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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 333-63825
SCOTIA PACIFIC COMPANY LLC
(Exact name of Registrant as Specified in its Charter)
DELAWARE 68-0414690
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P. O. BOX 712 95565
125 MAIN STREET, 2ND FLOOR (Zip Code)
SCOTIA, CALIFORNIA
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (707) 764-2330
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
The Registrant is a limited liability company wholly owned by an
affiliate of the Registrant.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE:
Not applicable.
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TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants
Balance Sheet
Statement of Income
Statement of Cash Flows
Notes to Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Items
10-13. Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
ITEM 1. BUSINESS
GENERAL
Scotia Pacific Company LLC (the "COMPANY"), a special purpose Delaware
limited liability company wholly owned by The Pacific Lumber Company ("PACIFIC
LUMBER"), was organized by Pacific Lumber in May 1998 to facilitate the sale of
$160.7 million of the Company's 6.55% Class A-1 Timber Collateralized Notes due
2028, (the "CLASS A-1 NOTES"), $243.2 million of the Company's 7.11% Class A-2
Timber Collateralized Notes due 2028 (the "CLASS A-2 NOTES") and $463.3 million
of the Company's 7.71% Class A-3 Timber Collateralized Notes due 2028 (the
"CLASS A-3 NOTES," together with the Class A-1 Timber Notes and the Class A-2
Timber Notes, the "TIMBER NOTES"). The Indenture governing the Timber Notes is
referred to herein as the " INDENTURE." Pacific Lumber is a wholly owned
subsidiary of MAXXAM Group Inc. ("MGI"), and also wholly owns Salmon Creek LLC
(formerly known as Salmon Creek Corporation; "SALMON CREEK"). MGI is a wholly
owned subsidiary of MAXXAM Group Holdings Inc. ("MGHI"), which in turn is a
wholly owned subsidiary of MAXXAM Inc. ("MAXXAM"). As used herein, the terms
"MGHI," "MGI," "Pacific Lumber," or "MAXXAM" refer to the respective companies
and their subsidiaries, unless otherwise noted or the context indicates
otherwise.
This Annual Report on Form 10-K contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places
(see Item 1. "Business--Harvesting Practices" and "--Regulatory and
Environmental Factors," Item 3. "Legal Proceedings" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Log Sales to Pacific Lumber," "--Financial
Condition and Investing and Financing Activities" and "--Trends"). Such
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from the forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new or
modified statutory or regulatory requirements and changing prices and market
conditions. This Report identifies other factors that could cause such
differences between such forward-looking statements and actual results. No
assurance can be given that these are all of the factors that could cause actual
results to vary materially from the forward-looking statements.
CONSUMMATION OF THE HEADWATERS AGREEMENT
On March 1, 1999, Pacific Lumber, the Company and Salmon Creek
(collectively, the "PALCO COMPANIES") consummated the Headwaters Agreement (the
"HEADWATERS AGREEMENT") with the United States and California. See "--Regulatory
and Environmental Factors" below. Pursuant to the terms of the Headwaters
Agreement, approximately 5,600 acres of timberlands owned by the Palco Companies
known as the Headwaters Forest and the Elk Head Springs Forest (the "HEADWATERS
TIMBERLANDS") were transferred to the United States. A substantial portion of
the Headwaters Timberlands consists of virgin old growth timberlands. In
consideration for the transfer of the Headwaters Timberlands, Salmon Creek was
paid $299.9 million, the Company was paid $150,000 and approximately 7,700 acres
of timberlands known as the Elk River Timberlands (the "ELK RIVER TIMBERLANDS")
were transferred to Pacific Lumber and subsequently transferred to the Company.
In addition, upon consummation of the Headwaters Agreement (i) habitat
conservation and sustained yield plans were approved covering the Company's
timberlands, (ii) California agreed to purchase the Company's Owl Creek grove
and a portion of Pacific Lumber's Grizzly Creek grove, and (iii) the Palco
Companies dismissed takings litigation pending against the United States and
California. Salmon Creek deposited $285.0 million of the proceeds from the sale
of the Headwaters Timberlands into escrow pursuant to an Escrow Agreement (the
"ESCROW AGREEMENT"). These proceeds were released from escrow in November 1999,
with $169.0 million being placed into a Scheduled Amortization Reserve Account
("SAR ACCOUNT") in order to support principal payments on the Timber Notes. See
"--Regulatory and Environmental Factors--Escrow Agreement and SAR Account"
below.
TIMBER AND TIMBERLANDS
The Company owns, and the obligations of the Company under the Timber
Notes are secured by (i) approximately 206,000 acres of timberlands, (ii) the
timber and related harvesting rights (the "COMPANY TIMBER RIGHTS") with respect
to an additional approximately 12,200 acres of timberlands that are owned by
Pacific Lumber, Salmon Creek and an unaffiliated third party, (iii)
approximately 1,100 acres of timberlands with respect to which Pacific Lumber
owns the Timber Rights (the "PACIFIC LUMBER TIMBER RIGHTS"), (iv) certain
computer hardware and software, including a geographic information system
("GIS") containing information on numerous aspects of the Company's timberlands
(subject to certain rights of concurrent use by Pacific Lumber) and (v) certain
other assets. Substantially all of the Company's assets serve as security for
the Timber Notes. The timberlands owned by the Company (including the
timberlands which are subject to the Pacific Lumber Timber Rights) and the
timberlands subject to the Company Timber Rights are hereinafter collectively
referred to as the "COMPANY TIMBERLANDS." The timber located on the Company
Timberlands which is not subject to the Pacific Lumber Timber Rights is
hereinafter referred to as the "COMPANY TIMBER."
Timber generally is categorized by species and the age of a tree when it
is harvested. "OLD GROWTH" trees are often defined as trees which have been
growing for approximately 200 years or longer, and "YOUNG GROWTH" trees are
those which have been growing for less than 200 years. The forest products
industry grades lumber into various classifications according to quality. The
two broad categories into which all grades fall based on the absence or presence
of knots are called "upper" and "common" grades, respectively. Old growth trees
have a higher percentage of upper grade lumber than young growth trees.
The Company estimates that the amount of Company Timber consists of
approximately 3.2 million Mbfe (as described below) of timber by volume, and is
comprised of primarily young growth and old growth redwood and Douglas-fir
timber. In addition, substantial quantities of sub-merchantable trees exist on
the Company Timberlands which are not yet mature and have not been included in
the inventory of the Company Timber. The estimates of the volume of timber
comprising the Company Timber are based on a timber cruise performed in 1986 of
all of Pacific Lumber's properties at that time, as adjusted to reflect
acquisitions, dispositions, and actual harvest levels since the cruise and
estimated growth rates of the Company Timber.
Under the Mbfe concept, one thousand board feet, net Scribner scale, of
old growth redwood timber equals one Mbfe. One thousand board feet, net Scribner
scale, of each other species and category of timber included in the Company
Timber was assigned a value equal to a fraction of an Mbfe. This fraction was
generally determined by dividing the June 1998 SBE Price applicable to such
species and category by the June 1998 SBE Price applicable to old growth
redwood. "SBE PRICE" is the applicable stumpage price for each species of timber
and category thereof pursuant to a schedule published periodically by the
California State Board of Equalization. See "--Operation of Company Timberlands"
and "--Harvesting Practices" below.
During the past few years, legal challenges have severely restricted
Pacific Lumber's ability to harvest the virgin old growth timber on its
property, and to a lesser extent, residual old growth timber. In addition, the
Company's ability to harvest old growth timber has also been and is expected to
continue to be subject to restrictions under federal and state environmental
laws, and also be subject to the prescriptions contained in the Environmental
Plans (as defined below) agreed to in connection with the consummation of the
Headwaters Agreement. See "--Regulatory and Environmental Factors" below.
The Company Timber consists substantially of redwood and Douglas-fir
timber. Redwood lumber is a premium, high value-added product which has
different supply and demand characteristics from the general lumber market.
Redwood is known for its natural beauty, superior ability to retain paints and
finishes, dimensional stability and its innate resistance to decay, insects and
chemicals. As a result, redwood lumber is generally not used for commodity
applications such as structural frames for construction, but is used instead for
specialty applications such as exterior siding, trim and fascia for both
residential and commercial construction, outdoor furniture, decks, planters and
retaining walls. Redwood also has a variety of industrial applications because
of its resistance to chemicals and because it does not impart any taste or odor
to liquids or solids. Redwood prices have exhibited stability compared to most
other softwood timber types, and redwood lumber has historically commanded a
substantial price premium to other softwood timber types. Redwood is grown
commercially only in North America in a region that extends for approximately
375 miles along the coast of the Pacific Northwest. The combination of excellent
soil conditions and climate makes this region one of the most productive timber
regions in North America.
Douglas-fir is used primarily for new construction and some decorative
purposes and is widely recognized for its strength, hard surface and attractive
appearance. Douglas-fir is grown commercially along the west coast of North
America and in Chile and New Zealand.
Pacific Lumber engages in extensive efforts to supplement the natural
regeneration of the Company Timber and increase the amount of timber on the
Company Timberlands. The Company is required to comply with California forestry
regulations regarding reforestation, which generally require that an area be
reforested to specified standards within an established period of time. Pursuant
to the Services Agreement described below (see "--Operation of Company
Timberlands"), Pacific Lumber conducts regeneration activities on the Company
Timberlands for the Company. Regeneration of redwood timber generally is
accomplished through the natural growth of new redwood sprouts from the stump
remaining after a redwood tree is harvested. Such new redwood sprouts grow
quickly, thriving on existing mature root systems. In addition, Pacific Lumber
supplements natural redwood regeneration by planting redwood seedlings.
Douglas-fir timber is regenerated almost entirely by planting seedlings. During
1999, Pacific Lumber planted an estimated 971,000 redwood and Douglas-fir
seedlings on the Company Timberlands.
California law requires timber owners such as the Company to demonstrate
that their operations will not decrease the sustainable productivity of their
timberlands. A timber company may comply with this requirement by submitting a
sustained yield plan to the California Department of Forestry ("CDF") for review
and approval. A sustained yield plan contains a timber growth and yield
assessment, which evaluates and calculates the amount of timber and long-term
production outlook for a company's timberlands, a fish and wildlife assessment,
which addresses the condition and management of fisheries and wildlife in the
area, and a watershed assessment, which addresses the protection of aquatic
resources. The relevant regulations require determination of a long-term
sustained yield ("LTSY") harvest level, which is the average annual harvest
level that the management area is capable of sustaining in the last decade of a
100-year planning horizon. The LTSY is determined based upon timber inventory,
projected growth and harvesting methodologies, as well as soil, water, air,
wildlife and other relevant considerations. A sustained yield plan must
demonstrate that the average annual harvest over any rolling ten-year period
within the planning horizon does not exceed the LTSY.
The Company is also subject to federal and state laws providing for the
protection and conservation of wildlife species which have been designated as
endangered or threatened, certain of which are found on the Company Timberlands.
These laws generally prohibit certain adverse impacts on such species (referred
to as a "TAKE"), except for incidental takes which do not jeopardize the
continued existence of the affected species and which are made in accordance
with an approved habitat conservation plan and related incidental take permit. A
habitat conservation plan analyzes the impact of the incidental take and
specifies measures to monitor, minimize and mitigate such impact. In connection
with the consummation of the Headwaters Agreement, the Company and Pacific
Lumber reached agreement with various federal and state regulatory agencies with
respect to a sustained yield plan (the "SYP") and a multi-species habitat
conservation plan (the "HCP," together with the SYP, the "ENVIRONMENTAL PLANS").
See "--Regulatory and Environmental Factors" below.
OPERATION OF COMPANY TIMBERLANDS
The Company's foresters, wildlife and fisheries biologists, geologists and
other personnel are responsible for providing a number of forest stewardship
techniques, including protecting the Company Timber from forest fires, erosion,
insects and other damage, overseeing reforestation activities and monitoring
environmental and regulatory compliance. The Company's personnel are also
responsible for preparing timber harvesting plans ("THPS") and also updating the
GIS that contains information on numerous aspects of the Company Timberlands,
such as timber type, tree class, wildlife data, roads, rivers and streams. See
"--Harvesting Practices" below for a description of the Company's GIS updating
process and the THP preparation process.
The Company is a party with Pacific Lumber to a master purchase agreement
(the "MASTER PURCHASE AGREEMENT") which governs the sale to Pacific Lumber of
logs harvested from the Company Timberlands. As Pacific Lumber purchases logs
from the Company pursuant to the Master Purchase Agreement, Pacific Lumber is
responsible, at its own expense, for harvesting and removing the standing
Company Timber covered by approved THPs, and the purchase price is therefore
based upon "stumpage prices." Title to, and the obligation to pay for, harvested
logs does not pass to Pacific Lumber until the logs are transported to Pacific
Lumber's log decks and measured. The Master Purchase Agreement generally
contemplates that all sales of logs by the Company to Pacific Lumber will be at
a price which equals or exceeds the applicable SBE Price. The Master Purchase
Agreement defines the SBE Price for any species and category of timber as the
stumpage price for such species and category, as set forth in the most recent
"HARVEST VALUE SCHEDULE" (or any successor publication) published by the
California State Board of Equalization (or any successor agency) applicable to
the timber sold during the period covered by such Harvest Value Schedule.
Harvest Value Schedules are published twice a year for purposes of computing a
yield tax imposed on timber harvested between January 1 through June 30 and July
1 through December 31. SBE Prices are not necessarily representative of actual
prices that would be realized from unrelated parties at subsequent dates.
After obtaining an approved THP, the Company offers for sale the logs to
be harvested pursuant to such THP. While the Company may sell logs to third
parties, it derives substantially all of its revenue from the sale of logs to
Pacific Lumber pursuant to the Master Purchase Agreement. Each sale of logs by
the Company to Pacific Lumber is made pursuant to a separate log purchase
agreement that relates to the Company Timber covered by an approved THP and
incorporates the provisions of the Master Purchase Agreement. Each such log
purchase agreement provides for the sale to Pacific Lumber of the logs harvested
from the Company Timber covered by such THP and generally constitutes an
exclusive agreement with respect to the timber covered thereby, subject to
certain limited exceptions. However, the timing and amount of log purchases by
Pacific Lumber is affected by factors outside the control of the Company,
including regulatory and environmental factors, the financial condition of
Pacific Lumber, and the supply and demand for lumber products (which, in turn,
will be influenced by demand in the housing, construction and remodeling
industries).
The Company continues to rely on Pacific Lumber to provide operational,
management and related services not performed by its own employees with respect
to the Company Timberlands pursuant to a services agreement (the "SERVICES
AGREEMENT"). The services under the Services Agreement include the furnishing of
all equipment, personnel and expertise not within the Company's possession and
reasonably necessary for the operation and maintenance of the Company
Timberlands and the Company Timber as well as timber management techniques
designed to supplement the natural regeneration of, and increase the amount of,
Company Timber. Pacific Lumber is required to provide all services under the
Services Agreement in a manner consistent in all material respects with prudent
business practices which, in the reasonable judgment of Pacific Lumber (a) are
consistent with then current applicable industry standards and (b) are in
compliance in all material respects with all applicable timber laws. As
compensation for the services provided by Pacific Lumber pursuant to the
Services Agreement, the Company pays Pacific Lumber a services fee ("SERVICES
FEE") which is adjusted each year based on a specified government index relating
to wood products and reimburses Pacific Lumber for the cost of constructing,
rehabilitating and maintaining roads, and performing reforestation services, on
the Company Timberlands, as determined in accordance with generally accepted
accounting principles. Certain of such reimbursable expenses are expected to
vary in relation to the amount of timber to be harvested in any given period.
The Company and Pacific Lumber are also parties to an additional services
agreement (the "ADDITIONAL SERVICES AGREEMENT") pursuant to which the Company
provides certain services to Pacific Lumber. Services include (a) assisting
Pacific Lumber to operate, maintain and harvest its own timber properties, (b)
updating and providing access to the GIS with respect to information concerning
Pacific Lumber's own timber properties and (c) assisting Pacific Lumber with its
statutory and regulatory compliance. Pacific Lumber pays the Company a fee for
such services equal to the actual cost of providing such services, as determined
in accordance with generally accepted accounting principles.
The Company, Pacific Lumber and Salmon Creek are also parties to a
reciprocal rights agreement (the "RECIPROCAL RIGHTS AGREEMENT") whereby, among
other things, the parties granted to each other certain reciprocal rights of
egress and ingress through their respective properties in connection with the
operation and maintenance of such properties and their respective businesses. In
addition, Pacific Lumber and the Company are parties to an environmental
indemnification agreement (the "ENVIRONMENTAL INDEMNIFICATION AGREEMENT"),
pursuant to which Pacific Lumber has agreed to indemnify the Company from and
against certain present and future liabilities arising with respect to hazardous
materials, hazardous materials contamination or disposal sites, or under
environmental laws with respect to the Company Timberlands. In particular,
Pacific Lumber is liable with respect to any contamination which occurred on the
Company Timberlands prior to the date of their transfer to the Company.
HARVESTING PRACTICES
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.
The GIS contains information regarding numerous aspects of the Company
Timberlands, including timber type, tree class, wildlife data, roads, rivers and
streams. Subject to the terms of the Services Agreement, Pacific Lumber, to the
extent necessary, provides the Company with personnel and technical assistance
to assist the Company in updating, upgrading and improving the GIS and the other
computer systems owned by the Company. By carefully monitoring and updating this
data base and conducting field studies, the Company's foresters, with the
assistance (if required) of Pacific Lumber pursuant to the Services Agreement,
are better able to develop detailed THPs addressing the various regulatory
requirements. The Company also utilizes a Global Positioning System ("GPS")
which allows precise location of geographic features through satellite
positioning. Use of the GPS greatly enhances the quality and efficiency of the
GIS data.
The ability of the Company to harvest timber will depend, in part, upon
its ability to obtain regulatory approval of THPs. Prior to harvesting timber in
California, companies are required to file with the CDF, and obtain its approval
of, a detailed THP for the area to be harvested. A THP must be submitted by a
registered professional forester and must include information regarding the
method of proposed timber operations for a specified area, whether the
operations will have any adverse impact on the environment and, if so, the
mitigation measures to be used to reduce any such impact. The CDF's evaluation
of THPs incorporates review and analysis of such THPs by several California and
federal agencies and public comments received with respect to such THPs. An
approved THP is applicable to specific acreage and specifies the harvesting
method and other conditions relating to the harvesting of the timber covered by
such THP. The number of the Company's approved THPs and the amount of timber
covered by such THPs varies significantly from time to time, depending upon the
timing of agency review and other factors. Timber covered by an approved THP is
typically harvested over more than one year. The Indenture requires the Company
to use its best efforts (consistent with prudent business practices) to maintain
a number of pending THPs which, together with THPs previously approved, would
cover rights to harvest a quantity of Company Timber adequate to pay interest
and principal amortization based on the Minimum Principal Amortization Schedule
for the Timber Notes for the next succeeding twelve month period. Despite its
best efforts, during the second half of 1998, into 1999 and through early 2000
the Company has experienced an absence of a sufficient number of available THPs
for harvest to enable it to conduct its operations at historical levels. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations--Log Sales to Pacific Lumber" and
"--Trends." The Company believes that the Environmental Plans should in the
long-term expedite the preparation and facilitate approval of its THPs, although
the Company is experiencing difficulties in the THP approval process as it
implements the Environmental Plans.
The Company employs a variety of well-accepted methods of selecting trees
for harvest. These methods, which are designed to achieve optimal regeneration,
are referred to as "silvicultural systems" in the forestry profession.
Silvicultural systems range from very light thinnings aimed at enhancing the
growth rate of retained trees to clear cutting which results in the harvest of
all trees in an area and replacement with a new forest stand. In between are a
number of varying levels of partial harvests which can be employed.
EMPLOYEES
As of March 1, 2000, the Company employed 72 persons, 69 of whom were
registered professional foresters, wildlife and fisheries biologists or
otherwise involved in the management of the Company Timberlands. None of the
Company's employees are covered by a collective bargaining agreement.
PRINCIPAL EXECUTIVE OFFICES
The principal executive offices of the Company are located at 125 Main
Street, 2nd Floor, P.O. Box 712, Scotia, California 95565. The telephone number
of the Company is (707) 764-2330.
REGULATORY AND ENVIRONMENTAL FACTORS
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.
General
The Company's business is subject to the Environmental Plans and a variety
of California and federal laws and regulations dealing with timber harvesting,
threatened and endangered species and habitat for such species, and air and
water quality. Compliance with such laws and regulations also plays a
significant role in Pacific Lumber's business. The California Forest Practice
Act (the "FOREST PRACTICE ACT") and related regulations adopted by the
California Board of Forestry (the "BOF") set forth detailed requirements for the
conduct of timber harvesting operations in California. These requirements
include the obligation of timber companies submitting THPs to prepare, and
obtain regulatory approval of, detailed THPs containing information with respect
to areas proposed to be harvested (see "--Harvesting Practices" above).
California law also requires large timber companies to demonstrate that their
proposed timber operations will not decrease the sustainable productivity of
their timberlands (see "--Timber and Timberlands" above). The federal Endangered
Species Act (the "ESA") and California Endangered Species Act (the "CESA")
provide in general for the protection and conservation of specifically listed
wildlife and plants which have been declared to be endangered or threatened.
These laws generally prohibit the take of certain species, except for incidental
takes pursuant to otherwise lawful activities which do not jeopardize the
continued existence of the affected species and which are made in accordance
with an approved habitat conservation plan and related incidental take permits.
A habitat conservation plan, among other things, analyzes the potential impact
of the incidental take of species and specifies measures to monitor, minimize
and mitigate such impact. The operations of the Company are also subject to the
California Environmental Quality Act (the "CEQA"), which provides for protection
of the state's air and water quality and wildlife, and the California Water
Quality Act and Federal Clean Water Act, which require that Pacific Lumber
conduct its operations so as to reasonably protect the water quality of nearby
rivers and streams. Compliance with such laws, regulations and judicial and
administrative interpretations, together with other regulatory and environmental
matters, have resulted in restrictions on the scope and timing of the Company's
timber operations, increased operational costs and engendered litigation and
other challenges to its operations.
The Headwaters Agreement
In order to, among other things, mitigate these difficulties, on March 1,
1999, the Company, Pacific Lumber and Salmon Creek consummated the Headwaters
Agreement with the United States and California. See "--Consummation of the
Headwaters Agreement" above. The Board of Managers of the Company (the "BOARD OF
MANAGERS"), pursuant to a recommendation by a special committee of the Board of
Managers which had been appointed to review the Headwaters Agreement, voted to
consummate the transactions contemplated by the Headwaters Agreement. A
condition of the approval of the transactions by the Board of Managers was that
the net proceeds from the sale of the Headwaters Timberlands, subject to release
upon the satisfaction of certain conditions, be deposited in a restricted
account or trust arrangement to support the Timber Notes. See "--Escrow
Agreement and SAR Account" and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition and Investing
and Financing Activities" below.
The Environmental Plans
The Environmental Plans, consisting of the HCP and the SYP, were approved
by the applicable federal and state regulatory agencies upon the consummation of
the Headwaters Agreement. In connection with the approval of the Environmental
Plans, incidental take permits ("PERMITS") were issued with respect to certain
threatened, endangered and other species found on the Company Timberlands. The
Permits cover the 50-year term of the HCP and allow incidental takes of 17
different species covered by the HCP, including four species which are found on
the Company Timberlands and had previously been listed as endangered or
threatened under the ESA and/or the CESA. The agreements which implement the
Environmental Plans also provide for various remedies (including the issuance of
written stop orders and liquidated damages) in the event of a breach of these
agreements or the Environmental Plans by the Company.
Under the Environmental Plans, harvesting activities are prohibited or
restricted on certain areas of the Company Timberlands. For a 50-year period,
harvesting activities are severely restricted in several areas (consisting of
substantial quantities of old growth redwood and Douglas-fir timber) to serve as
habitat conservation areas for the marbled murrelet, a coastal seabird, and
certain other species. Additional areas alongside streamsides have been
designated as buffers, in which harvesting is prohibited or restricted, to
protect aquatic and riparian habitat. These streamside buffers may be adjusted
up or down, subject to certain minimum and maximum buffers, based upon a
watershed analysis process, which the HCP requires be completed within five
years of its effective date. Further, harvesting in other areas of the Company
Timberlands is currently prohibited while these areas are evaluated for the
potential risk of landslide and the degree to which harvesting activities will
be prohibited or restricted in the future.
The HCP also imposes certain restrictions on the use of roads on the
timberlands covered by the HCP during several months of the year and during
periods of wet weather, except for certain limited situations. These
restrictions may restrict operations so that certain harvesting activities can
generally only be carried out from June through October of any particular
harvest year, and then only if wet weather conditions do not exist. However, the
Company anticipates that some harvesting will be able to be conducted during the
other months. The HCP also requires that 75 miles of roads be stormproofed on an
annual basis. Certain other roads must be built or repaired. The HCP requires
the stormproofing to be done between May 2 and October 14 of each year, while
the road building and repair is to be accomplished between June 2 and October 14
of each year. The road stormproofing and building and repair is also required to
be suspended if certain wet weather conditions exist.
The HCP contains an adaptive management provision, which various
regulatory agencies have clarified will be implemented on a timely and efficient
basis, and in a manner which will be both biologically and economically sound.
This provision allows the Palco Companies to propose changes to any of the HCP
prescriptions based on, among other things, certain economic considerations. The
regulatory agencies have also clarified that in applying this adaptive
management provision, to the extent the changes proposed do not result in the
jeopardy of a particular species, the regulatory agencies will consider the
practicality of the suggested changes, including the cost and economic
feasibility and viability.
Owl Creek and Grizzly Creek Agreements
In connection with the consummation of the Headwaters Agreement,
California entered into agreements with respect to the future purchase of the
Company's Owl Creek grove (the "OWL CREEK AGREEMENT") and a portion of Pacific
Lumber's Grizzly Creek grove (the "GRIZZLY CREEK AGREEMENT").
Under the Owl Creek Agreement, the Company agreed to sell the Owl Creek
grove to the state of California for consideration consisting of the lesser of
the appraised fair market value or $79.7 million. The state may pay the
consideration for the Owl Creek grove to the Company in cash or, at the state's
option, 25% in cash and the balance in three equal annual installments without
interest. California must purchase the Owl Creek grove by June 30, 2001.
Consummation of the purchase is also subject to typical real estate title and
other closing conditions. The Company is continuing to work with California to
consummate the sale of the Owl Creek grove. See Note 2 to the Financial
Statements.
Water Quality
Under the Federal Clean Water Act, the Environmental Protection Agency
(the "EPA") is required to establish total maximum daily load limits ("TMDLS")
in water courses that have been declared to be "water quality impaired." The EPA
and the North Coast Regional Water Quality Control Board ("NCRWQCB") are in the
process of establishing TMDL limits for 17 northern California rivers and
certain of their tributaries, including certain water courses that flow within
the Company Timberlands. As part of this process, the EPA and the NCRWQCB are
expected to submit the TMDL requirements on the Company Timberlands for public
review and comment. Following the comment period, the NCRWQCB would finalize the
TMDL requirements applicable to the Company Timberlands, which may require
aquatic measures that are different from or in addition to the prescriptions to
be developed pursuant to the watershed analysis process contained in the HCP.
Impact of Future Legislation
Laws, regulations and related judicial decisions and administrative
interpretations dealing with the Company's business are subject to change and
new laws and regulations are frequently introduced concerning the California
timber industry. From time to time, bills are introduced in the California
legislature and the U.S. Congress which relate to the business of the Company,
including the protection and acquisition of old growth and other timberlands,
threatened and endangered species, environmental protection, air and water
quality and the restriction, regulation and administration of timber harvesting
practices. In addition to existing and possible new or modified statutory
enactments, regulatory requirements and administrative and legal actions, the
California timber industry remains subject to potential California or local
ballot initiatives and evolving federal and California case law which could
affect timber harvesting practices. It is not possible to assess the effect of
such future legislative, judicial and administrative events on the Company or
its business.
Timber Operator's License
Historically, Pacific Lumber has conducted logging operations on the
Company Timberlands with its own staff of logging personnel as well as through
contract loggers. In order to conduct logging operations in California, a
logging company must obtain from the CDF a Timber Operator's License. On
February 26, 1999, the CDF issued Pacific Lumber a conditional Timber Operator's
License ("1999 TOL") for calendar year 1999 which contained, among other things,
operational restrictions similar to certain operational restrictions
contained in the HCP. During the first week of January 2000, Pacific Lumber was
granted a Timber Operator's License for the years 2000 and 2001 ("2000 TOL")
containing less restrictions than the 1999 TOL.
Escrow Agreement and SAR Account
As a result of the sale of the Headwaters Timberlands, Salmon Creek
received proceeds of $299.9 million in cash, prior to payment of closing costs
and expenses. Pursuant to the Escrow Agreement entered into among Salmon Creek,
Pacific Lumber and Citibank, N.A. (the "ESCROW AGENT"), Salmon Creek deposited
$285.0 million of such proceeds into a restricted account (the "ESCROWED FUNDS")
with such Escrowed Funds being made available, while so held in escrow, as
necessary to support the Timber Notes, with the balance of $15.0 million being
used to defray expenses in connection with negotiation and consummation of the
Headwaters Agreement. In November 1999, upon satisfaction of certain
requirements set forth in the Escrow Agreement, the Board of Managers
unanimously approved the release of the Escrowed Funds, with $169.0 million of
the Escrowed Funds being placed in the SAR Account under the Indenture in order
to support principal payments on the Timber Notes. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition and Investing and Financing Activities."
ITEM 2. PROPERTIES
A description of the Company's properties is included under Item 1. above.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.
TIMBER HARVESTING LITIGATION
On May 27, 1998, an action entitled Mateel Environmental Justice
Foundation v. Pacific Lumber, Scotia Pacific Holding Company, Salmon Creek
Corporation and MAXXAM Group Inc. (No. DR 980301) was brought in the Superior
Court of Humboldt County. This action alleged, among other things, violations of
California's business and professions code based on citations and violations
(primarily water quality related) issued against the defendants since 1994 in
connection with a substantial number of THPs. On December 1, 1999, the Court
dismissed this action with prejudice.
On December 2, 1997, a lawsuit entitled Kristi Wrigley, et al. v. Charles
Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia
Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company
LLC, et al. (No. 9700399) (the "WRIGLEY LAWSUIT") was filed in the Superior
Court of Humboldt County. A similar action entitled Jennie Rollins, et al. v.
Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc.,
Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc., Barnum Timber
Company, et al. (No. 9700400) (the "ROLLINS LAWSUIT") was also filed on December
2, 1997 in the Superior Court of Humboldt County. These actions allege, among
other things, that defendants' logging practices have damaged the plaintiffs'
properties and property values by contributing to landslides in the Stafford
area (Rollins lawsuit) and the destruction of certain watersheds in the Elk
River watershed (Wrigley lawsuit). Plaintiffs further allege that in order to
have THPs approved in connection with these areas, the defendants submitted
false information to the CDF in violation of California's business and
professions code and the Racketeering Influence and Corrupt Practices Act
("RICO"). In connection with the Rollins lawsuit, on September 27, 1999 the
Court accepted the plaintiffs' amended complaint which, among other things,
eliminated the RICO claims and reduced the number of THPs involved in the
lawsuit from 343 to seven. In connection with the Wrigley lawsuit, the
plaintiffs filed an application seeking to eliminate allegations concerning the
seven THPs involved in the Rollins lawsuit, reducing to 336 the number of THPs
involved in the Wrigley lawsuit. The Rollins lawsuit has been set for trial on
July 10, 2000. The Company believes that it has strong factual and legal
defenses with respect to these matters; however, there can be no assurance that
they will not have a material adverse effect on its financial position, results
of operations or liquidity.
On March 31, 1999, an action entitled Environmental Protection Information
Association, Sierra Club v. California Department of Forestry and Fire
Protection, California Department of Fish and Game, The Pacific Lumber Company,
Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No. 99CS00639)
(the "EPIC-SYP /PERMITS LAWSUIT") was filed alleging, among other things, that
the CDF and the CDFG violated the CEQA and the CESA with respect to the SYP and
the Permits issued by California. This action is now pending in Humboldt County,
California (No. CV-990445). The plaintiffs seek, among other things, injunctive
relief to set aside the CDF's and the CDFG's decisions approving the SYP and the
Permits issued by California.
On March 31, 1999, an action entitled United Steelworkers of America,
AFL-CIO, CLC, and Donald Kegley v. California Department of Forestry and Fire
Protection, The Pacific Lumber Company, Scotia Pacific Company LLC and Salmon
Creek Corporation (No. 99CS00626) (the "USWA LAWSUIT") was filed alleging, among
other things, violations of the Forest Practice Act in connection with the CDF's
approval of the SYP. This action is now pending in Humboldt County, California
(No. CV-990452). The plaintiffs seek to prohibit the CDF from approving any THPs
relying on the SYP.
The Company believes that appropriate procedures were followed throughout
the public review and approval process concerning the Environmental Plans, and
the Company is working with the relevant state and federal agencies to defend
the USWA lawsuit and the EPIC-SYP/Permits lawsuit. Although uncertainties are
inherent in the final outcome of the EPIC-SYP/Permits lawsuit and the USWA
lawsuit, the Company believes that the resolution of these matters should not
result in a material adverse effect on its financial condition, results of
operations or liquidity.
OTHER LITIGATION
The Company is involved in other claims, lawsuits and proceedings,
including certain pending or threatened actions seeking to prevent Pacific
Lumber and the Company from conducting harvesting and certain other operations.
While uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred or their effect on the Company, management believes that the resolution
of such uncertainties and the incurrence of such costs should not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Pacific Lumber holds a 100% member interest in the Company. Accordingly,
there is no established public trading market for the Company's equity
securities. Except for a dividend paid to the parent in connection with issuance
of the Timber Notes (see Note 1 to the Financial Statements appearing in Item
8), the Company has not declared or paid any cash distributions on its equity
securities since its formation in May 1998.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's Financial
Statements and the Notes thereto appearing in Item 8.
BACKGROUND
The Company is a single member Delaware limited liability company owned by
Pacific Lumber and did not conduct any significant operations prior to the
issuance of the Timber Notes. The historical financial data reflects (a) the
historical assets, liabilities and results of operations of Scotia Pacific
Holding Company ("SCOTIA PACIFIC"), the Company's predecessor, after giving
effect to the transfer to Pacific Lumber of the timber harvesting rights with
respect to 1,400 acres of timberlands and (b) Pacific Lumber's and Salmon
Creek's historical assets, liabilities and results of operations attributable to
approximately 13,500 acres of timberlands and the timber and related timber
harvesting rights on an additional approximately 19,700 acres of timberlands
transferred to the Company, in each case as if such transactions occurred on
January 1, 1997 (the beginning of the earliest period presented). The retirement
of the 7.95% Timber Collateralized Notes due 2015 of Scotia Pacific (the "OLD
TIMBER NOTES"), the issuance of the Timber Notes and the payment of a $526.1
million cash dividend to Pacific Lumber are reflected in the financial
statements for the year ended December 31, 1998, the period in which these
transactions occurred.
RESULTS OF OPERATIONS
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.
General
The Mbfe concept was used in structuring the Timber Notes in order to take
account of the relative values of the species and categories of timber included
in the Company Timber. Under the Mbfe concept, one thousand board feet, net
Scribner scale, of old growth redwood timber equates to one Mbfe. One thousand
board feet, net Scribner scale, of each other species and category of timber
included in the Company Timber was assigned a value in Mbfe equal to a fraction
of an Mbfe. This fraction was generally determined by dividing the SBE Price
applicable to such species and category for the first half of 1998 by the SBE
Price applicable to old growth redwood for the first half of 1998. Historical
harvest volumes reflected in this report are stated on a Mbfe basis.
The Master Purchase Agreement generally contemplates that all sales of logs
by the Company to Pacific Lumber will be at the SBE Price. Harvest Value
Schedules setting forth the SBE Prices are published by the California State
Board of Equalization twice a year for the purpose of computing a yield tax
imposed on timber harvested between January 1 and June 30 and July 1 and
December 31. Harvest Value Schedules are based on twenty-four months of actual
log and timber sales that occur within nine specified timber value areas. These
sales are arms length transactions adjusted for time by indexing (using log and,
in the case of old growth redwood, lumber price trends) to a specific date,
which is approximately sixty days prior to the effective date of the Harvest
Value Schedules. However, SBE prices may not necessarily be representative of
actual prices that would be realized from unrelated parties at subsequent dates.
Seasonality
Logging operations on the Company's timberlands are highly seasonal and
have historically been significantly higher in the months of April through
November than in the months of December through March. Management expects that
the Company's revenues and cash flows will continue to be markedly seasonal. The
impact of seasonality on the Company's results is expected to become more
pronounced than it has been historically because of the harvesting, road use,
wet weather and other restrictions imposed by the HCP. As a result, a
substantial majority of the future harvesting on the Company Timberlands can be
expected to be concentrated during the period from June through October of each
year. Some of these restrictions may be modified under the adaptive management
provision contained in the HCP, and as a result of the watershed analysis
process to be performed over the five-year period beginning March 1, 1999. See
Item 1. "Business--Regulatory and Environmental Factors--The Environmental
Plans." The following should be read in conjunction with the Company's Financial
Statements and Notes thereto appearing in Item 8.
Log Sales to Pacific Lumber
The Company's revenues from log sales declined from $80.3 million for the
year ended December 31, 1998 to $51.4 million for the year ended December 31,
1999 as a result of the decrease in the volume of log deliveries for such
periods from 115,700 Mbfe to 69,100 Mbfe, respectively. Substantially all the
decrease in net sales between periods was due to the decline in the volume of
log deliveries, which was due largely to the absence of a sufficient number of
approved THPs throughout 1999. See "--Trends" below.
Net sales from logs were $80.3 million and $126.4 million for the years
ended December 31, 1998 and 1997, respectively. The volume of log deliveries for
such periods represented approximately 115,700 Mbfe and 182,300 Mbfe,
respectively. Well-above-normal rainfall during the first half of 1998 and
additional restrictions on wet weather operations pursuant to the terms of
Pacific Lumber's 1998 Timber Operator's License, together with logging
restrictions during the nesting seasons for both the northern spotted owl and
the marbled murrelet, were the principal factors which impeded logging
operations on the Company's timberlands during the first half of 1998. Revenues
for the second half of 1998 were primarily affected by a reduction in the volume
of logs harvested, as a result of the diminished supply of available THPs. See
"--Trends" below.
Operating Income and Income (Loss) Before Income Taxes and Extraordinary
Item Operating income was $31.2 million and $59.9 million for the years ended
December 31, 1999 and 1998, respectively. Income (loss) before income taxes and
extraordinary item was $(32.4) million and $18.5 million for the years ended
December 31, 1999 and 1998, respectively. The decline in operating income and
the loss before income taxes and extraordinary item in 1999 is principally due
to the decrease in log sales discussed above, offset by a decline in depletion
expense attributed to the decrease in harvest volumes between periods. General
and administrative expenses were higher for the year ended December 31, 1999
compared to the same period last year primarily due to a full year of higher
road maintenance costs provided for under the HCP and higher professional and
consulting services fees. In addition to the impact from lower operating income,
the loss before income taxes and extraordinary item also was due to the higher
interest expense resulting from the increase in debt from the Timber Notes.
Interest expense on the Timber Notes for 1999 was $63.1 million compared to
interest expense of $41.9 million for 1998 including $28.2 million of interest
on the Timber Notes and $13.7 million of interest on the Old Timber Notes.
Operating income was $59.9 million and $101.3 million for the years ended
December 31, 1998 and 1997, respectively. Income before income taxes and
extraordinary item was $18.5 million and $76.8 million for the years ended
December 31, 1998 and 1997, respectively. The decrease in operating income is
primarily a result of the factors affecting revenues discussed above.
Additionally, operating income was affected by the increase in general and
administrative expenses for the year ended December 31, 1998 compared to the
year ended December 31, 1997 which was primarily due to increased fees for
professional services relating to THP preparation and road maintenance costs
provided for under the HCP, but were offset by lower yield taxes which vary
directly with the log harvest. The decrease in income before income taxes and
extraordinary item was primarily due to the decrease in operating income between
periods.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" and below for cautionary information
with respect to such forward-looking statements.
Note 3 to the Financial Statements contains information concerning the
Company's indebtedness and certain restricted debt covenants.
The Company issued the $867.2 million aggregate principal amount of Timber
Notes on July 20, 1998. Proceeds from the offering of the Timber Notes were
used primarily to prepay the Old Timber Notes and to pay a cash dividend of
$526.1 million to Pacific Lumber.
On November 18, 1999, $169.0 million of funds from the sale of the
Headwaters Timberlands were contributed to the Company and set aside in the SAR
Account, which is available for making principal payments on the Timber Notes.
The Indenture contains various covenants which, among other things, limit
the ability of the Company to incur additional indebtedness and liens, to engage
in transactions with affiliates, to pay dividends and to make investments. Under
the terms of the Indenture, the Company will generally have available cash for
distribution to Pacific Lumber when the Company's cash flows from operations
exceed the amounts required by the Indenture to be reserved for the payment of
current debt service (including interest, principal and premiums) on the Timber
Notes, capital expenditures, certain other operating expenses and replenishment
of the SAR Account.
In 1999, the Company's agreement with a group of banks, pursuant to which
the Company may borrow to pay up to one year's interest on the Timber Notes (the
"LINE OF CREDIT"), was extended to July 16, 2000. This facility is expected to
be renewed annually. At December 31, 1999, the Company could have borrowed a
maximum of $63.0 million under the Line of Credit. As of December 31, 1999, no
borrowings were outstanding under the Line of Credit.
On the January 20, 2000 note payment date for the Timber Notes, the
Company had $2.2 million in cash available to pay the $31.5 million of interest
due. The Company borrowed the remaining $29.3 million in funds under the Line of
Credit. In addition, the Company repaid $12.9 million of principal on the Timber
Notes (an amount equal to Scheduled Amortization) using funds held in the SAR
Account.
With respect to short-term liquidity, the Company believes that it will
not generate sufficient cash from operations to pay all of the interest on the
Timber Notes on the July 20, 2000 payment date. However, the Company expects
that any such shortfall will be borrowed under the Line of Credit and that funds
to pay the Scheduled Amortization amount will be provided from the SAR Account.
Pacific Lumber's financial condition will affect its ability to purchase
logs from the Company and to meet its obligations under the Services Agreement.
Pacific Lumber expects that near-term cash flows from operations will be
adversely affected by an inadequate supply of logs and a related slowdown in
lumber production.
Pacific Lumber anticipates that cash flows from operations together with
funds available under Pacific Lumber's revolving credit agreement, along with a
$45.0 million capital contribution from MGI made in December 1999, will enable
it to meet its working capital and capital expenditure requirements for 2000.
With respect to long-term liquidity, although Pacific Lumber expects that its
existing cash and cash equivalents should provide sufficient funds to meet its
working capital and capital expenditure requirements, until such time as Pacific
Lumber has adequate cash flows from operations and/or dividends from the
Company, there can be no assurance that this will be the case.
The Company's capital expenditures, excluding timberland acquisitions,
relate primarily to reforestation of timberlands and to construction and
rehabilitation of logging roads. The Company's capital expenditures for 1999,
1998 and 1997, including contributions by Pacific Lumber but excluding
timberland acquisitions, were approximately $6.5 million, $7.4 million and $7.3
million, respectively. The Company's capital expenditures, excluding
expenditures for timberlands, for the next several years are expected to
approximate $9.0 million per year.
With respect to long-term liquidity, the Company believes that its
existing cash, including cash available for principal payments from the SAR
Account, and funds available under the Line of Credit, together with its ability
to generate sufficient levels of cash flows from operations over the long term,
should provide sufficient funds to meet its long-term working capital, capital
expenditures and required debt service obligations. If the Company generates
excess funds after the payment of operating expenses, capital expenditures,
interest, premiums, required principal payments and replenishment of the SAR
Account, it may at its option either pay dividends, retain these funds for
internal purposes or make voluntary principal payments. Cash flows from
operations may continue to be adversely affected if the Company does not
experience improvements in the THP submission and approval process, or if
inclement weather conditions or seasonal operating restrictions under the HCP
hamper harvesting operations. Cash flows from operations would also be adversely
affected if additional judicial or regulatory restrictions are imposed on the
Company's harvesting activities, or if the Environmental Plans are not
implemented in accordance with the Company's current expectations.
TRENDS
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.
Regulatory and environmental matters play a significant role in the
Company's operations, which are subject to a variety of California and federal
laws and regulations, as well as the HCP, SYP and Pacific Lumber's 2000 TOL,
dealing with timber harvesting practices, threatened and endangered species and
habitat for such species, and air and water quality. Moreover, these laws and
regulations are modified from time to time and are subject to judicial and
administrative interpretation. Compliance with such laws, regulations and
judicial and administrative interpretations, and related litigation have
increased the cost of logging operations. The Company has also been adversely
affected by a lack of available logs as a result of a severely diminished supply
of available THPs. Prior to the consummation of the Headwaters Agreement on
March 1, 1999, the reduced number of approved THPs was attributable to several
factors, including a significantly reduced level of THPs submitted by the
Company to the CDF during the second half of 1998 and during the first two
months of 1999 due to (a) the extensive amount of time devoted by the Company's
foresters, wildlife and fisheries biologists and other personnel to (i) amending
a significant number of previously submitted THPs to incorporate various new
requirements which Pacific Lumber agreed to in February 1998 in the course of
completing the Headwaters Agreement (the "PRE-PERMIT AGREEMENT"), (ii) preparing
the Environmental Plans and all the related data, responding to comments on the
Environmental Plans, assessing and responding to federal and state proposals and
changes concerning the Environmental Plans, and evaluating the Environmental
Plans, (iii) responding to comments received by the Company from various federal
and state governmental agencies with respect to its filed THPs in light of the
new and more stringent requirements that Pacific Lumber agreed to observe
pursuant to the Pre-Permit Agreement, and (iv) assisting Pacific Lumber (in
accordance with the Additional Services Agreement) with responding to newly
filed litigation involving certain of the Company's approved THPs and (b)
implementation of a provision contained in the Pre-Permit Agreement which
required, for the first time, a licensed geologist to review virtually all of
the Company's THPs prior to submission to the CDF. The Company also experienced
an unexpected significantly slower rate of review and approval with respect to
its filed THPs due, in large part, to the issues that emerged in applying the
requirements embodied in the Pre-Permit Agreement to the Company's THPs, certain
of which requirements imposed new forestry practices that applied solely to
operations on the Company Timberlands.
With the consummation of the Headwaters Agreement, Pacific Lumber has
completed its work in connection with preparation of the Environmental Plans;
however, significant additional work continues to be required in connection with
their implementation. As a result of the implementation process, 1999 was a
transition period for the Company with respect to the filing and approval of its
THPs. The transition period is expected to continue into 2000. The Company
believes that the rate of submissions of THPs during 2000 will increase
significantly. However, the Company believes that the review and approval
process for THPs through at least the first quarter of 2000 will continue to be
slower than it has historically experienced as the Company, the CDF and other
agencies continue to develop procedures for implementing the Environmental
Plans. Nevertheless, the Company anticipates that after a transition period, the
implementation of the Environmental Plans will streamline the process of
preparing THPs and potentially shorten the time to obtain approval of THPs.
There can be no assurance that the Company will not continue to experience
difficulties in receiving approvals of its THPs similar to those it has been
experiencing. Furthermore, there can be no assurance that certain pending legal,
regulatory and environmental matters or future governmental regulations,
legislation or judicial or administrative decisions, or adverse weather
conditions, would not have a material adverse effect on the Company's financial
position, results of operations or liquidity. See Item 3. "Legal Proceedings"
and Note 6 to the Financial Statements for further information regarding
regulatory and legal proceedings affecting the Company.
YEAR 2000
The transition to the year 2000 date change was made without any
significant problems or interruption of business activity. Management had
completed its assessment of, modifications to and testing of the Company's
critical information technology and embedded technology prior to December 31,
1999. The principal software and equipment of the Company affected by the date
change to the year 2000 were the financial information systems, the GIS and
certain personal computers and field equipment used by the foresters and other
professional staff. The modification costs and the costs associated with new
systems were less than $50,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Managers and Member of
Scotia Pacific Company LLC:
We have audited the accompanying balance sheets of Scotia Pacific Company
LLC (a Delaware limited liability company and a wholly owned subsidiary of The
Pacific Lumber Company) as of December 31, 1999 and 1998, and the related
statements of income and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Scotia Pacific Company LLC
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
San Francisco, California
January 28, 2000
SCOTIA PACIFIC COMPANY LLC
BALANCE SHEET
(IN MILLIONS OF DOLLARS)
DECEMBER 31,
-----------------------
1999 1998
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 1.3 $ 31.9
Marketable securities, restricted...................................................... 15.9 -
Receivables from Pacific Lumber........................................................ 4.5 2.9
Prepaid timber harvesting costs........................................................ 4.4 2.6
Other prepaid expenses and other current assets........................................ 0.4 0.5
---------- -----------
Total current assets................................................................ 26.5 37.9
Timber and timberlands, net of accumulated depletion of $249.0 and
$243.1, respectively................................................................... 267.8 252.0
Property and equipment, net of accumulated depreciation of $9.5 and
$7.9, respectively.................................................................... 16.5 14.4
Deferred financing costs, net............................................................. 20.7 22.5
securities................................................. 156.9 16.6
Other assets.............................................................................. 2.7 2.3
---------- -----------
$ 491.1 $ 345.7
========== ===========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Due to Pacific Lumber.................................................................. $ 0.9 $ 0.8
Accrued interest....................................................................... 28.1 28.4
Other accrued liabilities.............................................................. 2.0 1.7
Current maturities of long-term debt................................................... 16.0 8.2
---------- -----------
Total current liabilities........................................................... 47.0 39.1
Long-term debt, less current maturities................................................... 843.5 859.5
---------- -----------
Total liabilities................................................................... 890.5 898.6
---------- -----------
Contingencies
Member deficit............................................................................ (399.4) (552.9)
---------- -----------
$ 491.1 $ 345.7
========== ===========
The accompanying notes are an integral part of these financial statements.
SCOTIA PACIFIC COMPANY LLC
STATEMENT OF INCOME
(IN MILLIONS OF DOLLARS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
Log sales to Pacific Lumber................................................... $ 51.4 $ 80.3 $ 126.4
---------- ---------- -----------
Operating expenses:
General and administrative expenses........................................ 12.7 9.1 8.3
Depletion and depreciation................................................. 7.5 11.3 16.8
---------- ---------- -----------
20.2 20.4 25.1
---------- ---------- -----------
Operating income.............................................................. 31.2 59.9 101.3
Other income (expense):
Interest and other income.................................................. 1.9 2.5 2.8
Interest expense........................................................... (65.5) (43.9) (27.3)
---------- ---------- -----------
Income (loss) before income taxes and extraordinary item...................... (32.4) 18.5 76.8
Provision in lieu of income taxes............................................. - (7.6) (31.2)
---------- ---------- -----------
Income (loss) before extraordinary item....................................... (32.4) 10.9 45.6
Extraordinary item:
Loss on early extinguishment of debt..................................... - (35.4) -
---------- ---------- -----------
Net income (loss)............................................................. $ (32.4) $ (24.5) $ 45.6
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
SCOTIA PACIFIC COMPANY LLC
STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ (32.4) $ (24.5) $ 45.6
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Extraordinary loss on early extinguishment of debt...................... - 35.4 -
Provision in lieu of income taxes....................................... - 7.6 31.2
Depletion and depreciation.............................................. 7.5 11.3 16.8
Amortization of deferred financing costs................................ 1.5 1.4 1.2
Gain on sale of assets.................................................. (0.2) - -
Net purchases of marketable securities.................................. (15.9) - -
Increase (decrease) in cash resulting from changes in:
Receivables from Pacific Lumber....................................... (1.6) (3.8) (0.7)
Prepaid timber harvesting costs....................................... (2.1) (1.0) (0.8)
Due to Pacific Lumber................................................. (0.2) 0.3 -
Accrued interest...................................................... (0.2) 17.0 (0.5)
Other accrued liabilities............................................. 1.3 (0.2) -
Other................................................................... - - (0.5)
---------- ---------- -----------
Net cash provided by (used for) operating activities.................. (42.3) 43.5 92.3
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................... (19.2) (16.6) (2.3)
Restricted cash withdrawals used to acquire timberlands.................... 12.9 8.9 -
Net proceeds from sale of assets........................................... 0.3 - -
---------- ---------- -----------
Net cash used for investing activities................................ (6.0) (7.7) (2.3)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Timber Notes..................................... - 867.2 -
Principal payments on Timber Notes and other timber
related debt............................................................ (8.3) (327.0) (16.3)
Premium for early retirement of debt....................................... - (29.2) -
Dividends paid............................................................. - (532.8) (60.8)
Incurrence of deferred financing costs..................................... (0.7) (22.1) -
Other changes in restricted cash........................................... (153.1) 9.5 1.5
Member contributions (distributions)....................................... 179.8 9.6 (13.8)
---------- ---------- -----------
Net cash provided by (used for) financing activities.................. 17.7 (24.8) (89.4)
---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (30.6) 11.0 0.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 31.9 20.9 20.3
---------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 1.3 $ 31.9 $ 20.9
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
SCOTIA PACIFIC COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Scotia Pacific Company LLC (the "COMPANY") is a Delaware limited liability
company wholly owned by The Pacific Lumber Company ("PACIFIC LUMBER"), which is
a wholly owned subsidiary of MAXXAM Group Inc. ("MGI"). MGI is a wholly owned
subsidiary of MAXXAM Group Holdings Inc., which is a wholly owned subsidiary of
MAXXAM Inc. ("MAXXAM"). The Company is a special purpose limited liability
company organized in May 1998 to facilitate the offering (the "OFFERING") of
$160.7 million 6.55% Class A-1, $243.2 million 7.11% Class A-2 and $463.3
million 7.71% Class A-3 Timber Collateralized Notes due 2028 (the "TIMBER
NOTES"). Concurrent with the closing of the Offering on July 20, 1998, Scotia
Pacific Holding Company ("SCOTIA PACIFIC") was merged into the Company and
Pacific Lumber and Salmon Creek LLC, a wholly owned subsidiary of Pacific Lumber
("SALMON CREEK"), transferred to the Company approximately 13,500 acres of
timberlands and the timber and related timber harvesting rights (but not the
underlying land) with respect to an additional approximately 19,700 acres of
timberlands. The Company in turn transferred to Pacific Lumber the timber and
related timber harvesting rights (but not the underlying land) with respect to
approximately 1,400 acres of timberlands. On July 20, 1998, the 7.95% Scotia
Pacific Timber Collateralized Notes due July 20, 2015 (the "OLD TIMBER NOTES")
were retired, and the Company paid a cash dividend of $526.1 million. The merger
and the transfers have been accounted for as a reorganization of entities under
common control which requires the Company to record the assets, liabilities and
results of operations of Scotia Pacific after giving effect to the transfers as
well as the assets, liabilities and results of operations acquired from Pacific
Lumber and Salmon Creek at their respective historical cost. Accordingly, the
Company is the successor entity to all of Scotia Pacific's historical operations
(exclusive of the assets transferred to Pacific Lumber) and to the historical
operations attributable to the timberlands and timber and related timber
harvesting rights acquired from Pacific Lumber and Salmon Creek. The merger and
the transfers have been reflected in the financial statements of the Company as
if such transactions had occurred as of the beginning of the earliest period
presented. The retirement of the Old Timber Notes, the issuance of the Timber
Notes and the payment of a $526.1 million cash dividend are reflected in the
financial statements for the year ended December 31, 1998, the period in which
these transactions occurred.
Consistent with the Company's purpose and pursuant to the terms of the
indenture governing the Timber Notes (the "INDENTURE"), the Company is obligated
to set aside each month a portion of the funds it receives from the sale of logs
to Pacific Lumber sufficient to make the specified payments of principal and
interest on the Timber Notes computed in accordance with the Indenture and to
have a sufficient amount to pay operating expenses and capital improvements.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and assumptions
that affect (i) the reported amounts of assets and liabilities, (ii) the
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published and (iii) the reported amount of revenues
and expenses recognized during each period presented. The Company reviews all
significant estimates affecting its financial statements on a recurring basis
and records the effect of any necessary adjustments prior to their publication.
Adjustments made with respect to the use of estimates often relate to improved
information not previously available. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of the Company's
financial statements; accordingly, it is possible that the subsequent resolution
of any one of the contingent matters described in Note 6 could differ materially
from current estimates. The results of an adverse resolution of such
uncertainties could have a material effect on the Company's financial position,
results of operations or liquidity.
COMPREHENSIVE INCOME
There are no reconciling differences between the Company's net income and
comprehensive income for the years ended December 31, 1999, 1998 and 1997.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less. As of December 31, 1999 and 1998,
the carrying amount approximated fair value. See "Restricted Cash and Marketable
Securities" below.
Marketable Securities
Marketable securities consist primarily of commercial paper with original
maturities in excess of three months as well as other types of corporate and
government debt obligations. Marketable securities are considered "held-to-
maturity" securities and are carried at cost adjusted for discount and premium
amortization. As of December 31, 1999 and 1998, the carrying amount approximated
fair value. See "Restricted Cash and Marketable Securities" below.
Prepaid Timber Harvesting Costs
Prepaid timber harvesting costs are expensed as the timber covered by the
related timber harvesting plans ("THPS") is harvested.
Timber and Timberlands
Timber and timberlands were recorded at the historical cost of Scotia
Pacific, Pacific Lumber and Salmon Creek, at the beginning of the earliest
period presented, net of accumulated depletion. Depletion is computed utilizing
the unit- of-production method based upon estimates of timber values and
quantities.
Property and Equipment
Property and equipment were recorded at the historical cost of Scotia
Pacific, Pacific Lumber and Salmon Creek, at the beginning of the earliest
period presented, net of accumulated depreciation. Depreciation is computed
utilizing the straight-line method at rates based upon the estimated useful
lives of the various classes of assets. The carrying value of property, plant
and equipment is assessed when events and circumstances indicate that an
impairment is present. The existence of an impairment is determined by comparing
the net carrying value of the asset to its estimated undiscounted future cash
flows. If an impairment is present, the asset is reported at the lower of
carrying value or fair value. The major classes of property and equipment are as
follows (dollar amounts in millions):
DECEMBER 31,
ESTIMATED -----------------------
USEFUL LIVES 1999 1998
------------ ---------- -----------
Logging roads .................................. 15 years $ 24.7 $ 21.2
Other............................................ 5 - 15 years 1.3 1.1
---------- -----------
26.0 22.3
Less: accumulated depreciation.................. (9.5) (7.9)
---------- -----------
$ 16.5 $ 14.4
========== ===========
Depreciation expense for 1999, 1998 and 1997 was $1.6 million, $1.4
million and $1.0 million, respectively.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized over the
estimated term of the related borrowing. In July 1998, an extraordinary loss of
$35.4 million was recorded in connection with the retirement of the Old Timber
Notes. Such loss is comprised of $12.8 million of unamortized deferred financing
costs and $29.2 million of prepayment premiums offset by the benefit from $6.6
million of unearned premiums and make whole amounts under the investment rate
agreement associated with the liquidity account under the indenture governing
the Old Timber Notes. The amortization of deferred financing costs expense is
included in interest expense on the income statement.
Restricted Cash and Marketable Securities
At December 31, 1998, the Company had approximately $28.4 million of cash
and cash equivalents which were restricted for debt service payments on the
Timber Notes. At December 31, 1999, there were no restricted cash equivalents.
Current marketable securities consist of the current portion of amounts held in
the SAR Account defined in the following paragraph.
Long-term restricted cash and marketable securities represents amounts
deposited into accounts held by the trustee under the Indenture. At December 31,
1999, restricted cash and marketable securities primarily consists of $153.2
million of the $169.0 million in funds from the sale of the Headwaters
Timberlands which were contributed to the Company on November 18, 1999 and
placed in a Scheduled Amortization Reserve Account (the "SAR ACCOUNT") to
support future principal payments on the Timber Notes and $3.3 million which is
remaining from the $25.0 million of the proceeds deposited into an account (the
"PREFUNDING ACCOUNT") which is available for the purchase of additional
timberlands. At December 31, 1998, restricted cash in the Prefunding Account
amounted to $16.1 million. Interest and other income from restricted cash
deposits for 1999, 1998 and 1997 was $1.6 million, $2.4 million and $2.3
million, respectively.
Log Sales to Pacific Lumber
Scotia Pacific and Pacific Lumber entered into a Master Purchase Agreement
on March 23, 1993 (the "ORIGINAL MASTER PURCHASE AGREEMENT") which governed all
log sales by Scotia Pacific to Pacific Lumber, and on July 20, 1998, the Company
and Pacific Lumber entered into a new master purchase agreement (the "MASTER
PURCHASE AGREEMENT" and together the "MASTER PURCHASE AGREEMENTS") which governs
all log sales by the Company to Pacific Lumber. Substantially all of the
Company's revenues have been and are expected to continue to be derived from the
sale of logs to Pacific Lumber. The harvested logs are purchased by Pacific
Lumber (i.e., title passes and the obligation to make payment therefor is
incurred) at the time each log is delivered to Pacific Lumber's log decks and
measured. The Master Purchase Agreements generally contemplate that all sales of
logs by the Company to Pacific Lumber will be at the applicable stumpage prices
for each species of timber and category thereof, as set forth in the most recent
Harvest Value Schedule published by the California State Board of Equalization
(the "SBE PRICE"). Harvest Value Schedules are published twice a year for
purposes of computing timber yield taxes.
Concentrations of Credit Risk
Cash equivalents and marketable securities are invested primarily in
commercial paper as well as other types of corporate and government debt
obligations. The Company has mitigated its concentration of credit risk with
respect to these investments by purchasing high grade investments (ratings
of A1/P1 short-term or at least AA/aa long-term debt). No more than 10% is
invested within the same issue.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and marketable securities
approximate fair value. As of December 31, 1999 and 1998, the estimated fair
value of debt, including current maturities, was $764.1 million and $807.1
million, respectively. The estimated fair value of debt is determined based on
the quoted market price for the Timber Notes. The Timber Notes are thinly traded
financial instruments; accordingly, their market price at any balance sheet date
may not be representative of the price which would be derived from a more active
market.
2. HEADWATERS TRANSACTIONS
On March 1, 1999, the United States and California acquired the Headwaters
Timberlands, approximately 5,600 acres of timberlands containing a significant
amount of virgin old growth timber, from Salmon Creek and Pacific Lumber. Salmon
Creek received $299.9 million for its 4,900 acres, and for its 700 acres,
Pacific Lumber received the 7,700 acre Elk River Timberlands, which Pacific
Lumber contributed to the Company in June 1999. See Note 6 below for a
discussion of additional agreements entered into on March 1, 1999.
The Company also entered into an agreement with California for the future
sale of a timber property known as the Owl Creek grove. Under this agreement,
the Company would sell the Owl Creek grove to California, by June 30, 2001
for the lesser of the appraised fair market value or $79.7 million. The
sale of the Owl Creek grove will not be reflected in the Company's financial
statements until it has been concluded.
3. LONG-TERM AND SHORT-TERM DEBT
The Company issued $867.2 million aggregate principal amount of Timber
Notes on July 20, 1998, which are due on July 20, 2028. The Timber Notes are
senior secured obligations of the Company and do not constitute obligations of,
and are not guaranteed by, Pacific Lumber or any other person. The Timber Notes
were issued in three classes: Class A-1 Timber Notes aggregating $160.7 million,
Class A-2 Timber Notes aggregating $243.2 million and Class A-3 Timber Notes
aggregating $463.3 million. Pursuant to the terms of the Indenture, the Company
is permitted to incur up to $75.0 million at any one time of non-recourse
indebtedness secured by purchase money mortgages to acquire additional
timberlands, an unspecified amount of Additional Timber Notes (as defined in the
Indenture) provided certain conditions are met, and certain other debt on a
limited basis. The Company is not permitted to incur any other indebtedness for
borrowed money. The Timber Notes and the Line of Credit (as defined below) are
secured by a lien on (i) the Company's timber, timberlands and timber rights
(subject to Pacific Lumber's ownership of the timber and related timber
harvesting rights on approximately 1,100 acres of such timberlands), (ii)
certain contract rights and certain other assets, (iii) the proceeds of the
foregoing and (iv) funds held in various accounts by the Trustee for the Timber
Notes. Amounts payable on the Timber Notes are paid semi-annually generally on
January 20 and July 20 of each year (each, a "NOTE PAYMENT DATE").
The Timber Notes were structured to link, to the extent of cash available,
the deemed depletion of the Company's timber (through the harvest and sale of
logs) to the required amortization of the Timber Notes. The required amount of
amortization on any Note Payment Date is determined by various mathematical
formulas set forth in the Indenture. Scheduled Amortization of the Timber Notes
represents the amount of principal which the Company must pay through each Note
Payment Date in order to avoid payment of prepayment or deficiency premiums. The
Scheduled Maturity Dates for the Class A-1 and Class A-2 Timber Notes, which are
January 20, 2007 and January 20, 2014, respectively, represent the Note Payment
Dates on which the Company will pay the final installment of principal if all
payments of principal are made in accordance with Scheduled Amortization. The
Scheduled Amortization for the Class A-3 Timber Notes does not include any
principal amortization prior to their Scheduled Maturity Date of January 20,
2014 on which the aggregate principal amount of $463.3 million will be scheduled
to be paid. Minimum Principal Amortization of the Timber Notes represents the
minimum amount of principal which the Company must pay (on a cumulative basis
and subject to available cash) on such Class, to the extent of available funds
on deposit in the Payment Account, through any Note Payment Date. If the Timber
Notes were amortized in accordance with Minimum Principal Amortization, the
final installments of principal would be paid on January 20, 2010, July 20, 2017
and July 20, 2028 for the Class A-1, Class A-2 and Class A-3 Timber Notes,
respectively.
As a result of the sale of the Headwaters Timberlands, Salmon Creek
received proceeds of $299.9 million in cash. See Note 2 to the Financial
Statements. On November 18, 1999, $169.0 million of funds from the sale of the
Headwaters Timberlands were contributed to the Company and set aside in the SAR
Account. See Note 1. Amounts in the SAR Account are part of the collateral
securing the Timber Notes and will be used to make principal payments to the
extent that other available amounts are insufficient to pay Scheduled
Amortization on the Class A-1 and Class A-2 Timber Notes. In addition, during
the six years beginning January 20, 2014, amounts in the SAR Account will be
used to amortize the Class A-3 Timber Notes as set forth in the Indenture, as
amended. Funds may from time to time be released to the Company from the SAR
Account if the amount in the account exceeds the then Required Scheduled
Amortization Reserve Balance (as defined in the Indenture). If the SAR Account
falls below the Required Scheduled Amortization Reserve Balance, up to 50% of
any Remaining Funds (funds that could otherwise be released to the Company free
of the lien securing the Timber Notes) is required to be used on each monthly
deposit date to replenish the SAR Account.
The Company has the right to cause additional prepayments of principal to
be made on any Note Payment Date. If the principal of the Timber Notes is paid
in advance of Scheduled Amortization, the Company will pay a prepayment premium
on such accelerated payment. The prepayment premium on any Note Payment Date is
equal to the excess, if any, of (a) the sum of (i) the present value of the
prepayment amount (discounted from the date(s) that the prepayment amount would
otherwise have been paid under the Scheduled Amortization to the Note Payment
Date) plus (ii) the sum of the present values of the amounts of interest that
would have accrued thereafter with respect to the prepayment amount over (b) the
amount of the prepayment. The present value is computed using a "Reinvestment
Yield" (as defined in the Indenture) which is comparable to the yield of like
term U.S. Treasury securities plus 0.50% per annum.
If the principal of the Timber Notes is paid later than as provided for
under the Scheduled Amortization, the Company will pay a deficiency premium on
such deficient amount. The deficiency premium payable on any Note Payment Date
equals an amount of interest on the amount of the deficient principal amount
from the previous Note Payment Date to the current Note Payment Date at 1.50%
per annum. In addition, if the Class A-3 Timber Notes are not paid in full on or
before their Scheduled Maturity Date, a Cash Retention Event (as defined in the
Indenture) will occur as a result of which 75% of all Excess Funds (as defined
in the Indenture) will be deposited in the Payment Account until all classes of
Timber Notes are paid in full.
The following table presents the amortization of the Timber Notes based on
Minimum Principal Amortization and Scheduled Amortization (in millions):
MINIMUM
PRINCIPAL SCHEDULED
AMORTIZATION AMORTIZATION
------------- --------------
Years Ending December 31:
2000.................................... $ 10.5 $ 15.9
2001.................................... 10.5 16.3
2002.................................... 10.8 17.1
2003.................................... 12.4 19.3
2004.................................... 14.8 22.2
Thereafter.............................. 800.1 768.3
------------- --------------
$ 859.1 $ 859.1
============= ==============
Pursuant to certain liquidity requirements under the Indenture, the Company
has entered into an agreement (the "LINE OF CREDIT") with a group of banks (the
"LIQUIDITY PROVIDERS") pursuant to which the Company may borrow to pay interest
on the Timber Notes. The maximum amount the Company may borrow is equal to one
year's interest on the aggregate outstanding principal balance of the Timber
Notes (the "REQUIRED LIQUIDITY AMOUNT"). At December 31, 1999, the Required
Liquidity Amount was $63.0 million. The Line of Credit expires on July 16, 2000.
Annually, the Company will request that the Liquidity Providers extend the Line
of Credit for a period of not less than 364 days. If not extended, the Company
may draw upon the full amount available. Borrowings under the Line of Credit
generally bear interest at the Base Rate (as defined in the Line of Credit) plus
0.25% or a one month or six month LIBOR rate plus 1% at any time the borrowings
have not been continually outstanding for more than six months. As of December
31, 1999, the Company had no borrowings outstanding under the Line of Credit.
On the January 20, 2000 Note Payment Date for the Timber Notes, the
Company had $2.2 million in cash available to pay the $31.5 million of interest
due. The Company borrowed the remaining $29.3 million in funds under the Line of
Credit. In addition, the Company repaid $12.9 million of principal on the Timber
Notes (an amount equal to Scheduled Amortization). The SAR Account was used to
make the January 20, 2000 principal payment.
4. RELATED PARTY TRANSACTIONS
The Master Purchase Agreement and the related log purchase agreements
govern all log sales by the Company to Pacific Lumber subsequent to July 20,
1998. Under the Master Purchase Agreement, Pacific Lumber is responsible for
harvesting the Company's standing timber and transporting harvested logs to its
log decks. Payments for the log sales outstanding at December 31, 1999 were
received by the Company in January 2000.
Scotia Pacific and Pacific Lumber also entered into a services agreement
on March 23, 1993 (the "ORIGINAL SERVICES AGREEMENT"), pursuant to which Pacific
Lumber provided a variety of operational, management and related services in
respect of the Company's timber properties not provided by the Company's
employees, including reforestation, fire protection and road maintenance,
rehabilitation and construction. The Company paid Pacific Lumber an annual fee,
payable in equal monthly installments and subject to annual adjustment
provisions, for such services. For the year ended December 31, 1997, amounts
recorded by the Company for services pursuant to the terms of the Original
Services Agreement totaled $1.4 million. On July 20, 1998, the Company and
Pacific Lumber entered into a services agreement (the " SERVICES AGREEMENT")
under which the Company pays a Services Fee (as defined) in an initial amount of
$107,000 per month and reimburses Pacific Lumber for the cost of constructing,
rehabilitating and maintaining roads and performing reforestation services. For
the year ended December 31, 1999, $9.9 million was recorded under the Services
Agreement. For the year ended December 31, 1998, amounts recorded under
the Original Services Agreement and the New Services Agreement were $5.2
million.
5. PROVISION IN LIEU OF INCOME TAXES
These financial statements treat the Company as a taxable entity for the
periods presented up through July 20, 1998, at which time the Company, having
not made an election to be treated as an association, began being disregarded as
a separate taxable entity solely for income tax purposes. The Company is instead
treated as a division of Pacific Lumber for tax periods after July 20, 1998.
After July 20, 1998, all income taxes for the Company are shown on Pacific
Lumber's financial statements, and all deferred income tax assets and deferred
income tax liabilities for the Company at December 31, 1999 and December 31,
1998 are reflected in Pacific Lumber's financial statements.
Up through July 20, 1998, income taxes were determined using an asset and
liability approach which required the recognition of deferred income tax assets
and liabilities for the expected future tax consequences of events that had been
recognized in the Company's financial statements or tax returns. Under this
method, deferred income tax assets and liabilities were determined based on the
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates.
Pursuant to the tax allocation agreement among MAXXAM, Pacific Lumber,
Salmon Creek and Scotia Pacific (the "TAX ALLOCATION AGREEMENT"), all federal
and state income tax liabilities of Scotia Pacific were paid by Pacific Lumber
and all federal and state income tax refunds of Scotia Pacific were paid to
Pacific Lumber. Accordingly, up through July 20, 1998, the Company's financial
statements reflect a charge or benefit for income taxes computed as if Scotia
Pacific had filed separate income tax returns and a corresponding adjustment to
capital (net of the applicable adjustments relating to the deferred income tax
assets).
The provision in lieu of income taxes on income before income taxes and
extraordinary item consists of the following (in millions):
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
------------- -------------
Current provision in lieu of income taxes:
Federal.................................................... $ 5.3 $ 22.2
State...................................................... 1.5 6.2
------------- -------------
6.8 28.4
------------- -------------
Deferred provision in lieu of income taxes:
Federal.................................................... 0.7 2.2
State...................................................... 0.1 0.6
------------- -------------
0.8 2.8
------------- -------------
$ 7.6 $ 31.2
============= =============
A reconciliation between the provision in lieu of income taxes and the
amount computed by applying the federal statutory income tax rate to income
before income taxes is as follows (in millions):
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
------------- -------------
Income before income taxes and extraordinary item.................. $ 18.5 $ 76.8
============= =============
Amount of federal income tax based upon the statutory rate......... $ 6.5 $ 26.8
State taxes, net of federal tax benefit............................ 1.0 4.4
Other.............................................................. 0.1 -
------------- -------------
$ 7.6 $ 31.2
============= =============
6. CONTINGENCIES
Regulatory and environmental matters play a significant role in the
Company's business, which is subject to a variety of California and federal laws
and regulations, as well as the HCP and SYP (defined below) and Pacific
Lumber's 2000 timber operator's license, dealing with timber harvesting
practices, threatened and endangered species and habitat for such species, and
air and water quality. As further described in Note 2 "Headwaters Transactions,"
on March 1, 1999, Pacific Lumber, including its subsidiaries and affiliates, and
MAXXAM, consummated the Headwaters Agreement with the United States and
California. In addition to the transfer of the Headwaters Timberlands described
in Note 2, a sustained yield plan (the "SYP") and a multiple-species habitat
conservation plan (the "HCP") were approved and incidental take permits related
to the HCP (the "PERMITS") were issued.
The SYP complies with certain California Board of Forestry regulations
requiring timber companies to project timber growth and harvest on their
timberlands over a 100-year planning period and to demonstrate that their
projected average annual harvest for any decade within the 100-year planning
period will not exceed the average annual harvest level during the last decade
of the 100-year planning period. The SYP is effective for 10 years (subject to
review after five years) and may be amended by Pacific Lumber, subject to
approval by the CDF. Revised SYPs will be prepared every decade that address the
harvest level based upon reassessment of changes in the resource base and other
factors. The HCP and the Permits allow incidental "take" of certain species
located on the Company's timberlands which have been listed as endangered or
threatened under the federal Endangered Species Act (the "ESA") and/or the
California Endangered Species Act ("CESA") so long as there is no "jeopardy" to
the continued existence of such species. The HCP identifies the measures to be
instituted in order to minimize and mitigate the anticipated level of take to
the greatest extent practicable. The SYP is also subject to certain of these
provisions. The HCP and related Permits have a term of 50 years. The Company
believes that the SYP and the HCP should in the long-term expedite the
preparation and facilitate approval of its THPs, although the Company is
experiencing difficulties in the THP approval process as it implements these
agreements.
Under the Federal Clean Water Act, the Environmental Protection Agency
("EPA") is required to establish total maximum daily load limits ("TMDLS") in
water courses that have been declared to be "water quality impaired." The EPA
and the North Coast Regional Water Quality Control Board are in the process of
establishing TMDLs for 17 northern California rivers and certain of their
tributaries, including certain water courses that flow within the Company's
timberlands. The final TMDL requirements applicable to the Company's timberlands
may require aquatic measures that are different from or in addition to the
prescriptions to be developed pursuant to the watershed analysis process
provided for in the HCP.
Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs or carrying out certain other operations. On December 2, 1997, two
lawsuits were filed against the Company, certain of its subsidiaries and others:
Kristi Wrigley, et al. v. Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM
Group Holdings Inc., Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM
Inc., Scotia Pacific Company LLC, et al. (the "WRIGLEY LAWSUIT") and Jennie
Rollins, et al. v. Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group
Holdings Inc., Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc.,
Barnum Timber Company, et al. (the "ROLLINS LAWSUIT"). These actions allege,
among other things, that the defendants' logging practices have damaged the
plaintiffs' properties and property values by contributing to landslides
(Rollins lawsuit) and the destruction of certain watersheds (Wrigley lawsuit).
The Company believes that it has strong factual and legal defenses with respect
to these matters; however, there can be no assurance that they will not have a
material adverse effect on its financial position, results of operations or
liquidity. On March 31, 1999, an action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (the
"EPIC-SYP/PERMITS LAWSUIT") was filed alleging various violations of the CESA
and the California Environmental Quality Act ("CEQA"), and challenging, among
other things, the validity and legality of the Permits issued by California and
the SYP. On March 31, 1999, an action entitled United Steelworkers of America,
AFL-CIO, CLC, and Donald Kegley v. California Department of Forestry and Fire
Protection, The Pacific Lumber Company, Scotia Pacific Company LLC and Salmon
Creek Corporation (the "USWA LAWSUIT") was filed also challenging the validity
and legality of the SYP. The Company believes that appropriate procedures were
followed throughout the public review and approval process concerning the HCP
and the SYP, and the Company is working with the relevant state and federal
agencies to defend these challenges. Although uncertainties are inherent in the
final outcome of the EPIC-SYP/Permits lawsuit and the USWA lawsuit, the Company
believes that the resolution of these matters should not result in a material
adverse effect on its financial condition, results of operations or the ability
to harvest timber. While the Company expects environmentally focused
objections and lawsuits to continue, it believes that the HCP, the SYP and the
Permits should enhance its position in connection with these continuing
challenges and, over time, reduce or minimize such challenges.
7. MEMBER CAPITAL (DEFICIT)
A reconciliation of the activity in member capital (deficit) is as follows
(in millions):
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------------ ---------- -----------
Balance at beginning of period.............................................. $ (552.9) $ 17.1 $ 12.7
Net income (loss)........................................................... (32.4) (24.5) 45.6
Transfer of deferred tax assets to Pacific Lumber........................... - (22.9) -
Contribution of assets by Pacific Lumber.................................... 6.1 - 5.1
Assumption of net tax liabilities by Pacific Lumber......................... - 6.7 28.4
Dividends from Offering..................................................... - (526.1) -
Other dividends paid........................................................ - (6.7) (60.8)
Other contributions (distributions)........................................ 179.8 3.5 (13.9)
------------ ---------- -----------
Balance at end of period.................................................... $ (399.4) $ (552.9) $ 17.1
============ ========== ===========
8. SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- ---------
(IN MILLIONS)
Supplemental information on non-cash investing and financing activities:
Assumption of net tax liabilities by Pacific Lumber............................. $ - $ 6.7 $ 28.4
Deferred financing costs payable................................................ - 1.0 -
Distribution of assets to Pacific Lumber........................................ - 6.1 -
Acquisition of assets subject to long-term debt and other liabilities........... - 0.5 7.3
Transfer of deferred tax assets to Pacific Lumber............................... - 22.9 -
Contribution of assets by Pacific Lumber........................................ 6.1 - 5.2
Supplemental disclosure of cash flow information:
Interest paid................................................................... $ 64.3 $ 25.5 $ 26.7
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary quarterly financial information for the years ended December 31,
1999 and 1998 is as follows (in millions):
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------- -------------- -------------- --------------
1999:
Log sales to Pacific Lumber......................... $ 6.3 $ 8.4 $ 19.1 $ 17.6
Operating income.................................... 2.5 4.7 13.2 10.8
Net loss............................................ (13.4) (11.5) (3.3) (4.2)
1998:
Log sales to Pacific Lumber......................... $ 9.7 $ 24.9 $ 33.3 $ 12.4
Operating income.................................... 6.6 19.6 25.6 8.1
Income (loss) before extraordinary item............. 0.4 8.1 10.1 (7.7)
Net income (loss)................................... 0.4 8.1 (25.3) (7.7)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):
Report of Independent Public Accountants
Balance Sheet at December 31, 1999 and 1998
Statement of Income for the Years Ended December 31, 1999,
1998 and 1997
Statement of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
Schedules are inapplicable or the required information is included in
the financial statements or the notes thereto.
(B) REPORTS ON FORM 8-K
On November 19, 1999, the Company filed a current report on Form 8-K
(under Item 5) dated November 19, 1999, concerning the release from escrow of
funds from the sale of the Headwaters Timberlands and the establishment of the
SAR Account.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto (beginning on page 30), which index is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCOTIA PACIFIC COMPANY LLC.
Date: March 10, 2000 By: /S/ JOHN A. CAMPBELL
---------------------------------------------
John A. Campbell,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 10, 2000 By: /S/ JOHN A. CAMPBELL
---------------------------------------------
John A. Campbell
Chairman of the Board, President and Manager
(Principal Executive Officer)
Date: March 10, 2000 By: /S/ JARED G. CARTER
---------------------------------------------
Jared G. Carter
Executive Vice President, General Counsel
and Manager
Date: March 10, 2000 By: /S/ J. KENT FRIEDMAN
---------------------------------------------
J. Kent Friedman
Manager
Date: March 10, 2000 By: /S/ JOHN T. LA DUC
---------------------------------------------
John T. La Duc
Vice President and Manager
Date: March 10, 2000 By: /S/ EZRA G. LEVIN
---------------------------------------------
Ezra G. Levin
Manager
Date: March 10, 2000 By: /S/ STUART C. LEWIS
---------------------------------------------
Stuart C. Lewis
Independent Manager
Date: March 10, 2000 By: /S/ PAUL N. SCHWARTZ
---------------------------------------------
Paul N. Schwartz
Vice President and Manager
Date: March 10, 2000 By: /S/ JACK M. WEBB
---------------------------------------------
Jack M. Webb
Independent Manager
Date: March 10, 2000 By: /S/ GARY L. CLARK
---------------------------------------------
Gary L. Clark
Vice President - Finance and
Administration
(Principal Financial and
Accounting Officer)
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
3.1 Certificate of Formation of Scotia Pacific Company LLC (the "Company") (incorporated herein
by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 dated
September 21, 1998; Registration No. 333-63825; the "Company's Form S-4")
3.2 Agreement of Limited Liability Company of the Company, effective as of July 20, 1998
(incorporated herein by reference to Exhibit 3.2 to the Company's Form S-4)
4.1 Agreement and Plan of Merger, dated as of July 20, 1998, between the Company and Scotia
Pacific Holding Company (incorporated herein by reference to Exhibit 4.1 to the Company's Form
S-4)
4.2 Indenture, dated as of July 20, 1998, between the Company and State Street Bank and Trust
Company ("State Street") regarding the Company's Class A-1, Class A-2 and Class A-3 Timber
Collateralized Notes (the "Indenture") (incorporated herein by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q/A of MAXXAM Inc. ("MAXXAM") for the quarter ended June
30, 1998; File No. 1-3924; the "MAXXAM June 1998 Form 10-Q")
4.3 First Supplemental Indenture, dated as of July 16, 1999, to the Indenture (incorporated herein by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999; the "Company June 1999 Form 10-Q")
4.4 Second Supplemental Indenture, dated as of November 18, 1999, to the Indenture (incorporated
herein by reference to Exhibit 99.3 to the Company's Report on Form 8-K dated November 19,
1999)
4.5 Credit Agreement, dated as of July 20, 1998, among the Company, the financial institutions party
thereto and Bank of America National Trust and Savings Association, as agent (the "Bank of
America Credit Agreement") (incorporated herein by reference to Exhibit 4.3 to the MAXXAM
June 1998 Form 10-Q)
4.6 First Amendment, dated as of July 16, 1999, to the Bank of America Credit Agreement (incorporated
herein by reference to the Company June 1999 Form 10-Q)
4.7 Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of
Proceeds, dated as of July 20, 1998, among the Company, Fidelity National Title Insurance
Company, as trustee, and State Street, as collateral agent (incorporated herein by reference to
Exhibit 4.2 to the MAXXAM June 1998 Form 10-Q)
10.1 New Master Purchase Agreement, dated as of July 20, 1998, between the Company and The Pacific
Lumber Company ("Pacific Lumber") (incorporated herein by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of MAXXAM Group Holdings Inc. for the quarter ended June 30, 1998; File No.
333-18723; the "MGHI June 1998 Form 10-Q")
10.2 New Services Agreement, dated as of July 20, 1998, between Pacific Lumber and the Company
(incorporated herein by reference to Exhibit 10.2 to the MGHI June 1998 Form 10-Q)
10.3 New Additional Services Agreement, dated as of July 20, 1998, between the Company and Pacific
Lumber (incorporated herein by reference to Exhibit 10.3 to the MGHI June 1998 Form 10-Q)
10.4 New Reciprocal Rights Agreement, dated as of July 20, 1998, among Pacific Lumber, the
Company and Salmon Creek Corporation ("Salmon Creek") (incorporated herein by reference to
Exhibit 10.4 to the MGHI June 1998 Form 10-Q)
10.5 New Environmental Indemnification Agreement, dated as of July 20, 1998, between Pacific
Lumber and the Company (incorporated herein by reference to Exhibit 10.5 to the MGHI June
1998 Form 10-Q)
10.6 Implementation Agreement with Regard to Habitat Conservation Plan for the Properties of Pacific
Lumber, the Company and Salmon Creek dated as of February 1999 by and among the United States
Department of the Interior Fish and Wildlife Service ("USFWS"), the National Marine Fisheries Service,
the California Department of Fish and Game ("CDF&G"), the California Department of Forestry and Fire
Protection (the "CDF") and Pacific Lumber, Salmon Creek and the Company (incorporated herein by
reference to Exhibit 99.3 to the Company's Form 8-K dated March 19, 1999; the "Company March
19, 1999 Form 8-K")
10.7 Agreement Relating to Enforcement of AB 1986 dated as of February 25, 1999 by and among The
California Resources Agency, CDF&G, the CDF, The California Wildlife Conservation Board,
Pacific Lumber, Salmon Creek and the Company (incorporated herein by reference to Exhibit 99.4
to the Company March 19, 1999 Form 8-K)
10.8 Habitat Conservation Plan dated as of February 1999 for the Properties of Pacific Lumber, Scotia
Pacific Holding Company and Salmon Creek (incorporated herein by reference to Exhibit 99.5
to the Company March 19, 1999 Form 8-K)
10.9 Agreement for Transfer of Owl Creek and Escrow Instructions and Option Agreement dated as
of February 26, 1999 by and between the Company and the State of California (incorporated
herein by reference to Exhibit 99.7 to the Company March 19, 1999 Form 8-K)
10.10 Letter dated as of February 25, 1999 from the CDF to Pacific Lumber (incorporated herein by
reference to Exhibit 99.8 to the Company March 19, 1999 Form 8-K)
10.11 Letter dated as of March 1, 1999 from the CDF to Pacific Lumber (incorporated herein by reference to
Exhibit 99.9 to the Company March 19, 1999 Form 8-K)
10.12 Letter dated as of March 1, 1999 from the USFWS and the U.S. Department of Commerce
National Oceanic and Atmospheric Administration to Pacific Lumber, Salmon Creek and the
Company (incorporated herein by reference to Exhibit 99.10 to the Company March 19, 1999
Form 8-K)
10.13 Escrow Agreement dated as of March 1, 1999 among Pacific Lumber, Salmon Creek and
Citibank, N.A. ("Escrow Agreement") (incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K dated December 31, 1998; the "Company 1998 Form
10-K")
10.14 Amendment to Escrow Agreement dated as of March 26, 1999 (incorporated herein by reference
to Exhibit 10.16 to the Company 1998 Form 10-K)
10.15 Second Amendment to Escrow Agreement dated October 6, 1999 (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated September 30,
1999)
*27 Financial Data Schedule
- ---------------------------
* Included with this filing.