 1994 to acquire, ownand operate timberlands and wood product manufacturing facilities located inthe Northwest United States. The Partnership’s business consists primarily ofgrowing and harvesting timber for sale as logs in domestic and export marketsand the manufacturing and 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.  The financial statements in this Form 10-Qshould be read in conjunction with the financial statements in the Partnership’s2001 Annual Report on Form 10-K, which includes a summary of significantaccounting policies of the Partnership. In the opinion of management, all material adjustments necessary topresent fairly the results of operations for the three-month periods endedMarch 31, 2002 and 2001 have been included. All such adjustments are of a normal and recurring nature and allsignificant intercompany transactions have been eliminated.  The results of operations for any interimperiod are not necessarily indicative of the results of operations for the entireyear.

 

Net loss per unit was calculated using the weighted average number ofcommon units outstanding divided into net loss, after adjusting for the GeneralPartner interest**. **The General Partnerloss allocation was $70 and $138 for the three months ended March 31, 2002 and2001, respectively.  There is nosignificant difference between basic and diluted earnings per unit.

 

**Note 2: Inventories**

In the first quarter of 2002, thePartnership changed its method of accounting for manufacturing log and lumber inventoriesfrom the lower of LIFO cost or market to the lower of average cost ormarket.    Given the volatility of bothprices and quantities and a fundamental change in the composition ofinventories, management believes that accounting for inventories at averagecost better matches revenues and expenses, and therefore is preferable.Supplies and inventories maintained at non-manufacturing locations continue tobe valued at the lower of average cost or market.  In accordance with Accounting Principles Board Opinion No. 20,“Accounting Changes,” upon adoption of the new inventory accounting method, thePartnership retroactively restated prior periods by accounting for inventoriesat average cost.  Had the Partnershipadopted this change in 2001, the effect of the accounting change on net loss aspreviously reported is as follows (all amounts in thousands):

 
| **Statement  of Operations**                            |   | **Three  Months Ended March 31, 2001** |    |
|---------------------------------------------------------|--------|----------------------------------------|---------|
| Net loss as previously reported                         |   | $                                      | (12,979 | ) |
| Adjustment for change in accounting principle           |   | (778                                   | )       |
| Net loss as adjusted                                    |   | $                                      | (13,757 | ) |
|                                                    |   |                                   |    |
| Basic and diluted loss per share as previously reported |   | $                                      | (0.42   | ) |
| Adjustment for change in accounting principle           |   | (0.03                                  | )       |
| Basic and diluted loss per share as adjusted            |   | $                                      | (0.45   | ) |

 

5

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Inventoriesconsisted of the following:

 
|                     |   | **March 31,  2002** |   | **December  31, 2001** |   |
|--------------------------|--------|---------------------|--------|------------------------|--------|
|                     |   |                |   | **(as  restated)**     |   |
| Lumber                   |   | 5,896               |   | 5,749                  |   |
| Logs                     |   | 2,947               |   | 1,809                  |   |
| Supplies                 |   | 3,169               |   | 3,187                  |   |
| Manufacturing  inventory |   | 12,012              |   | 10,745                 |   |
| Wholesale  products      |   | 24,350              |   | 22,881                 |   |
| Total                    |   | $                   | 36,362 |                   | $      | 33,626 |   |
|                          |        |                     |        |                        |        |  |  |

 

**Note 3: Property Sales**

On March 29, 2002, the Partnership closed the sale ofits Inland South tree farm to Patriot Investments, LLC for proceeds, net ofcertain fees and expenses and escrow hold-backs, of approximately $121.4million, which was used to pay down outstanding debt as discussed in Note 7 andItem 2.  The Partnership recognized again on this sale of approximately $6.0 million.

 

The Partnership closed the sale of its Inland Northtree farm to Patriot Investments, LLC on April 30 2002. The proceeds, net ofcertain fees and expenses and escrow hold-backs, of approximately $46.4million, were also used to pay down outstanding debt as discussed in Note 7 andItem 2.  The Partnership anticipatesrecognizing a gain of approximately $2.9 million on this sale.

 

**Note 4: Timber, Timberlands and Roads**

In the first quarter of each year, thePartnership performs an update of its timber inventory system.  The update resulted in a net decrease indepletion costs for the first quarter of 2002 of approximately $0.09 million,or $0.003 per unit, and a net decrease in depletion costs for the first quarterof 2001 of approximately $0.1 million, or $0.003 per unit, with no impact oncash flow in either period.

 

**Note 5: Goodwill**

On January 1, 2002, the Partnership adopted Statementof Financial Accounting Standards (SFAS) No. 142, “Goodwill and OtherIntangible Assets.”  The adoption ofSFAS No. 142 requires that goodwill and indefinite lived intangibles no longerbe amortized, but instead be tested for impairment annually using a two-stepprocess.

 

The first step is to identify a potential impairmentand, in transition, this step must be measured as of the beginning of thefiscal year.  However, a company has sixmonths from the date of adoption to complete the first step. The Partnershipexpects to complete the first step of the goodwill impairment test during thesecond quarter of 2002.  The second stepof the goodwill impairment test measures the amount of the impairment loss(measured as of the beginning of the year of adoption), if any, and must becompleted by the end of 2002.  ThePartnership has not yet determined the effect of the adoption of SFAS No. 142.

 

Had SFAS No. 142 been adopted in the first quarter of2001, it would have resulted in $0.2 million, or $0.01 per unit, in additionalearnings, with no impact on cash flow, for the quarter ended March 31, 2001.

 

6

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**Note 6: Supplemental Cash Flow Information**

Supplemental disclosure of cash flow information is asfollows (in thousands):

 
|                                      |   | **Three  months ended March 31,** |   |
|-------------------------------------------|--------|-----------------------------------|--------|
|                                      |   | **2002**                          |   | **2001** |   |
| Cash paid during  the period for interest |   | $                                 | 10,760 |   | $ | 12,435 |   |
|                                           |        |                                   |        |  |  |  |  |

 

**Note 7:Segment Reporting**

The Partnership classifies its businessinto three fundamental areas for purposes of providing segment information: 1)Timberlands, consisting of the sale of logs to the Partnership’s manufacturingfacilities and to third parties, and the sale of timber and timberlands tothird parties; 2) Manufacturing, consisting of the manufacture of logs intolumber and the sale of residual chips to pulp and paper mills; and 3) WholesaleMarketing, consisting of the trading of various forest products and thedistribution of lumber and panel products through the Partnership’sprofessional contractor service yards. Corporate and Other includes generalcorporate overhead and expenses not allocated to the segments, miscellaneousoperations not significant enough to be classified as a separate segment and thegain related to the sale of the Inland South tree farm. The Partnership doesnot show assets by segment, as historic costs are not used by management toallocate resources or assess performance.

 

Thefollowing summarizes the Partnership’s segment information (in thousands):

 
|                 |   | **Three Months Ended March 31,** |    |
|----------------------|--------|----------------------------------|---------|
| **Revenues**         |   | **2002**                         |    | **2001** |   |
| Timberlands:         |   |                             |    |   |   |
| Trade                |   | $                                | 10,758  |   | $ | 22,598 |   |
| Intersegment         |   | 10,546                           |    | 24,887 |   |
|                 |   | 21,304                           |    | 47,485 |   |
| Manufacturing:       |   |                             |    |   |   |
| Trade                |   | 23,776                           |    | 31,864 |   |
| Intersegment         |   | 1,271                            |    | 4,258 |   |
|                 |   | 25,047                           |    | 36,122 |   |
| Wholesale Marketing: |   |                             |    |   |   |
| Trade                |   | 85,948                           |    | 84,156 |   |
| Intersegment         |   | 5,584                            |    | 5,974 |   |
|                 |   | 91,532                           |    | 90,130 |   |
| Corporate and Other: |   |                             |    |   |   |
| Trade                |   | 2,293                            |    | 201 |   |
| Intersegment         |   | 77                               |    | 322 |   |
|                 |   | 2,370                            |    | 523 |   |
| Total:               |   |                             |    |   |   |
| Total Revenue        |   | 140,253                          |    | 174,260 |   |
| Less Intersegment    |   | (17,478                          | )       | (35,441 | ) |
| Net Revenue          |   | $                                | 122,775 |   | $ | 138,819 |   |

 

7

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|                        |   | **Three Months Ended March 31,** |       |
|-----------------------------|--------|----------------------------------|------------|
| **Operating income (loss)** |   | **2002**                         |       | **2001** |   |
|                        |   |                             | ** ** | **(As restated)** | ** ** |
| Timberlands                 |   | $                                | 1,668      |   | $ | 5,685 |   |
| Manufacturing               |   | 565                              |       | (2,902 | ) |
| Wholesale                   |   | 2,514                            |       | 3,039 |   |
| Corporate and Other         |   | 3,325                            |       | (3,556 | ) |
| Operating Income            |   | 8,072                            |       | 2,266 |   |
| Interest Expense            |   | (14,206                          | )          | (15,914 | ) |
| Other                       |   | (798                             | )          | (109 | ) |
| Net Loss                    |   | $                                | (6,932     | ) | $ | (13,757 | ) |

 

**Note 8:  SubsequentEvent – Credit Facility and Senior Note Agreement Amendments**

On April 19, 2002, the Partnership’s senior note agreements and bankcredit facilities were amended.  Thesignificant provisions of the amendments are as follows:

•                  The expiration dates of the Partnership’s working capital andacquisition facilities were extended to December 31, 2005.

•                  As a condition to the closing of the amendments, the Partnership wasrequired to apply $10.0 million of the net proceeds from the sale of its InlandSouth tree farm to prepay outstanding amounts under the working capitalfacility, 50% of the remainder of such net proceeds (after deducting certainfees and expenses) to prepay outstanding borrowings under the acquisitionfacility (approximately $54.7 million) and approximately 50% of the remainderof such net proceeds (after deducting certain fees and expenses) to prepayoutstanding principal of its senior notes (approximately $53.1 million). Thesethree payments were made on April 19, 2002.

•                  The Partnership was also required to apply 50% of the net proceeds fromthe sale of its Inland North tree farm, which closed on April 30, 2002 andgenerated net proceeds of approximately $46.4 million, to prepay outstandingborrowings under the acquisition facility and 50% of the net proceeds to prepayoutstanding principal of its senior notes. An additional $15.7 million of debtreduction is expected following the release of restricted cash in escrow as aresult of a timber verification cruise related to the Inland tree farm sales.Immediately following the application of such net proceeds, the Partnership had$16.5 million outstanding under its working capital facility, $121.3 millionunder its acquisition facility and $409.6 million under the senior notes.

•                  Required principal payments of $5.0 million, $40.0 million and $30.0million are due on the acquisition facility on or before September 30, 2003,January 15, 2004 and June 30, 2005, respectively.  The aggregate commitment of the acquisition facility will be correspondinglyand permanently reduced by such amounts at the times of such payments.

•                  Within 30 days following each September 30 and March 31, throughSeptember 30, 2005, the Partnership is required to make principal payments onthe acquisition facility and the senior notes in an aggregate amount equal to75% of the excess of actual cash flow over forecasted cash flow for theprevious two-quarter period.

•                  The Partnership is required to make mandatory pro rata principalpayments on the senior notes whenever principal payments are made on theacquisition facility so that the acquisition facility and the senior notes arerepaid in the same proportions of outstanding principal amount (except that thePartnership may, at its option, use cash proceeds of permitted equityfinancings to repay principal under the acquisition facility or the seniornotes without making a corresponding payment on the other).

 

8

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•                  The Partnership has the option to defer until December 31, 2005originally scheduled principal payments (but not the mandatory paymentsdescribed in the preceding paragraph) due on the senior notes on December 1,2002, 2003, 2004 and 2005.

•                  If, on July 1, 2005, the Partnership’s senior notes do not have aninvestment grade rating from a nationally recognized rating agency, it isrequired to pay in full, on December 31, 2005, all outstanding amounts due onthe senior notes.  If, on July 1, 2005,its senior notes do have an investment grade rating from a nationallyrecognized rating agency, it is not required to repay the senior notes onDecember 31, 2005, but, instead, the senior note holders will have the option,exercisable no later than August 1, 2005, to put some or all of their seniornotes to the Partnership on December 31, 2005.

•                  The Partnership has agreed to pay interest on the senior notes(including on principal, deferred interest and deferred redemption premiums) ofan additional 100 basis points, or 1.0%. The Partnership may, at its option, defer until December 31, 2005,payment of this additional interest (except accrued interest on prepaidprincipal, which must be paid at the time of prepayment).

•                  Except in certain circumstances, redemption premiums will be due inconnection with principal payments made on the senior notes.  The Partnership has the option to deferpayment of such redemption premiums until December 31, 2005, or, for redemptionpremiums due prior to December 31, 2004, to pay such premiums in common unitsof Crown Pacific Partners, L.P.  Inconjunction with principle repayments associated with proceeds from the Inlandtree farm sales, the Partnership deferred $4.5 million in redemptionpremiums.  If the Partnership has aninvestment grade rating as described in the immediately preceding paragraph, noredemption premiums will be due on any principal payments made on December 31,2005 on notes that are put to the Partnership by the noteholders.

•                  The Partnership has granted registration rights to senior note holderswith respect to any common units they may receive in payment of redemptionpremiums.

•                  Redemption premiums on senior note principal prepayments will now becalculated based on interest rates of U.S. Treasury Securities for similarmaturities, plus 150 basis points, compared to 50 basis points previously.

•                  The senior notes and bank facilities now have substantially identicalrestrictive covenants.  In addition tocomplying with covenants similar to covenants previously contained in thesenior notes and bank facilities, the Partnership must meet certain financialratios and is limited in the amount of its annual capital expenditures.

•                  Further amendment of our working capital facility, acquisition facilityand senior notes will require the written consent of banks holding at least 66-2/3%of the aggregate unpaid principal amount of the acquisition facility loans andthe written consent of holders of at least 55% of the aggregate outstandingprincipal amount of each series of senior notes.

•                  In exchange for these senior note and bank facility amendments, thePartnership granted to the banks and the note holders, as collateral for theits obligations, a security interest in the Partnership’s timberland assets andsubstantially all of its sawmill assets.

•                  As of March 31, 2002, we had violated an affirmative covenantassociated with submitting financial statements and covenant compliancecertificates to our bank lenders, but cured this violation as of April 22,2002.

 

9

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The Partnership is presently determining whether its April 2002 debtrestructuring meets debt extinguishment criteria as outlined in Emerging IssuesTask Force Issue No. 96-19 “Debtor’s Accounting for a Modification or Exchangeof Debt Instruments,” (EITF 96-19).  Ifit is determined that the modifications of the bank facilities or senior notesare substantial, as defined in EITF 96-19, the restructuring will be deemed anextinguishment of the original debt and the issuance of new debt.  Extinguishment accounting could result inthe Partnership recognizing a gain or loss in the second quarter of 2002.  Until the determination of whether or notthe Partnership meets the extinguishment criteria included in EITF 96-19 ismade, the impact, if any, cannot be determined.

 

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

** **

**General**

Our principal operations consist of the growing and harvesting oftimber, the sale of logs and the processing and sale of lumber and other woodproducts.

 

Our ability to implement our business strategy over the long term andour results of operations depend upon a number of factors, many of which arebeyond our 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**

Informationcontained in Item 2 and other sections of this report include forward-lookingstatements including statements regarding our expectations, hopes, beliefs,intentions or strategies regarding the future that are not purely historical,but are based on assumptions that in the future may prove not to be accurate.  These assumptions include harvest volumes,species mix, prices for logs and lumber, demand for housing and levels, timingand amounts received for stumpage, property and asset sales. Our business andprospects are subject to a number of risks, including the volatility of 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 supplyour 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 our products or substitute products are sold, including SoutheastAsia and Japan.  Other risk factorsinclude our ability to implement our business strategy and the value of theU.S. dollar against foreign currencies. These and other risks are described in our registration statements andreports filed from time to time on forms 10-K, 8-K and 10-Q and reports tounitholders, which are available from us or the United States Securities andExchange Commission.

 

**FinancialCondition**

Cashnecessary to enable us to pay for capital expenditures and to satisfy interestand principal payments on indebtedness, is significant.

 

Cashused by operating activities was $5.9 million in the first quarter of 2002 andresulted primarily from a net loss of $4.7 million (net of non-cash expensesand gain on sale of property of $2.2 million) and an increase in inventories of$2.7 million, which were offset in part by a $1.3 million decrease in accountsand notes receivable and an increase in accounts payable and accrued expenses

 

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of$1.6 million.  Working capital increasedto $84.2 million at March 31, 2002 compared to $76.7 million at December 31,2001.

 

Netcash provided by investing activities of $131.0 million resulted primarily from$131.5 million of proceeds from the sale of our Inland South tree farm and thecollection of $2.4 million of notes receivable, which were offset in part bythe use of $1.9 million for additions to timberlands and timber cutting rightsand $0.9 million used for additions to equipment.

 

Netcash used by financing activities of $128.0 million resulted primarily from atransfer of $132.8 million of cash proceeds from the sale of our Inland Southtree farm to restricted cash, offset by a $5.5 million net increase inshort-term borrowings and $0.7 million paid in finance fees.

 

Therestricted cash was applied to pay-down of outstanding debt in April 2002.

 

Additionsto plant and equipment totaled $0.9 million in the first quarter of 2002,primarily for improvements at our Marysville, Gilchrist and Port Angelessawmills and rolling stock for the Alliance and Desert contractor service yardoperations. Additions to timber and timberland purchases totaled $1.9 millionin the first quarter of 2002 and consisted primarily of road construction,reforestation and the purchase of timber. We anticipate spending approximately $9.6 million in 2002 for timber andtimberland additions and plant and equipment. The Managing General Partner expects that capital expenditures will befunded by a combination of any or all of the following: property and assetsales, cash generated from operations, current funds or bank borrowings.

 

Asamended in April 2002, we have a $40 million revolving credit facility with agroup of banks for working capital purposes and stand-by letters of credit thatexpires on December 31, 2005.  Thecredit facility bears a floating rate of interest and is secured by accountsreceivable and inventory.  As requiredby the April 2002 amendments, $10.0 million of the Inland South tree farmproceeds were applied to pay down outstanding principal on this facility and,as of April 30, 2002, $16.5 million was outstanding under this facility.  The weighted average interest rate on thisfacility as of March 31, 2002 was 6.66%.

 

Asamended in April 2002, we have a $199.3 million facility with a group of banksthat previously provided for the acquisition of timber, timberlands and relatedassets and capital expenditures. This facility bears a floating rate ofinterest, is secured by our timberlands and sawmill assets and expires December31, 2005.  As required in the April 2002amendment, $78.0 million of the Inland South and North tree farm sales proceedswere applied to pay down outstanding principal on this facility and, as ofApril 30, 2002, $121.3 million was outstanding.  This balance includes the effect of $23.2 million applied to thisfacility after the sale of our Inland North tree farm, which closed on April30, 2002.  Principal payments of $5.0million, $40.0 million and $30.0 million are due on this facility in September2003, January 2004 and June 2005, respectively.  Principal payments on this facility cannot be re-borrowed.  The weighted average interest rate on this facilityas of March 31, 2002 was 5.70%.

 

Wesought and received the April 2002 bank facility amendments to obtain relieffrom restrictive covenants and upcoming debt maturities during a period of timewhen operating cash flows continue to be negatively impacted by weak log andlumber prices and our decision to preserve our timber assets until pricing forlogs and lumber improves.  In connectionwith these amendments, we paid the banks a fee of $0.6 million, which wasfunded by the Inland South tree farm proceeds. See Note 8 for more information about the amendments.

 

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Our9.78%, 9.60%, 8.17% and 7.80% senior notes, issued in 1994, 1995, 1996 and1998, respectively, and amended in April 2002, are now also secured by ourtimberlands and sawmill assets and require semi-annual interest paymentsthrough 2018. These senior notes, with an aggregate $486.0 million principalamount (as of March 31, 2002), previously required us 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.  As amended in April 2002, we were requiredto apply $76.4 million of the Inland South and North tree farm sale proceeds topay down principal outstanding on these notes and, as of April 30, 2002, therewas $409.6 million outstanding. This balance includes the effect of $23.2million applied to the outstanding balance after the sale of our Inland Northtree farm, which closed on April 30, 2002. The April 2002 amendment also allows us to defer principal payments dueon December 1, 2003, 2004 and 2005, until December 31, 2005.  In addition, we are also required to makemandatory principal payments, on a pro rata basis, with our existing bank debt,if asset sale proceeds or operating cash flow are used to pay outstanding bankprincipal prior to December 31, 2005. Also, we may be required to pay the entire outstanding principalbalance, plus accrued interest, of the senior notes on December 31, 2005 if ourcredit ratings are below investment grade. If our credit ratings are investment grade on July 1, 2005, the noteholders have the right to put to us some or all of their outstanding notes(without any associated redemption charges) on December 31, 2005 after givingnotice to us on August 1, 2005.

 

Thesenior notes are redeemable prior to maturity, subject to payment of a“make-whole” premium, which is calculated based on interest rates of U.S.Treasury securities having a similar average maturity as the senior notes, plus150 basis points.  Additionally, thesenior notes require the application of asset sale proceeds to principalreduction, which, under certain conditions, may be subject to a redemptioncharge.  If asset sales are employed byus as a source of funds for the mandatory principal payments required on ouracquisition facility, as described above, pro rata funds from these asset saleproceeds must also be applied to redeem outstanding notes.  Redemption charges incurred on these prorata payments will be deferred until December 31, 2005, unless we elect to paythe equivalent amount in common units on December 31, 2004.

 

Inexchange for these revisions to the senior note agreements, we agreed to give asecurity interest in our timberlands and sawmill assets pari passu with ourbank lenders and to increase the interest rate on each note by 100 basis pointsuntil December 31, 2005.  Additionally,we paid the note holders an amendment fee of $2.0 million, which was funded bythe Inland South tree farm sale proceeds.

 

We are presently determining whether our April 2002 debt restructuringmeets debt extinguishment criteria as outlined in Emerging Issues Task ForceIssue No. 96-19 “Debtor’s Accounting for a Modification or Exchange of DebtInstruments,” (EITF 96-19).  If it isdetermined that the modifications of the bank facilities or senior notes aresubstantial, as defined in EITF 96-19, the restructuring will be deemed anextinguishment of the original debt and the issuance of new debt.  Extinguishment accounting could result inour recognizing a gain or loss in the second quarter of 2002.  Until the determination of whether or not wemeet the extinguishment criteria included in EITF 96-19 is made, the impact, ifany, cannot be determined.

 

Asso amended, we believe we will be able to remain in compliance with all currentterms and covenants of our note agreements and to meet all future amortizationrequirements.

 

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Allof our senior note agreements and bank facilities contain certain restrictivecovenants, including:

•                  limitationson harvest levels, capital expenditures, land sales, cash distributions,acquisitions and investments;

•                  theamount of future indebtedness;

•                  restrictionson the use of proceeds from property and other assets sales; and

•                  compliancewith certain financial ratios.

 

Asof March 31, 2002, we had violated an affirmative covenant associated withsubmitting financial statements and covenant compliance certificates to ourbank lenders, but cured this violation as of April 22, 2002.

 

Weclosed the sale of our Inland North tree farm on April 30, 2002 for grossproceeds to us of approximately $55.7 million. Additionally, we expect to receive between $5.0 and $7.0 million inproceeds related to the sale of our Coeur d’Alene assets later in 2002.  We are also reevaluating our options relatedto our Prineville sawmill facility.  Thesale of these assets, if consummated later this year, would be expected toproduce proceeds in the range of $2.0 to $4.0 million.  The proceeds from all of these transactionswill be used for repayment of short-term debt and the current portion oflong-term debt.

 

Wedo not expect to make cash distributions from our current funds or from cashgenerated by operating activities until our overall debt levels aresubstantially reduced and significantly improved market conditions will supporta sustained quarterly distribution.

 

**NewAccounting Pronouncements**

 

InJuly 2001, the FASB issued Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets,” (“SFAS 142”).  SFAS 142 requires that goodwill and identifiable intangibleassets determined to have an indefinite life no longer be amortized, butinstead be tested for impairment at least annually.  We adopted SFAS 142 on January 1, 2002.

 

SFAS142 requires that goodwill be tested annually for impairment using a two-stepprocess.  The first step is to identifya potential impairment and, in transition, this step must be measured as of thebeginning of the fiscal year.  However,a company has six months from the date of adoption to complete the firststep.  We expect to complete that firststep of the goodwill impairment test during the second quarter of 2002.  The second step of the goodwill impairmenttest measures the amount of the impairment loss (measured as of the beginningof the year of adoption), if any, and must be completed by the end of2002.  We have not yet determined whateffect the impairment test will have on our results of operations and financialposition.  In connection with theadoption of SFAS 142, we are no longer recording $0.9 million of amortizationexpense per year ($0.2 million in the three months ended March 31, 2002)relating to existing goodwill.  Theunaudited pro forma earnings for the three months ended March 31, 2001 wouldhave increased by $0.2 million, or $0.01 per unit.

 

InAugust 2001, the FASB issued SFAS No. 143, “Accounting for ObligationsAssociated with the Retirement of Long-Lived Assets” (“SFAS 143”).  SFAS 143 establishes accounting standardsfor the recognition and measurement of asset retirement obligations and theassociated asset retirement costs.  Weare required to adopt the provisions of SFAS 143 no later than the firstquarter of 2003.  SFAS 143 is notexpected to have a material impact on our financial position, results ofoperations or cash flows.

 

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InOctober 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 supercedes SFAS No. 121“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of” (“SFAS 121”).  SFAS144 applies to all long-lived assets and consequently amends AccountingPrinciples Board Opinion No. 30 (“APB 30”), Reporting Results of Operations andReporting the Effects of Disposal of a Segment of a Business.  SFAS 144 requires that long-lived assetsthat are to be disposed of by sale be measured at the lower of book value orfair value less cost to sell. Consistent with SFAS 121, long-lived assets to be held and used shouldbe tested for recoverability using undiscounted cash flows upon certaintriggering events.  An impairment existsif long-lived assets are not recoverable and exceed fair value.  Additionally, SFAS 144 expands the scope ofdiscontinued operations to include all components of an entity with operationsthat (1) can be distinguished from the rest of the entity and (2) will beeliminated from the ongoing operations of the entity in a disposal transaction.  The adoption of SFAS 144 on January 1, 2002did not have a material effect on our financial statements.

 

InMay 2002, the FASB issued SFAS 145, “Rescission of FAS Nos. 4, 44, and 64,Amendment of FAS 13, and Technical Corrections.”  Among other things, SFAS 145 rescinds various pronouncementsregarding early extinguishment of debt and allows extraordinary accountingtreatment for early extinguishment only when the provisions of AccountingPrinciples Board Opinion No. 30, “Reporting the Results of Operations —Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently occurring Events and Transactions” aremet.  SFAS 145 provisions regardingearly extinguishment of debt are generally effective for fiscal years beginningafter May 15, 2002.  Management does notbelieve that the adoption of this statement will have a material impact on ourconsolidated financial statements.

 

**Resultsof Operations**

**ThreeMonths Ended March 31, 2002 compared to Three Months Ended March 31, 2001**

 

**General**

Revenuesduring the quarter ended March 31, 2002 decreased $16.0 million, or 11.6%, to$122.8 million, from $138.8 million in the same quarter of 2001.  The decrease reflects the ongoing impact ofsoft lumber and log pricing and reduced fee harvest activity, as well as thesale or closure of three of our sawmills in the latter part of 2001 and theabsence of normal-course property sales during the current period.

 

Costof sales as a percentage of sales decreased slightly to 91.4% in the firstquarter of 2002, compared to 91.6% in the same quarter of 2001.   This slight decrease reflects the benefitof higher efficiencies and cost reductions that more than offset theproportionate increase of increased wholesale revenues, which typically realizelower margins, on our current period sales mix.

 

Gain on sale of assets held for sale of $6.0million in the first quarter of 2002 represents the recognized gain on the saleof our Inland South tree farm in March 2002. We anticipate recognizing an additional gain of $2.9 million in thesecond quarter of 2002 from the April 30, 2002 closing of the sale of ourInland North tree farm.

 

Selling, general and administrativeexpenses decreased $0.9 million, or 9.9%, to $8.5 million in the first quarterof 2002, compared to $9.4 million in the first quarter of 2001, primarily as aresult of lower salaries and wages and the cessation of goodwill amortizationupon adoption of SFAS No. 142 on January 1, 2002.  The lower salaries and wages reflect the sale and/or closure ofthree sawmills 

 

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during the latter part of 2001 and otherreductions implemented throughout the Partnership in late 2001.  Selling, general and administrative expensesrepresented 6.9% of sales in the first quarter of 2002 and 6.8% of sales in thesame quarter of 2001.

 

Interest expense decreased $1.7 million,or 10.7%, to $14.2 million in the first quarter of 2002, from $15.9 million inthe same quarter of 2001.  The decreaseis a result of lower average debt balances in the first quarter of 2002compared to the first quarter of 2001, partially offset by higher interestrates.

 

Amortization of debt issuance costs increased$0.8 million to $1.1 million in the first quarter of 2002 compared to $0.2million in the first quarter of 2001. The increase is due to a total of $3.7 million of debt issuance costsincurred as a result of our April and November 2001 bank facilityamendments.  In April 2002, we incurredan additional $4.5 million of debt issuance costs related to amendments made toour bank facility and senior note agreements. With the addition of the $4.5 million of costs incurred in April 2002,we currently have $11.3 million of unamortized debt issuance costs.

 

The Partnership pays no significantincome taxes and does not include a provision for income taxes in its financialstatements.

 

**Timberlands**

Totalexternal segment sales, including property sales (except for the Inland Southsale) and stumpage sales, decreased 52.4% to $10.8 million, or 8.8% of revenuein the first quarter of 2002, compared to $22.6 million, or 16.3% of revenue inthe first quarter of 2001.  The decreasein external segment sales reflects a 57.8% decrease in log shipments, which wasinfluenced by significantly lower stumpage sale activity and weather relatedproduction delays on the Hamilton tree farm and the absence of any propertysales in the first quarter of 2002.  Thelower stumpage sales and fee harvest activity reflect our on-going strategy tofocus our current fee timber production primarily for internal use while pricesare soft.  These factors more thanoffset the higher log sales volumes from our Inland and Olympic tree farmsduring the first quarter of 2002 compared to the first quarter of 2001.

 

Internalsales of logs to manufacturing decreased 57.6% to $10.5 million in the firstquarter of 2002 from $24.9 million in the first quarter of 2001.  The decrease primarily reflects the absenceof three of our sawmills from the production mix during the first quarter of2002 compared to the first quarter of 2001.

 

Overalloperating income from timberlands, including property sales (except for theInland South sale), decreased $4.0 million, or 70.7%, to $1.7 million in thefirst quarter of 2002 from $5.7 million in the first quarter of 2001, primarilyas a result of $4.4 million of property gains included in the first quarter of2001 compared to none in the first quarter of 2002.   Without the property sales gains in the first quarter of 2001,operating income increased slightly in the first quarter of 2002 compared tothe first quarter of 2001 due to a 20.3% decrease in segment overhead expenseand a 22.4% increase in average sales realization, which were partially offsetby a 33.9% decrease in external revenues (excluding property sales).  The increase in average sales realizationsis a result of the effect of slightly higher lumber prices on domestic logmarkets and a significant decrease in stumpage sales during the first quarterof 2002 compared to the first quarter of 2001.

 

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***Domestic Log Sales***

Averageexternal domestic prices received for logs sold from the various tree farms,including stumpage but excluding pulpwood, were as follows (dollars perthousand board feet (“MBF”):

 
|             |   | **Quarter Ended March 31,** |    |     |    |
|------------------|--------|-----------------------------|---------|----------|---------|
| **Tree Farm**    |   | **2002**                    |    | **2001** |    | **% Change** |   |
| Oregon           |   | —                      |    | $        | 154/MBF |   | (100.0 | )% |
| Inland           |   | $                           | 515/MBF |     | $       | 421/MBF |   | 22.3 | % |
| Hamilton         |   | $                           | 513/MBF |     | $       | 444/MBF |   | 15.5 | % |
| Olympic          |   | $                           | 358/MBF |     | $       | 386/MBF |   | (7.3 | )% |
| Weighted average |   | $                           | 442/MBF |     | $       | 268/MBF |   | 64.9 | % |

 

Increasesat the Inland and Hamilton tree farms are due to the effect that slightlyhigher lumber prices had on domestic log markets as well as the fact that therewere significantly less stumpage sales in the first quarter of 2002 compared tothe first quarter of 2001.  Weanticipate that average realizations will remain flat in the second quarter of2002 compared to the first quarter of 2002.

 

Thedecrease at the Olympic tree farm is due to mix changes in the species andgrades sold during the current period.

 

All volume from the Oregon tree farm was utilized by our Gilchrist milland therefore, there were no external sales from this tree farm.

 

Domestic external log sales volumes decreased****57.8% in the first quarterof 2002 to 18.6 million board feet (MMBF), compared to 44.2 MMBF in the samequarter of 2001, primarily as a result of significantly lower stumpage sales,lower Hamilton fee harvest activity and no external sales from our Oregon treefarm.  The external volume from each ofour tree farms was as follows (in thousands of board feet (MBF)):

 
|          |   | **Quarter Ended March 31,** |   |     |   |
|---------------|--------|-----------------------------|--------|----------|--------|
| **Tree Farm** |   | **2002**                    |   | **2001** |   | **% Change** |   |
| Oregon        |   | —                      |   | 25,031   |   | (100.0 | )% |
| Inland        |   | 7,241                       |   | 3,842    |   | 88.5 | % |
| Hamilton      |   | 2,345                       |   | 7,988    |   | (70.6 | )% |
| Olympic       |   | 9,048                       |   | 7,325    |   | 23.5 | % |
| Total         |   | 18,634                      |   | 44,186   |   | (57.8 | )% |

 

Theincreases at the Inland and Olympic tree farms are a result of a lengthenedlogging season and increased demand, respectively.   We sold a portion of our Inland tree farm in the first quarterof 2002 and sold the final portion of our Inland tree farm on April 30,2002.  Therefore, we expect lower volumefrom the Inland tree farm in the second quarter of 2002 and no volume in thethird and fourth quarters of 2002.

 

Thedecrease at the Hamilton tree farm is primarily due to the impact of snowrelated production delays in the first quarter of 2002 compared to the firstquarter of 2001.

 

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***Export Log Sales***

Salesof logs to customers involved in exporting activities (included in total logsales above) were approximately $1.0 million, or 0.8% of sales in the firstquarter of 2002, compared to $0.7 million, or 0.5% of sales for the samequarter in 2001.  The averagerealization for export logs decreased 18.5% to $479/MBF in the first quarter of2002 compared to $590/MBF in the first quarter of 2001.  Sales volumes of export logs increased 80.4%to 2,102 MBF in the first quarter of 2002 compared to 1,165 MBF in the firstquarter of 2001.   The increase involume is primarily due to increased shipments from our Hamilton tree farm as aresult of an increase in demand for Korean sort logs. The decrease inrealization is primarily a result of a change in mix to more relatively lowergrade Korean sort logs during the first quarter of 2002 compared to the firstquarter of 2001.

 

***Property Sales***

Exceptfor the disposition of the Inland South tree farm, we did not have any propertysales in the first quarter of 2002. This level compares to revenue and operating income from property salesin the first quarter of 2001 of $6.3 million and $4.4 million,respectively.  Aside from the closure ofthe Inland North tree farm sale, we do not anticipate any property sales in thesecond quarter of 2002.

 

**Manufacturing**

Segmentsales, excluding sales of lumber products through the wholesale marketingsegment, decreased $8.1 million, or 25.4% to $23.8 million, or 19.4% of sales,in the first quarter of 2002 from $31.9 million, or 23.0% of sales, in the samequarter of 2001.  The decreased revenuesreflect a 28.7% decrease in external lumber sales volume and a 33.9% decline inchip revenue, offset in part by a 2.9% increase in average external lumbersales realizations.  The higher salesrealizations reflect the benefit of improved lumber market pricing.

 

Operatingincome from manufacturing was $0.6 million in the first quarter of 2002compared to an operating loss of $2.9 million in the first quarter of2001.  The improved operating resultsare primarily a result of the 3.3% increase in average sales realizations asmentioned above, lower log costs, a significant decrease in segment overheadexpense and the absence of the Bonners Ferry, Coeur d’Alene and Prinevillesawmills from the manufacturing segment in the first quarter of 2002 comparedto the first quarter of 2001.  The lowerlog costs are a result of the absence of three sawmills that consumed primarilyhigher cost logs, together with lower log costs at our Gilchrist operationduring the first quarter of 2002 compared to 2001.

 

Averageprices received for all lumber sales, excluding sales to the wholesaledivision, in the various regions were as follows:

 
|             |   | **Quarter Ended March 31,** |    |     |    |
|------------------|--------|-----------------------------|---------|----------|---------|
| **Region**       |   | **2002**                    |    | **2001** |    | **% Change** |   |
| Oregon           |   | $                           | 284/MBF |     | $       | 285/MBF |   | (0.4 | )% |
| Inland           |   | —                      |    | $        | 277/MBF |   | (100.0 | )% |
| Washington       |   | $                           | 276/MBF |     | $       | 250/MBF |   | 10.4 | % |
| Weighted average |   | $                           | 281/MBF |     | $       | 272/MBF |   | 3.3 | % |

 

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Externallumber sales volumes decreased 28.7% in the first quarter of 2002 to 72.2 MMBFcompared to 101.1 MMBF in the same period of 2001.  External sales volumes from the various regions were as follows(in MBF):

 
|       |   | **Quarter Ended March 31,** |   |     |   |
|------------|--------|-----------------------------|--------|----------|--------|
| **Region** |   | **2002**                    |   | **2001** |   | **% Change** |   |
| Oregon     |   | 42,584                      |   | 36,378   |   | 17.1 | % |
| Inland     |   | —                      |   | 35,022   |   | (100.0 | )% |
| Washington |   | 29,573                      |   | 29,733   |   | (0.5 | )% |
| Total      |   | 72,157                      |   | 101,133  |   | (28.7 | )% |

 

Theincreased volume from the Oregon region reflects improved operatingefficiencies at our Gilchrist facility in the first quarter of 2002 compared tothe first quarter of 2001, which more than offset the absence of the Prinevillesawmill in 2002.  We anticipate thatboth external sales volume and average realizations will improve slightly inthe Oregon region during the second quarter of 2002 compared to the firstquarter of 2002.

 

Althoughexternal shipments from the Washington region slightly declined, internalshipments from the Washington region increased 60.7% to 3.8MMBF in the firstquarter of 2002 compared to 2001.  Theincrease in internal shipments is primarily a result of improved efficiency atthe Marysville sawmill and higher production at the Port Angeles facility thatserved increased demand from our wholesale marketing segment.  During the first quarter of 2002, a dry kilnroof at Marysville was replaced and a new heat exchanger was installed at PortAngeles.  These improvements contributedto the increased efficiency and production. We anticipate a slight decrease in volume from the Washington region inthe second quarter of 2002 compared to the first quarter of 2002 and anincrease in the average realizations.

 

By-productrevenues accounted for 2.3% of revenue in the first quarter of 2002, comparedto 3.3% of revenue in the first quarter of 2001.  Residual wood chip prices decreased to $65 per bone dry unit(BDU) in the first quarter of 2002 compared to $74/BDU in the first quarter of2001. The lower average realization reflects the impact of depressed pulpindustry pricing.  We anticipate thatchip prices will continue to decline in the second quarter of 2002.  Woodchip sales volume decreased 24.5% to36,756 BDUs in the first quarter of 2002 compared to 48,654 BDUs in the firstquarter of 2001.  The lower volumereflects the absence of the Inland region and Prineville sawmills from thesales mix, which were offset in part by increased volume at the Port Angelessawmill as a result of a “catch-up” order from a major customer.  This customer curtailed purchases in thefourth quarter of 2001.

 

**WholesaleMarketing**

Ourwholesale marketing segment involves sales of lumber and other wood products,most of which were not manufactured by us. Sales from the wholesale segment increased $1.8 million, or 2.1%, to$85.9 million, 70.0% of sales, in the first quarter of 2002 from $84.2 million,or 60.6% of sales in the first quarter of 2001.  Operating income from wholesale operations decreased 17.3% to$2.5 million in the first quarter of 2002 from $3.0 million in the firstquarter of 2001.  The increase inrevenue reflects the benefit of increased lumber and panel prices and highervolume at our Eugene operation, which was offset in part by lower demand at ourAlliance Lumber operation and increased competition at our Las Vegas DesertLumber operation.

 

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Salesvolume of Partnership-produced lumber through the wholesale marketing segmentdecreased 66.8% during the first quarter of 2002 compared to the first quarterof 2001, due primarily to the absence of three sawmills in the mix during the2002 period.  Volume from comparablemills decreased 17.8% due to our defensive strategy during 2001 to sell highervolumes internally during periods of weak prices.  In addition, the mix of Partnership-produced lumber, which is nowmore influenced by the Gilchrist sawmill output, has a larger appeal in areasoutside the Phoenix and Las Vegas markets.

 

Thedecline in operating profit is primarily a result of a significantproportionate increase in the Eugene wholesale operation revenues in theoverall sales mix.  The Eugene operationtypically produces a lower operating margin, compared to the other operationsin this segment, given its business as a true wholesaling operation.  Lower profit margin contributions from ourAlliance Lumber and Desert Lumber operations during the first quarter of 2002compared to the first quarter of 2001 primarily reflect the impact of lowerrevenues on a fixed operating cost base.

 

Weanticipate modest declines in the wholesale marketing segment profit in thesecond quarter of 2002 compared to the first quarter of 2002.

 

**Item3.****  Quantitative andQualitative Disclosures About Market Risk**

** **

Ouronly financial instruments with market risk exposure are our variable ratelines of bank credit.  At March 31,2002, we had $223.8 million outstanding under our lines of credit with aweighted average interest rate of 5.81%. A hypothetical 10 percent increase in interest rates to 6.39% would nothave a material impact on our cash flows.

 

**PART II****– OTHER INFORMATION**

 

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

 

**(a) There are no exhibits to be filedwith this report on Form 10-Q.**

 

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

We filed one report on Form 8-K on February 15, 2002under Item 5. Other Events regarding the entering into of two agreements tosell parcels comprising our entire Northern Idaho tree farm.

 

In addition, the following reports on Form 8-K werefiled on April 2, 2002 and April 29, 2002, respectively:

 

•                  Under Item 5. Other Events regarding the closing of the Inland Southtree farm for gross proceeds of $133.8 million.

•                  Under Item 5. Other Events regarding amendments to our bank facilityand senior note agreements.

 

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**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:   May 13, 2002 | CROWN  PACIFIC PARTNERS, L.P.                                             |
|--------------------------------|---------------------------------------------------------------------------|
|                           |                                                                      |
|                           |                                                                      |
|                           | By:                                                                       | Crown Pacific Management Limited Partnership, as  Managing 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) |

 

 

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