UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT [NO FEE REQUIRED]
Commission file number: 0-11894
SOUTHERN TIMBER PARTNERS 2
(formerly Hutton Southern Timber Partners 2)
Exact name of registrant as specified in its charter
Georgia 13-3139157
- ------------------------------ ----------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
3 World Financial Center, 29th Floor
New York, NY ATTN: Andre Anderson 10285
- --------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Prospectus dated November 16, 1982, (filed as Exhibit 28 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1982) is incorporated by reference in Part I.
The Registrant's Annual Report to Unitholders for the year ended December 31,
1995 is incorporated by reference in Parts I, II, III and IV.
PART I
Item 1. Business
(a) General Development of Business
Southern Timber Partners 2 (the "Partnership" or "Registrant"), formerly known
as Hutton Southern Timber Partners 2, was organized as a Georgia limited
partnership in 1982, and is engaged in the business of investing in timberland
and timber cutting rights in the southeastern United States. The Registrant
acquired properties and currently manages the timber growth on its timberland
with a view toward increasing its value and selling the timber and timberland.
Its general partner is Timber Resources Corp. II (the "General Partner"),
formerly Hutton Timber Resources Corp. II, a Delaware corporation which is an
affiliate of Lehman Brothers Inc. ("Lehman"), formerly known as Shearson Lehman
Brothers Inc., a Delaware corporation (see Item 10.). The General Partner has
responsibility for all aspects of the Registrant's operations and provides
executive, supervisory and certain administrative services for the Registrant.
In 1982, the Registrant concluded a public offering (the "Offering") of 40,000
units of limited partnership interest (the "Units") through E.F. Hutton &
Company Inc. ("Hutton") as selling agent, at a price of $500 per Unit. The
Units were registered under the Securities Act of 1933 on Form S-11
(Registration No. 2-79645) which had been declared effective November 16, 1982.
Reference is made to the Prospectus of the Registrant dated November 16, 1982,
filed pursuant to Rules 424(b), under the Securities Act of 1933 and
incorporated herein by reference (said Prospectus is hereinafter called the
"Prospectus"). The Registrant terminated this Offering on June 27, 1983 and
admitted 2,363 limited partners on April 1, 1983 and 1,401 limited partners on
July 1, 1983. The limited partners made aggregate capital contributions to the
Registrant of $18,595,500 representing the purchase of 37,191 Units. As of
December 31, 1984, the Registrant had expended or committed $15,999,035 in the
acquisition of timber properties, which represented 100% of the proceeds of the
Offering available for investment in timber properties. The Registrant may
sell or exchange its properties for other timber properties at any time.
However, the Registrant may not reinvest the proceeds from sales in additional
properties. The Registrant may also invest in timber through the purchase of
timber cutting rights but has not invested in such rights to date. The
Registrant may utilize borrowings to increase its invested assets if the
General Partner determines that the terms of such borrowings would be
advantageous to the Registrant. At this time, the General Partner does not
anticipate utilizing additional borrowings.
On October 13, 1987, the Registrant contributed $3,011,417 in cash to a newly
formed joint venture, Southern Timber Venture Partners 1, formerly Hutton
Timber Venture Partners 1 (the "Joint Venture") in exchange for a 76% interest
in the Joint Venture. An affiliated partnership, Southern Timber Partners I
contributed 1,239 acres of timberland with an appraised value of $946,676 in
exchange for the remaining 24% interest in the Joint Venture. On October 15,
1987 substantially all of these contributions were applied to the acquisition
of 1,709 acres of the Laurel View Tract located in Liberty County, Georgia.
For a description of the Joint Venture see Note 6 of Notes to the Financial
Statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995.
The Partnership will continue until December 31, 1997 unless terminated sooner
in accordance with the terms of the Partnership Agreement. However, the
Partnership Agreement states that the General Partner can extend the life of
the Partnership beyond the termination date if it is determined that a sale of
the timberland at that time would cause undue loss to the partners. The
Partnership's liquidation will be accomplished through the liquidation of the
Partnership's assets which primarily consist of pre-merchantable timber and a
76% interest in the Laurel View Tract. The General Partner will continue to
evaluate strategies for marketing the Partnership's timberland. In 1996, the
Partnership will begin marketing the Laurel View tract for its development
potential. Reference is made to Item 7 of this Form 10-K and the "Message to
Investors" section of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, which is filed as an exhibit under Item 14 and
incorporated herein by reference.
(b) Financial Information About Industry Segment
The Registrant operates in only one industry segment. The General Partner, in
conjunction with an independent forest consulting firm, develops a forest
management plan for each property acquired by the Registrant. Such plans
estimate the types and numbers of trees of varying diameter and age on each
tract and the costs and expenses of maintaining the tract, recommend thinning,
harvesting, reforestation and other forest management practices, analyze
maturity cycles, and generally assist the General Partner in maximizing the
Registrant's return on each investment property.
In addition to income from harvesting or sale of timberlands, the General
Partner may and has, in situations deemed appropriate, endeavored to produce
additional cash flow for the Registrant by ancillary land uses. These may
include cattle grazing, mineral operations, recreational and hunting leases,
and conversion or sale of sites for higher value uses. In the year ended
December 31, 1995, revenues from such uses were $7,146.
(c) Narrative Description of Business
The primary investment objectives of the Partnership are:
(1) long-term capital appreciation of its timber properties, and
(2) cash flow derived from periodic harvesting of timber.
The ownership and operation of timber properties involves a number of risks,
and there is no assurance that the Registrant will ultimately achieve its
investment objectives. Risks, among others, include changes in governmental
regulations, fire hazards, insect damage, diseases and timber theft, and risks
of market fluctuations. The General Partner believes the employment of good
forest management practices helps to ameliorate the physical risks of timber
investments, however, these risks cannot be eliminated entirely. See the
caption entitled "Risk Factors" in the Prospectus which is incorporated herein
by reference.
The Registrant incurs costs in connection with the ownership and management of
its properties. These include costs of maintaining roads and boundary lines,
fire protection, annual property taxes, fees and expenses of independent forest
management firms, and other costs associated with the ownership and management
of timber properties. Timber harvesting is not performed directly by the
Registrant but by independent timber purchasers or harvesters.
In addition to the interest in the Joint Venture, at December 31, 1995, the
Registrant owned timber properties comprising approximately 2,746 acres,
acquired at an adjusted cost of $3,494,679. Other than the Laurel View tract,
most of the timber from the Partnership's tracts has been cut and sold in the
past. Accordingly, the tracts currently contain mainly premerchantable timber
which the Partnership had planted after past cuttings. A limited market does
exist for pre-merchantable timber and is composed of those investors who would
view such a purchase as a long-term investment. The General Partner is now
holding the timberland and aims to sell it when timber ages and the tracts'
value increases. Additional information concerning the Partnership's timber
tracts is incorporated by reference to the "Message to Investors" and the
"Tract Profiles" of the Partnership's Annual Report to Unitholders for the year
ended December 31, 1995.
Competition
- -----------
The Registrant competes in the sale of timber and timberland with many other
persons and firms holding timberland investments, including large paper and
lumber companies and numerous private landowners. Many of such competitors
have greater financial resources and experience in the forest industry than the
Registrant.
Employees
- ---------
The Partnership has no employees.
Item 2. Properties
Incorporated by reference to "Tract Profiles" of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995. For information on
the Partnership's Joint Venture, see Note 6 of Notes to the Financial
Statements.
Item 3. Legal Proceedings
As of December 31, 1995, the Registrant was not a party to any material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of limited partners during the fourth quarter
of the year for which this report is filed.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters.
(a) Market Information
There is no established trading market for the Units of the Registrant.
(b) Holders
As of December 31, 1995 there were 3,690 holders of the Units of the
Registrant.
(c) Distributions
The Registrant paid no cash distributions during the years ended December 31,
1995 or 1994.
Item 6. Selected Financial Data.
Incorporated by reference to "Financial Highlights" of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
- -------------------------------
Timber and timberland, at cost totaled $3,494,679 at December 31, 1995,
compared to $5,700,697 at December 31, 1994. The decrease is due to sales of
3,628 acres of timberland from the Gray and Claxton tracts during 1995. Sales
from the Claxton Tract totaled 3,188 acres, of which 1,185 acres were sold in
August, 244 acres were sold in October, and 1,759 were sold in December.
Accordingly, accumulated depletion decreased to $1,915,663 at December 31,
1995, compared to $2,491,940 at December 31, 1994.
At December 31, 1995, the Partnership's cash balance totaled $2,332,145
compared to $689,002 at December 31, 1994. The increase in cash is due
primarily to the receipt of proceeds from timberland sales during 1995, as
discussed above. It is anticipated that a portion of this cash will be
distributed during the first half of 1996. The Partnership's cash, along with
funds generated from future timber and timberland sales, are expected to
provide sufficient liquidity for operations.
At December 31, 1995, the Partnership's accounts receivable balance was zero,
compared to $73,539 at December 31, 1994, reflecting the collection in 1995 of
net proceeds from a 1994 sale of timberland on the Gray Tract.
Due to affiliates totaled $139,481 at December 31, 1995, compared to $78,980
at December 31, 1994. The increase is largely due to the accrual for 1995
management fees.
The Partnership currently owns approximately 2,746 acres of timberland
outright, in addition to a 76% share in the Laurel View Tract, a 1,709 acre
tract located near Savannah, Georgia. With respect to the Partnership's 2,746
acres of timberland, the Partnership is pursuing select sales of timberland as
opportunities arise. It is likely that any increase in the Claxton, Gray and
Southern Timberland tracts' value will be largely attributable to the aging of
the premerchantable timber stands. While the Laurel View tract could be sold
as timberland, a higher value would be realized if sold as a development site
due to its coastal location and close proximity to major interstate highways.
Further information is incorporated by reference to the "Message to Investors"
section of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995.
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 26, 1996.
Results of Operations
1995 versus 1994
- ----------------
The Partnership's operations resulted in net losses of $101,492 and $257,299
for the years ended December 31, 1995 and 1994, respectively. The decrease in
net loss is primarily attributable to an increase in interest income, a
decrease in operating expenses and the recognition of income from joint venture
in 1995 as compared to the recognition of a loss from joint venture in 1994.
The $2,358 gain on sales of timberland for the year ended December 31, 1995, is
attributable to gains on the sale of 440 acres of timberland from the Gray
Tract and 244 acres of timberland from the Claxton Tract, partially offset by
losses on sales of 2,944 acres from the Claxton Tract. In 1994, the
Partnership realized a loss of $18,884 on sales of 598 acres of timberland from
the Gray Tract.
Interest income totaled $59,220 for the year ended December 31, 1995, compared
to $28,924 for the year ended December 31, 1994. The increase is the result of
higher cash balances in 1995 due to the receipt of proceeds on timberland sales
in 1995.
For the year ended December 31, 1995, other income totaled $10,451, compared
to $18,035 in the prior year. The decrease is the result of a decrease in
ancillary income between 1994 and 1995.
For the year ended December 31, 1995, property operating expenses were $96,387
compared to $158,673 for the year ended December 31, 1994. The decrease is due
to aerial spraying costs in 1994. No such expense was incurred in 1995.
The Partnership's interest in the joint venture is represented by its 76% share
of the Laurel View Tract. The Partnership recognized income of $7,742 from the
joint venture's operations for the year ended December 31, 1995, compared to a
loss of $44,712 for the year ended December 31, 1994. The 1995 income from the
joint venture is mainly attributable to the sale of timber and is offset by
ordinary operating expenses. The loss in 1994 was due primarily to the lack of
timber sales and to the joint venture meeting its normal operating expenses.
1994 versus 1993
- ----------------
The Partnership's operations resulted in net losses of $257,299 and $149,663
for the years ended December 31, 1994 and 1993, respectively. The higher net
loss in 1994 resulted primarily from a decrease in interest income, increased
property operating expenses and a higher operating loss generated by the joint
venture.
The $18,884 loss on sales of timberland for the year ended December 31, 1994,
was attributable to the sale of approximately 598 acres of the Gray Tract.
This compared to a loss of $3,242 recognized on the sale of approximately 459
acres from the Claxton Tract and approximately 666 acres from the Gray Tract in
1993.
Interest income totaled $28,924 for the year ended December 31, 1994, compared
to $60,461 for the year ended December 31, 1993. The decrease is primarily
attributable to lower operating cash balances invested in 1994 compared to
1993. Additionally, the Partnership earned $11,788 of interest income from
notes receivable during 1993 compared to $0 in 1994 as the notes were paid in
full during the second quarter of 1993.
The Partnership's interest in the joint venture is represented by its 76% share
of the Laurel View tract. The Partnership recognized a loss of $44,712 from
the joint venture operations for the year ended December 31, 1994, compared to
a loss of $27,686 for the year ended December 31, 1993. The joint venture
losses in 1994 and 1993 were attributable to a lack of timber sales, the
recording of ordinary operating expenses and costs associated with the
development of a land use plan for the Laurel View Tract.
Property operating expenses for the year ended December 31, 1994, increased by
$67,615 compared to 1993, as a result of the Partnership performing aerial
spraying of its timberland area during the fourth quarter of 1994.
General and administrative expenses for the years ended December 31, 1994 and
1993 were $81,989 and $104,377, respectively. The decrease is primarily due to
the decline in audit fees, transfer agent fees and administrative fees in 1994
as compared to 1993.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant has no officers or directors. The General Partner manages and
controls substantially all of the Registrant's affairs and has general
responsibility and ultimate authority in all matters affecting the Registrant's
business.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect ownership of the Partnership or the General Partner. However, the
assets acquired by Smith Barney included the name "Hutton." Consequently,
effective February 17, 1994, the Partnership changed its name to Southern
Timber Partners 2 and the General Partner changed its name to Timber Resources
Corp. II on October 29, 1993 to delete any reference to "Hutton."
Certain officers and directors of the General Partner are now serving (or in
the past have served) as officers and directors of entities which act as
general partners of a number of real estate limited partnerships which have
sought protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The director and executive officers of the General Partner are as follows:
Name Office
------ --------
Paul L. Abbott Director, President and Chief Financial Officer
Kate D. Hobson Vice President
Paul L. Abbott, 50, is a Managing Director of Lehman Brothers. Mr. Abbott
joined Lehman Brothers in August 1988, and is responsible for investment
management of residential, commercial and retail real estate. Prior to joining
Lehman Brothers, Mr. Abbott was a real estate consultant and a senior officer
of a privately held company specializing in the syndication of private real
estate limited partnerships. From 1974 through 1983, Mr. Abbott was an officer
of two life insurance companies and a director of an insurance agency
subsidiary. Mr. Abbott received his formal education in the undergraduate and
graduate schools of Washington University in St. Louis.
Kate D. Hobson, 29, is an Assistant Vice President of Lehman Brothers and has
been a member of the Diversified Asset Group since 1992. Prior to joining
Lehman Brothers, Ms. Hobson was associated with Cushman & Wakefield serving as
a real estate accountant from 1990 to 1992. Prior to that, Ms. Hobson was
employed by Cambridge Systematics, Inc. as a junior land planner. Ms. Hobson
received a B.A. degree in sociology from Boston University in 1988.
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are
employees of Lehman. They do not receive any salaries or other compensation
from the Partnership. See Item 13 below with respect to a description of
certain transactions of the General Partners with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
The Partnership knows of no person who beneficially owns more than 5% of the
Partnership's units.
(b) Security ownership of management
As of December 31, 1995, no director or officer of the General Partner owned
any Units of the Registrant.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions.
Reference is made to Note 4 of the Financial Statements of the Partnership's
1995 Annual Report to Unitholders for information regarding fees paid to the
General Partner and its affiliates.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(1) Financial Statements Page
Balance Sheets at December 31, 1995 and 1994 (1)
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital (Deficit)
for the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 (1)
Notes to the Financial Statements (1)
Report of Independent Auditors (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
(3) Exhibits.
The following exhibits are being filed as a part of this report. Documents
other than those designated as being filed herewith are incorporated herein
by reference.
3 Form of Restated and Amended Agreement of Limited Partnership (filed
as Exhibit 3(b) to a Registration Statement on Form S-11 No. 2-79645
(the "Registration Statement") and incorporated herein by reference).
4.1 Specimen Certificate for Units of Limited Partnership (filed as
Exhibit 4 to the Registration Statement and incorporated herein by
reference).
4.2 Form of Restated and Amended Agreement of Limited Partnership (filed
as Exhibit 3(b) to the Registration Statement and incorporated herein
by reference).
10.1 Agreement for Sale of Timberlands, dated July 27, 1983, between John
M. McClurd, Sr., Clinton Wright, Sr., G.C. Harrell, Sr., and Glenn
Campbell, as trustees of the Estate of Flora Burie Gray, and the
Registrant (filed as Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1983 (the "1983
Annual Report") and incorporated herein by reference).
10.2 Indenture dated September 4, 1984, between the Registrant and St.
Regis Corporation (filed as Exhibit 10 to the Current Report on Form
8-K, dated September 4, 1984 and incorporated herein by reference).
10.3 Loan Agreement, dated October 13, 1987, between the Registrant and
Gilman Investment Company (filed as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987
(the "1987 Annual Report") and incorporated herein by reference.
13.1 Annual Report to Unitholders for the year ended December 31, 1995.
28.1 Prospectus, dated November 16, 1982 (filed as Exhibit 28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982 (the "1982 Annual Report") and incorporated herein
by reference).
27 Financial Data Schedule
28.2 Current Report on Form 8-K, dated August 31, 1983 (filed as Exhibit
28.2 to the 1983 Annual Report and incorporated herein by reference).
(4) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of calendar
year 1995.
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.
Dated: March 27, 1996
SOUTHERN TIMBER PARTNERS 2
BY: Timber Resources Corp. II
General Partner
BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, President and
Chief Financial Officer
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 in the capacities and on the dates indicated.
TIMBER RESOURCES CORP. II
General Partner
Date: March 27, 1996
BY: /s/ Paul L. Abbott
Paul L. Abbott
Director, President and
Chief Financial Officer
Date: March 27, 1996
BY: /s/ Kate Hobson
Kate Hobson
Vice President
EXHIBIT 13.1
Southern Timber Partners 2
1995 Annual Report
Southern Timber Partners 2 is a limited partnership formed in 1982 to invest in
timberland in the southeastern United States. At December 31, 1995, the
Partnership's properties consisted of approximately 2,746 acres of timberland
and a 76% share of a 1,709 acre tract, all located in Georgia.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
----- Message to Investors -----
Presented for your review is the 1995 Annual Report for Southern Timber
Partners 2 (the "Partnership"). Market conditions for the sale of timberland
remained relatively strong during 1995 and the Partnership sold approximately
3,600 acres during the year. This report includes a discussion of our future
strategy for the Partnership, particularly with respect to the Laurel View
Tract. Following this letter is a profile of the Partnership's four remaining
tracts.
Partnership Timberland
The Partnership's timber holdings total approximately 2,746 acres of
timberland, consisting of three separate tracts of land located in Georgia:
the Claxton Tract, the Gray Tract and the Southern Timberlands Tract. The
Partnership also owns a 76% interest in a 1,709 acre tract, located in Georgia,
which will be marketed as a development site. Market conditions for the sale
of timberland in Georgia remained relatively strong during 1995 and the
Partnership sold three parcels of timberland from the Gray Tract, totaling 440
acres, and three parcels from the Claxton Tract, totaling 3,188 acres, for net
proceeds of $1,632,099. These proceeds were added to the Partnership's cash
reserves. The Partnership completed no timber-only sales during the year, as
much of the Partnership's timber was harvested in the late 1980s. Although the
land was reforested shortly thereafter, the majority of the Partnership's
timber is not yet ready for harvest, since timber must be at least 15 years old
before it can be cut and sold. It is likely that the tracts will increase in
value as the premerchantable timber ages. Therefore, the General Partner will
pursue only select timberland sales at this time.
Laurel View Tract
The Laurel View Tract is a 1,709 acre site located approximately 30 miles south
of Savannah, Georgia. The Partnership owns a 76% interest in the tract with
the remaining interest owned by Southern Timber Partners I, an affiliated
partnership. After careful analysis, the General Partner has determined that
the highest and best use for the tract is as a development site rather than
timberland. This decision was reached after closely monitoring market
conditions and considering several of the property's features that make it
attractive to developers, such as the extension of sewer and water services
near the site by a local municipality, the tract's proximity to a major
interstate highway, its coastal location and its frontage along two rivers.
Accordingly, the General Partner intends to market the tract for its
development potential. Given that the Laurel View Tract is currently raw land
containing few developments or improvements, and produces no income other than
from the sale of timber, the General Partner anticipates that it will take time
to secure an appropriate buyer for the property. The pool of prospective
buyers for real estate of this type and size is limited. Furthermore, the
value of the tract and the Partnership's ability to sell the tract will largely
depend upon the pace of development in the surrounding area. The General
Partner has a comprehensive marketing plan for the tract and will begin
actively marketing the land during 1996.
Financial Highlights
For the years ended December 31,
1995 1994 1993 1992 1991
--------- --------- --------- ---------- ----------
Total Assets $8,462,220 $8,524,218 $8,800,557 $10,621,193 $11,138,455
Total Income 72,029 28,075 73,458 141,587 382,442
Net Income (Loss) (101,492) (257,299) (149,663) (486,961) 129,026
Net Income (Loss) per Unit (2.70) (6.85) (3.98) (12.96) 1.91
Distributions per Unit -- -- 45.00 -- 30.00
- - Total income increased in 1995, primarily due to higher interest income
resulting from the Partnership's higher average cash balance in 1995, and
gains on sales of timberland during 1995, compared to losses on sales of
timberland in 1994.
- - The decline in net loss for 1995 is primarily attributable to the increase in
interest income, a decrease in property operating expenses and income from
the joint venture in 1995 as compared to a net loss from joint venture
operations in 1994. Property operating expenses were higher in 1994 due to
costs associated with aerial spraying of certain timber tracts which were not
incurred in 1995.
Net Asset Value
As of December 31, 1995, based on the appraised value of the tracts and taking
into account the Partnership's other assets and liabilities, the General
Partner has determined the Net Asset Value to be $227.37 per $241 limited
partnership Unit. Limited Partners should note that appraisals are only
estimates of current value and actual values realizable upon sale may be
substantially different. Significant factors in establishing an appraised
value are the actual selling price for tracts which the appraiser believes are
comparable and the rates used by the appraiser to estimate timber growth.
Because of the nature of the Partnership's properties, there can be no
assurance that the other tracts reviewed by the appraiser are comparable.
Additionally, the appraised value does not reflect the actual costs which would
be incurred in selling the tracts. As a result of these factors and the
illiquid nature of an investment in Units of the Partnership, the variation
between the appraised value of the Partnership's tracts and the price at which
Units of the Partnership could be sold is likely to be significant.
Fiduciaries of Limited Partners which are subject to ERISA or other provisions
of law requiring valuation of Units should consider all relevant factors,
including, but not limited to the Net Asset Value, in determining the fair
market value of the investment in the Partnership for such purposes.
Summary
In the year ahead, the General Partner will continue to pursue select
timberland sales and begin marketing the Laurel View Tract for its development
potential. The pace of any timberland sales will largely depend upon market
conditions, while our ability to find a buyer for the Laurel View Tract will
depend upon a number of factors, especially the pace of development in the
surrounding area. In the interim, the General Partner will focus on responsive
management of the Partnership's remaining timber stands in an effort to enhance
their future value. We will continue to keep you apprised of our progress in
future reports.
Very truly yours,
Southern Timber Partners 2
By: Timber Resources Corp. II
General Partner
/s/Paul L. Abbott
By: Paul L. Abbott
President
March 27, 1996
Tract Profiles
Claxton Tract
- -------------
Acres: 1,780
Location: Laurens County, Georgia (near Macon)
Purchase Price: $6,406,872 (cash)
Purchase Date: May 18, 1983
1995 Appraised Value: $1,320,000 ($570,000 - timberland, $750,000 - timber)(A)
Timber Stands: 7% merchantable, 80% premerchantable, 13% clear-cut
Gray Tract
- ----------
Acres: 793
Location: Camden County, Georgia (30 miles south of Brunswick)
Purchase Price: $4,570,000 (cash)
Purchase Date: August 30, 1983
1995 Appraised Value: $422,000 ($232,000 - timberland, $190,000 - timber)(A)
Timber Stands: 94% premerchantable, 6% not suitable for timber growth
Laurel View Tract
- -----------------
(This tract is owned as part of a joint venture between Southern Timber
Partners I and Southern Timber Partners 2. Southern Timber Partners 2 owns a
76% interest in the joint venture.)
Acres: 1,709
Location: Liberty County, Georgia bordering Laurel View River and
Jones Creek (approximately 30 miles south of Savannah)
Purchase Price: $5,721,261 (cash)
Purchase Date: September 30, 1987
1994 Appraised Value: $6,300,000 ($5,300,000 - timberland, $1,000,000 -
timber)(A)
Timber Stands: 68% merchantable, 10% premerchantable,
22% non-merchantable
Southern Timberlands Tract
- --------------------------
Acres: 173
Location: Emmanuel County, Georgia
Purchase Price: $180,000 (cash)
Purchase Date: December 28, 1983
1995 Appraised Value: $90,000 ($45,000 - timberland, $45,000 - timber)(A)
Timber Stands: 14% merchantable, 86% premerchantable
Note A: Appraised value does not consider the revenue derived from
previous timber cuttings and timberland already sold from the
tract.
merchantable - timber which is generally fifteen years and older and
suitable for current harvesting
premerchantable - timber which is less than fifteen years old and not suitable
for current harvesting
clear-cut - timberland on which all the timber has been harvested
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Timber and timberland, at cost $ 3,494,679 $ 5,700,697
Less-accumulated depletion (1,915,663) (2,491,940)
Net timber and timberland 1,579,016 3,208,757
Cash and cash equivalents 2,332,145 689,002
Accounts receivable --------- 73,539
Prepaid insurance 4,813 5,922
Due from joint venture -------- 8,494
Investment in joint venture 4,546,246 4,538,504
Total Assets $ 8,462,220 $ 8,524,218
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 28,498 $ 49,505
Due to affiliates 139,481 78,980
Total Liabilities 167,979 128,485
Partners' Capital (Deficit):
General Partner (24,311) (23,296)
Limited Partners
(37,191 units outstanding) 8,318,552 8,419,029
Total Partners' Capital 8,294,241 8,395,733
Total Liabilities and
Partners' Capital $ 8,462,220 $ 8,524,218
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at January 1, 1993 $ 10,495,516 $ (2,321) $ 10,493,195
Net loss (148,166) (1,497) (149,663)
Cash distributions (1,673,595) (16,905) (1,690,500)
Balance at December 31, 1993 8,673,755 (20,723) 8,653,032
Net loss (254,726) (2,573) (257,299)
Balance at December 31, 1994 8,419,029 (23,296) 8,395,733
Net loss (100,477) (1,015) (101,492)
Balance at December 31, 1995 $ 8,318,552 $ (24,311) $ 8,294,241
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Gain (loss) on sales of timberland $ 2,358 $ (18,884) $ (3,242)
Interest 59,220 28,924 60,461
Other 10,451 18,035 16,239
Total Income 72,029 28,075 73,458
Expenses
Property operating 96,387 158,673 91,058
General and administrative 84,876 81,989 104,377
Total Expenses 181,263 240,662 195,435
Other Income (Loss)
Income (loss) from joint venture 7,742 (44,712) (27,686)
Net Loss $ (101,492) $ (257,299) $ (149,663)
Net Loss Allocated:
To the General Partner $ (1,015) $ (2,573) $ (1,497)
To the Limited Partners (100,477) (254,726) (148,166)
$ (101,492) $ (257,299) $ (149,663)
Per limited partnership unit
(37,191 outstanding) $ (2.70) $ (6.85) $ (3.98)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss $ (101,492) $ (257,299) $ (149,663)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
(Gain) loss on sales of timberland (2,358) 18,884 3,242
(Income) loss from joint venture (7,742) 44,712 27,686
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Accounts receivable 73,539 (73,539) 26,476
Prepaid insurance 1,109 (5,922) ------
Due from joint venture 8,494 (8,494) ------
Accounts payable and accrued expenses (21,007) 10,659 1,424
Due to affiliates 60,501 (29,699) 18,102
Net cash provided by (used for)
operating activities 11,044 (300,698) (72,733)
Cash Flows from Investing Activities:
Proceeds from sales of timberland 1,632,099 139,023 293,464
Principal payments received on
notes receivable ------- ------- 320,763
Net cash provided by investing activities 1,632,099 139,023 614,227
Cash Flows from Financing Activities:
Cash distributions paid ------- ------- (1,690,500)
Net cash used for financing activities ------- ------- (1,690,500)
Net increase (decrease) in cash
and cash equivalents 1,643,143 (161,675) (1,149,006)
Cash and cash equivalents at
beginning of period 689,002 850,677 1,999,683
Cash and cash equivalents at
end of period $ 2,332,145 $ 689,002 $ 850,677
See accompanying notes to the financial statements.
<PAGE>
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Southern Timber Partners 2 (the "Partnership") formerly Hutton Southern Timber
Partners 2, was organized as a limited partnership under the laws of the State
of Georgia pursuant to a Certificate and Agreement of Limited Partnership (the
"Partnership Agreement") dated and filed September 30, 1982. The general
partner is Timber Resources Corp. II (the "General Partner") formerly Hutton
Timber Resources Corp. II, a Delaware corporation. The Partnership was formed
for the purpose of making investments in timberland and timber cutting rights
in the Southeastern United States. The Partnership will continue until
December 31, 1997, unless terminated sooner in accordance with the terms of the
Partnership Agreement. However, the Partnership Agreement states that the
General Partner can extend the life of the Partnership beyond the termination
date if it is determined that a sale of the timberland at that time would cause
undue loss to the partners.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers").
The transaction did not affect the ownership of the general partner. However,
the assets acquired by Smith Barney included the name "Shearson" and the name
"Hutton." Consequently, the names of the Partnership and the General Partner
were changed to Southern Timber Partners 2 and Timber Resources Corp. II
respectively, to delete any reference to "Hutton."
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 26, 1996.
2. Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.
Revenues are recognized as earned and expenses are recorded as obligations are
incurred.
Timberland Investments
Timberland investments include the initial purchase price of the property,
closing costs, acquisition and legal fees, as well as land improvements and
reforestation costs.
Depletion of timberlands is provided by applying a cost per cord utilizing
estimates of total recoverable timber from each tract. Such estimates are
revised annually to account for additional growth.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121")
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The partnership adopted FAS 121 the
fourth quarter of 1995. Based on current circumstances, the adoption of FAS
121 had no impact on the financial statements.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments with
maturities of three months or less from the date of issuance. The
carrying amount approximates fair value because of the short maturity of these
instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Investment in Joint Venture
The Partnership accounts for its investment in the Joint Venture under the
equity method of accounting.
Income Taxes
No provision for income taxes has been made in the financial statements since
such taxes are the responsibility of the individual partners rather than that
of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The ownership and operation of timber properties involves a number of risks,
among others, changes in governmental regulations, fire hazards, insect damage,
diseases and timber theft, and risks of market fluctuations. The General
Partner believes the employment of good forestry management practices helps to
ameliorate the physical risks of timber investments, however, these risks
cannot be eliminated entirely.
3. Partnership Allocations
Distribution of Partnership Funds
Net cash from operations and net proceeds from sales will be distributed from
time to time at the discretion of the General Partner, 99% to the Limited
Partners and 1% to the General Partner until each Limited Partner has received
an amount equal to an 8% cumulative annual return on his adjusted capital value
as defined, plus an amount equal to 100% of his adjusted capital value.
Thereafter, cash distributions will be distributed 85% to the Limited Partners
and 15% to the General Partner.
Allocation of Income and Loss
All income shall be allocated each year to the General Partner in an amount
equal to the net cash from operations distributed or distributable and net
proceeds from sales distributed or distributable to the General Partner for
such year. The balance shall be allocated to the Limited Partners, pro rata,
in accordance with their ownership of units. If for any year, no net cash from
operations and net proceeds from sales are distributed or distributable to the
General Partner, any income for such year shall be allocated 99% to the Limited
Partners and 1% to the General Partner. All losses, including losses from the
sale of properties, shall be allocated 99% to the Limited Partners and 1% to
the General Partner.
Dissolution of Partnership
If, upon dissolution of the Partnership, the General Partner has a negative
capital account, it shall contribute capital equal to the amount of the
deficit. In no event, however, shall the required capital contribution exceed
1% of the total capital contributed by the Limited Partners.
4. Transactions with Related Parties
Amounts earned by the General Partner and its affiliates for management and
supervisory fees and reimbursement of salary and administrative expenses
totaled $109,529, $95,791 and $104,587 for the years ended December 31, 1995,
1994 and 1993, respectively.
Amounts earned by the General Partner and its affiliates are included in
property operating and general and administrative expenses. In 1995, 1994 and
1993, timberland brokerage fees of $23,199, $4,171 and $4,363, respectively,
were not accrued because it is not expected that such fees will be paid since
they are subordinate to the limited partners' "Priority Return" as defined in
the Partnership Agreement.
5. Sales of Timberland
During 1995, the Partnership made the following sales of timberland:
Net Gain
Acres Selling (Loss)
Date Tract Sold Price on Sale
April 28, 1995 Gray 74 $ 42,071 $ 10,826
August 10, 1995 Claxton 1,185 627,802 (34,454)
October 3, 1995 Claxton 244 116,503 19,834
October 4, 1995 Gray 49 27,199 2,773
December 8, 1995 Gray 317 87,307 15,266
December 14, 1995 Claxton 1,759 731,217 (11,887)
$ 1,632,099 $ 2,358
--------------------------
During 1994, the Partnership made the following sales of timberland:
Net Loss
Acres Selling on
Date Tract Sold Price Sale
June 1, 1994 Gray 287 $ 65,484 $ (8,916)
December 21, 1994 Gray 311 73,539 (9,968)
$ 139,023 $ (18,884)
--------------------------
During 1993, the Partnership made the following sales of timberland:
Net Gain
Acres Selling (Loss)
Date Tract Sold Price on Sale
June 4, 1993 Gray 609 $ 126,947 $ 50,943
June 22, 1993 Claxton 459 148,038 (56,464)
July 26, 1993 Gray 57 18,479 2,279
$ 293,464 $ (3,242)
--------------------------
6. Investment in Joint Venture
On October 13, 1987, the Partnership contributed $3,011,417 in cash to a newly
formed joint venture, Southern Timber Venture Partners 1 (the "Joint Venture"),
formerly Hutton Timber Venture Partners 1, in exchange for a 76% interest in
profits, losses and distributable cash from the Joint Venture. An affiliated
partnership, Southern Timber Partners I, formerly Hutton Southern Timber
Partners I, contributed 1,239 acres of timberland with an appraised value of
$946,676 to the Joint Venture in exchange for the remaining 24% interest in
profits, losses and distributable cash. The purpose of the Joint Venture is to
manage, maintain and commercially exploit the acquired property in a manner
consistent with each coventurer's objectives for investment. The Joint Venture
Agreement provides that all major decisions, as defined, must be approved by
each of the coventurers.
On October 15, 1987 the aforementioned contributions were substantially applied
to the acquisition of the Laurel View Tract, located in Liberty County,
Georgia, totaling 1,709 acres. In order to pay off a Joint Venture promissory
note in 1988, the Partnership contributed $1,486,934, or 76% of total principal
and interest due. The remainder was contributed by Southern Timber Partners I.
For the year ended December 31, 1995, the Joint Venture recognized net income
of $10,186. This was due primarily to timber sales partially offset by the
Joint Venture's normal operating expenses. For the years ended December 31,
1994 and 1993, the Joint Venture recognized net losses of $58,831 and $36,429,
respectively, due primarily to the lack of timber sales.
The General Partner has created a comprehensive marketing plan for the tract
and will begin actively marketing the land during 1996. However, there is no
assurance that a sale will be consummated prior to the end of 1996.
The Joint Venture's balance sheets at December 31, 1995 and 1994 and statements
of operations for the three years ended December 31, 1995, 1994 and 1993 are as
follows:
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Net timberland $ 5,949,788 $ 5,977,409
Cash 37,152 5,521
Total Assets $ 5,986,940 $ 5,982,930
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ ------- $ 250
Due to affiliates 5,040 10,966
Total Liabilities 5,040 11,216
Partners' Capital:
Southern Timber Partners I 1,435,654 1,433,210
Southern Timber Partners 2 4,546,246 4,538,504
Total Partners' Capital $ 5,981,900 5,971,714
Total Liabilities and Partners' Capital $ 5,986,940 5,982,930
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Timber sales $ 93,776 $ ------- $ -------
Interest 3,410 1,785 2,602
Other 4,900 5,000 5,000
Total Income 102,086 6,785 7,602
Expenses
Depletion 27,621 - -
Property operating 62,523 37,553 42,408
General and administrative 1,756 28,063 1,623
Total Expenses 91,900 65,616 44,031
Net Income (Loss) $ 10,186 $ (58,831) $ (36,429)
7. Reconciliation of Net Loss to Taxable Income (Loss)
For the years ended December 31, 1995, 1994 and 1993, taxable losses of
approximately $(103,000), $(257,000), and $(150,000), respectively, were
reported to the partners compared to net losses of approximately $(101,000),
$(257,000), and $(150,000), respectively, reported in the financial
statements.
REPORT OF INDEPENDENT AUDITORS
To Partners
Southern Timber Partners 2
We have audited the accompanying balance sheets of Southern Timber Partners 2
as of December 31, 1995 and 1994, and the related statements of operations,
partners' capital (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Southern Timber Partners 2 at
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 18, 1996,
except for Note 1, as to which the date is
February 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,332,145
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,494,679
<DEPRECIATION> 1,915,663
<TOTAL-ASSETS> 8,462,220
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 8,294,241
<TOTAL-LIABILITY-AND-EQUITY> 8,462,220
<SALES> 0
<TOTAL-REVENUES> 79,771
<CGS> 0
<TOTAL-COSTS> 96,387
<OTHER-EXPENSES> 84,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (101,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,492)
<EPS-PRIMARY> (2.70)
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