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
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
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
incorporation or organization I.R.S. Employer Identification No.
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, 1996 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") 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 a 1,709 acre tract of timberland
(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, 1996.
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 two separate tracts of timberland which contain mostly pre-
merchantable timber and a 76% interest in the Laurel View Tract.
During 1996 the General Partner began marketing the Laurel View
Tract for sale with the assistance of CB Commercial, a commercial
real estate brokerage firm. 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, 1996, 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, 1996, there were no such revenues.
(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.
(d) 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.
(e) Employees
The Partnership has no employees.
Item 2. Properties
Incorporated by reference to the section titled "Tract Profiles"
included in the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an exhibit
under Item 14 and incorporated herein by reference. For
information on the Partnership's Joint Venture, see Note 6 of
Notes to the Financial Statements, which is also included in the
Partnership's Annual Report to Unitholders for the year ended
December 31, 1996.
Item 3. Legal Proceedings
As of December 31, 1996, 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, 1996 there were 3,657 holders of the Units of
the Registrant.
(c) Distributions
The Registrant made a cash distribution to the limited partners
on August 9, 1996 in the amount of approximately $45.00 per Unit.
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, 1996.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(a) Liquidity and Capital Resources
The Partnership currently owns a total of approximately 1,953
acres of timberland on two separate tracts_ the Claxton Tract
(1,780 acres) and the Southern Timberland Tract (173 acres)_and a
76% interest in the Joint Venture which owns the 1,709 acre
Laurel View tract. All of the Partnership's tracts are located
in Georgia. Most of the timber from the Claxton and Southern
Timberlands tracts has been cut and sold in the past.
Accordingly, these tracts currently contain mainly
premerchantable timber which the Partnership had planted after
past cuttings. A limited market does exist for premerchantable
timber and is composed of those investors who would view such a
purchase as a long-term investment. It is likely that any
increase in the Claxton 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, it is contemplated that a higher value would be
realized if the tract was sold as a development site due to its
coastal location, close proximity to major interstate highways
and other considerations. 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, 1996.
Net timber and timberland totaled $1,160,233 at December 31,
1996, compared to $1,579,016 at December 31, 1995. The decrease
is due to the sale of the Gray Tract during the fourth quarter of
1996.
At December 31, 1996, the Partnership's cash balance totaled
$914,981 compared to $2,332,145 at December 31, 1995. The
decrease in cash is due primarily to the payment of a $1,690,800
distribution (approximately $45.00 per Unit) paid to partners on
August 9, 1996. The decrease was partially offset by net
proceeds received from the sale of the Gray Tract. The
Partnership's cash, along with funds generated from future timber
and timberland sales, are expected to provide sufficient
liquidity for operations.
Due from related party was $31,850 at December 31, 1996, compared
to $0 at December 31, 1995. The increase represents 1996 real
estate tax payments made on behalf of the Joint Venture. Due to
affiliates totaled $66,535 at December 31, 1996, compared to
$131,981 at December 31, 1995. The decrease is largely due to
the timing of the payment of accrued management fees.
On February 16, 1996, based upon, among other things, the advice
of legal counsel, 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.
(b) Results of Operations
1996 versus 1995
The Partnership's operations resulted in net losses of $77,658
and $101,492 for the years ended December 31, 1996 and 1995,
respectively. The decrease in net loss is primarily attributable
to an increase in interest income and larger gain on sales of
timberland in 1996, partially offset by an increase in general
and administrative expenses.
Gain on sales of timberland was $56,265 compared to $2,358 for
the years ended December 31, 1996 and 1995, respectively. The
1996 gain on sales of timberland was the result of the sale of
the entire Gray Tract. The $2,358 gain on sales of timberland
for the year ended December 31, 1995, was 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.
Interest income totaled $88,788 for the year ended December 31,
1996, compared to $59,220 for the year ended December 31, 1995.
The increase is the result of higher average cash balances in
1996 compared to 1995.
For the year ended December 31, 1996, other income totaled
$3,075, compared to $10,451 in the prior year. The decrease is
the result of a lack of ancillary income in 1996.
For the year ended December 31, 1996, property operating expenses
were $75,735 compared to $96,387 for the year ended December 31,
1995. The decrease results from decreases in real estate taxes
and management fees in 1996 due to land sales which occurred in
1995. General and administrative expenses for the year ended
December 31, 1996 were $121,409, compared to $84,876 for 1995.
The increase is primarily the result of increases in partnership
servicing fees, higher professional fees related to inventory and
appraisal work performed on the Claxton Tract, and an increase in
printing and postage costs related to the mailing of the special
distribution in August 1996.
The Partnership has a 76% interest in the Joint Venture which
owns the 1,709 acre Laurel View tract. The Partnership
recognized a loss of $28,642 from Joint Venture's operations for
the year ended December 31, 1996, compared to income from Joint
Venture operations of $7,742 for the year ended December 31,
1995. The loss in 1996 was due primarily to the lack of timber
sales and to the Joint Venture meeting its normal operating
expenses. The 1995 income from Joint Venture is mainly
attributable to the sale of timber and is offset by ordinary
operating expenses.
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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, included as
Exhibit 13.1.
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 and Chief Executive Officer
Robert J. Hellman President and Chief Financial Officer
John Barker Vice President
Paul L. Abbott, 51, 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.
Robert J. Hellman, 42, is a Senior Vice President of Lehman
Brothers and is responsible for investment management of retail,
commercial and residential real estate. Since joining Lehman
Brothers in 1983, Mr. Hellman has been involved in a wide range
of activities involving real estate and direct investments
including origination of new investment products, restructurings,
asset management and the sale of commercial, retail and
residential properties. Prior to joining Lehman Brothers, Mr.
Hellman worked in strategic planning for Mobil Oil Corporation
and was an associate with an international consulting firm. Mr.
Hellman received a bachelor's degree from Cornell University, a
master's degree from Columbia University, and a law degree from
Fordham University.
John Barker, 27, is an Associate of Lehman Brothers Inc. and is
responsible for the investment management of retail, commercial
and residential real estate. Since joining Lehman Brothers in
1996, Mr. Barker has been involved in restructurings, asset
management and the sale of commercial, retail and residential
properties. Prior to joining Lehman Brothers, Mr. Barker worked
in valuation and investment sales for Jones Lang Woonton USA and
was an officer in the United States Navy. Mr. Barker received an
undergraduate degree from the University of Pennsylvania and a
graduate degree from the Navy Supply Corps School.
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, 1996, 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 1996 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, 1996 and 1995 (1)
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Partners' Capital (Deficit) for
the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (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, 1996.
(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, 1996.
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 1996.
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.
SOUTHERN TIMBER PARTNERS 2
Dated: March 24, 1996 BY: Timber Resources Corp. II
General Partner
Dated: March 24, 1996 BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director and Chief Executive 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 24, 1997 BY: /s/ Paul L. Abbott
Paul L. Abbott
Director and Chief Executive Officer
Date: March 24, 1997 BY: /s/ Robert J. Hellman
Robert J. Hellman
President and Chief Financial Officer
Date: March 24, 1997 BY: /s/ John Barker
John Barker
Vice President
Southern Timber Partners 2 is a limited partnership formed in
1982 to invest in timberland in the southeastern United States.
At December 31, 1996, the Partnership's properties consisted of
approximately 1,953 acres of timberland on two separate tracts,
and a 76% share of a 1,709 acre tract, all located in Georgia.
Contents
1 Message to Investors
3 Tract Profiles
4 Financial Statements
6 Notes to the Financial Statements
10 Report of Independent Auditors
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 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for Southern
Timber Partners 2 (the "Partnership"). This report includes an
update on the status of Partnership's three remaining timberland
tracts, the Claxton tract, the Southern Timberlands tract and the
76% interest in the Laurel View tract. Following this letter is
a profile of these tracts and the Partnership's audited financial
statements for the year ended December 31, 1996.
Cash Distribution
The Partnership paid a cash distribution in the amount of
approximately $45.00 per Unit on August 9, 1996, from the
Partnership's cash reserves. Including this distribution,
Limited Partners have received cash distributions totaling $304
per original $500 Unit. As a result of these distributions,
which represent returns of capital, the size of each Partnership
Unit has been reduced to $196. The General Partner will continue
to evaluate the Partnership's cash needs to determine if and when
any future distributions can be made.
Partnership Timberland
Market conditions for the sale of timberland remained relatively
favorable during 1996, and as mentioned above, in the fourth
quarter of 1996, the Partnership sold the Gray Tract for net
proceeds of $475,048. The Partnership's remaining timberland
investments are the Claxton Tract and Southern Timberlands Tract,
which are located in Georgia and total approximately 1,953 acres.
Additionally, the Partnership owns a 76% share in the 1,709 acre
Laurel View Tract, also located in Georgia. The General Partner
has begun marketing the Claxton and Southern Timberlands tracts
for sale, and has engaged a local real estate brokerage firm to
assist with these efforts. However, there can be no assurance
that any particular price will be obtained or that a sale will
occur by any particular date.
The Partnership completed no timber-only sales during the year
since the majority of the Partnership's timber was harvested in
the late 1980s. Although the land was reforested after
harvesting, generally the timber must be at least 15 years old
before it can be cut and sold.
Laurel View Tract
The Partnership owns a 76% interest in the Laurel View Tract, a
1,709 acre site located approximately 30 miles south of Savannah,
Georgia. The Partnership's interest in the tract is owned as
part of a joint venture with an affiliated partnership, Southern
Timber Partners I. Both partnerships have begun working together
to market the parcel, and discussions have been held with both
principals and brokers regarding a sale. The General Partner has
determined the Partnership is likely to realize the highest sales
price if the tract is marketed as a site for development rather
than as timberland. While some local developers have shown an
interest in the tract, the General Partner believes expanding its
marketing efforts will better maximize the tract's value.
Consequently, during the fourth quarter of 1996, the General
Partner engaged the services of CB Commercial, a national
commercial real estate brokerage firm, to assist in marketing the
tract. CB Commercial will use its national presence to give the
tract broad exposure to a large pool of potential buyers.
Considering the Laurel View Tract is raw land containing few
improvements and that it produces no income other than from the
sale of timber, the General Partner anticipates it may require
several months or longer to secure an appropriate buyer for the
property. Although the General Partner will attempt to sell the
tract during 1997, there can be no assurance a sale will occur or
that any particular price will be obtained. In the event that a
sale is not consummated, the Partnership will continue to hold
the property as an investment and continue to search for a
potential purchaser.
Financial Highlights
For the years ended December 31,
1996 1995 1994 1993 1992
Total Assets $6,627,118 $8,462,220 $8,524,218 $8,800,557 $10,621,193
Total Income 148,128 72,029 28,075 73,458 141,587
Net Loss (77,658) (101,492) (257,299) (149,663) (486,961)
Net Loss per Unit (2.07) (2.70) (6.85) (3.98) (12.96)
Distributions per Unit 45.00 - - 45.00 -
Total income increased in 1996, primarily due to higher interest
income resulting from the Partnership's higher average cash
balance in 1996 and larger gain on sales of timberland during
1996, compared to 1995. The higher income resulted in a lower
net loss for the year.
Net Asset Value
As of December 31, 1996, 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 $210.26 per $196 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.
General Information
As you are probably aware, several third parties have commenced
partial tender offers to purchase units of the Partnership at
grossly inadequate prices which are substantially below the
Partnership's Net Asset Value. In response, we recommended that
limited partners reject these offers because they do not reflect
the underlying value of the Partnership's assets. To date,
holders of over 98% of the outstanding units agreed that these
offers were inadequate, rejected the offer and did not tender
their units. Please be assured that if any additional tender
offers are made for your units, we will make every effort to
provide you with our position regarding such offer on a timely
basis.
Summary
In the year ahead, the General Partner will focus on effectively
managing the Partnership's timber stands and marketing the
timberland tracts for sale. Although the General Partner
anticipates selling the remainder of the Partnership's assets
during 1997, there can be no assurance that the Partnership will
consummate a sale of its assets prior to December 31, 1997, the
Partnership's termination date. As per the Partnership
Agreement, the General Partner may extend the life of the
Partnership beyond the termination date if it is determined that
a sale of the Partnership's assets at that time would cause undue
loss to the partners. In the event that a sale is not
consummated, the Partnership will continue to hold the property
as an investment and continue to search for a potential
purchaser. We will provide you with an update on our progress in
future correspondence.
Very truly yours,
Southern Timber Partners 2
Timber Resources Corp. II
General Partner
/s/ Robert J. Hellman
Robert J. Hellman
President
March 24, 1997
Tract Profiles
Claxton Tract
Acres: 1,780
Location: Laurens County, Georgia (near Macon)
Purchase Date: May 18, 1983
1996 Appraised Value: $1,360,000 ($570,000 - timberland, $790,000 - timber )
Timber Stands: 7% merchantable, 80% premerchantable, 13% clear-cut
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 I owns a 24% 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 Date: September 30, 1987
1996 Appraised Value: $7,370,000 ($6,170,000 - timberland, $1,200,000 - timber)
Timber Stands: 68% merchantable, 10% premerchantable, 22% non-merchantable
Southern Timberlands Tract
Acres: 173
Location: Emmanuel County, Georgia
Purchase Date: December 28, 1983
1996 Appraised Value: $94,000 ($45,000- timberland, $49,000 - timber)
Timber Stands: 14% merchantable, 86% premerchantable
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 At December 31, At December 31,
1996 1995
Assets
Timber and timberland, at cost $1,160,233 $3,494,679
Less accumulated depletion - (1,915,663)
Net timber and timberland 1,160,233 1,579,016
Cash and cash equivalents 914,981 2,332,145
Prepaid insurance 2,450 4,813
Due from related party 31,850 -
Investment in joint venture 4,517,604 4,546,246
Total Assets $6,627,118 $8,462,220
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 34,800 $ 35,998
Due to affiliates 66,535 131,981
Total Liabilities 101,335 167,979
Partners' Capital (Deficit):
General Partner (41,996) (24,311)
Limited Partners (37,191 units outstanding) 6,567,779 8,318,552
Total Partners' Capital 6,525,783 8,294,241
Total Liabilities and Partners' Capital $6,627,118 $8,462,220
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $(20,723) $8,673,755 $8,653,032
Net Loss (2,573) (254,726) (257,299)
Balance at December 31, 1994 (23,296) 8,419,029 8,395,733
Net Loss (1,015) (100,477) (101,492)
Balance at December 31, 1995 (24,311) 8,318,552 8,294,241
Cash distributions (16,908) (1,673,892) (1,690,800)
Net Loss (777) (76,881) (77,658)
Balance at December 31, 1996 $(41,996) $6,567,779 $6,525,783
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Gain (loss) on sales of timberland $ 56,265 $ 2,358 $(18,884)
Interest 88,788 59,220 28,924
Other 3,075 10,451 18,035
Total Income 148,128 72,029 28,075
Expenses
Property operating 75,735 96,387 158,673
General and administrative 121,409 84,876 81,989
Total Expenses 197,144 181,263 240,662
Other Income (Loss)
Income (loss) from joint venture (28,642) 7,742 (44,712)
Net Loss $(77,658) $(101,492) $(257,299)
Net Loss Allocated:
To the General Partner $ (777) $ (1,015) $(2,573)
To the Limited Partners (76,881) (100,477) (254,726)
$(77,658) $(101,492) $(257,299)
Per limited partnership unit
(37,191 outstanding) $(2.07) $(2.70) $(6.85)
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Loss $(77,658) $(101,492) $(257,299)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
(Gain) loss on sales of timberland (56,265) (2,358) 18,884
(Income) loss from joint venture 28,642 (7,742) 44,712
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable - 73,539 (73,539)
Prepaid insurance 2,363 1,109 (5,922)
Due from related party (31,850) 8,494 (8,494)
Accounts payable and accrued expenses (1,198) (22,901) (2,077)
Due to affiliates (65,446) 62,395 (16,963)
Net cash provided by (used for) operating
activities (201,412) 11,044 (300,698)
Cash Flows From Investing Activities
Proceeds from sales of timberland 475,048 1,632,099 139,023
Net cash provided by investing activities 475,048 1,632,099 139,023
Cash Flows From Financing Activities
Cash distributions paid (1,690,800) - -
Net cash used for financing activities (1,690,800) - -
Net increase (decrease) in cash and
cash equivalents (1,417,164) 1,643,143 (161,675)
Cash and cash equivalents,
beginning of period 2,332,145 689,002 850,677
Cash and cash equivalents,
end of period $914,981 $2,332,145 $689,002
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
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 legal counsel, 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 in the fourth quarter of 1995.
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 in the Partnership
Agreement, 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 totaled $65,587, $73,129 and
$72,275 for the years ended December 31, 1996, 1995 and 1994,
respectively. Amounts earned by the General Partner and its
affiliates are included in property operating expenses.
In 1996, 1995 and 1994, timberland brokerage fees of $3,996,
$23,199 and $4,171, 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 1996, the Partnership made the following sales of
timberland:
Net Gain
Acres Selling (Loss)
Date Tract Sold Price on Sale
October 30, 1996 Gray 486 $280,545 $24,638
November 20, 1996 Gray 104 61,294 6,284
December 10, 1996 Gray 99 59,017 6,319
December 20, 1996 Gray 104 74,192 19,024
$475,048 $56,265
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)
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.
The General Partner has developed a marketing plan for the tract
and began actively marketing the land during 1996. However,
there is no assurance that a sale will be consummated prior to
the end of 1997. The Joint Venture's balance sheets at December
31, 1996 and 1995 and statements of operations for the three
years ended December 31, 1996, 1995 and 1994 are as follows:
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
Net timberland $5,949,788 $5,949,788
Cash 38,963 37,152
Total Assets $5,988,751 $5,986,940
Liabilities and Partners' Capital
Liabilities:
Due to affiliates $ 42,038 $ 5,040
Deferred income 2,500 -
Total Liabilities 44,538 5,040
Partners' Capital:
Southern Timber Partners I 1,426,609 1,435,654
Southern Timber Partners 2 4,517,604 4,546,246
Total Partners' Capital 5,944,213 5,981,900
Total Liabilities and Partners' Capital $5,988,751 $5,986,940
Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
Income 1996 1995 1994
Timber sales $ - $93,776 $ -
Interest 1,847 3,410 1,785
Other 2,500 4,900 5,000
Total Income 4,347 102,086 6,785
Expenses
Depletion - 27,621 -
Property operating 42,034 62,523 37,553
General and administrative - 1,756 28,063
Total Expenses 42,034 91,900 65,616
Net Income (Loss) $(37,687) $10,186 $(58,831)
7. Reconciliation of Net Loss to Taxable Loss
For the years ended December 31, 1996, 1995 and 1994, taxable
losses of approximately $(76,000), $(103,000), and $(257,000),
respectively, were reported to the partners compared to net
losses of approximately $(78,000), $(101,000), and $(257,000),
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, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended
December 31, 1996. 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, 1996 and 1995, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 16, 1997
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