UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File Number 1-9204
THE PACIFIC LUMBER COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3318327
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
P. O. BOX 37 95565
125 MAIN STREET (Zip Code)
SCOTIA, CALIFORNIA
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (707) 764-2222
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at April 29, 1998: 100
Registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at March 31, 1998 and
December 31, 1997 3
Consolidated Statement of Operations for the three
months ended March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature S-1
<PAGE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,076 $ 31,768
Receivables:
Trade 9,053 19,216
Other 2,754 2,123
Inventories 50,214 56,079
Prepaid expenses and other current assets 7,647 12,898
------------ ------------
Total current assets 93,744 122,084
Timber and timberlands, net of accumulated
depletion of $238,125 and $236,824,
respectively 320,752 321,206
Property, plant and equipment, net of
accumulated depreciation of $84,306 and
$82,070, respectively 95,986 96,292
Deferred financing costs, net 17,394 17,912
Deferred income taxes 27,435 27,018
Restricted cash 28,108 28,434
Other assets 4,490 4,186
------------ ------------
$ 587,909 $ 617,132
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 2,808 $ 3,538
Accrued compensation and related benefits 8,000 12,365
Accrued interest 6,959 19,650
Deferred income taxes 9,671 9,671
Other accrued liabilities 1,248 1,042
Long-term debt, current maturities 20,607 19,429
------------ ------------
Total current liabilities 49,293 65,695
Long-term debt, less current maturities 533,617 545,571
Other noncurrent liabilities 29,163 27,991
------------ ------------
Total liabilities 612,073 639,257
------------ ------------
Contingencies
Stockholder's deficit:
Common stock, $.01 par value, 100 shares
authorized and issued - -
Additional capital 157,520 157,520
Accumulated deficit (181,684) (179,645)
------------ ------------
Total stockholder's deficit (24,164) (22,125)
------------ ------------
$ 587,909 $ 617,132
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales:
Lumber and logs $ 43,285 $ 54,399
Other 3,229 6,450
------------ ------------
46,514 60,849
------------ ------------
Operating expenses:
Cost of goods sold 30,279 34,723
Selling, general and administrative expenses 2,841 3,051
Depletion and depreciation 5,533 6,563
------------ ------------
38,653 44,337
------------ ------------
Operating income 7,861 16,512
Other income (expense):
Investment, interest and other income 2,199 805
Interest expense (13,197) (13,485)
------------ ------------
Income (loss) before income taxes (3,137) 3,832
Credit (provision) in lieu of income taxes 1,098 (1,639)
------------ ------------
Net income (loss) $ (2,039) $ 2,193
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,039) $ 2,193
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depletion and depreciation 5,533 6,563
Amortization of deferred financing
costs 518 523
Net gain on asset dispositions (1,827) -
Increase (decrease) in cash resulting
from changes in:
Receivables 9,532 1,534
Inventories, net of depletion 3,860 5,698
Prepaid expenses and other assets 208 (1,872)
Accounts payable (98) (39)
Accrued and deferred income taxes (1,098) 1,639
Accrued interest (12,691) (13,008)
Other liabilities (2,987) (2,755)
Other 2 77
------------ ------------
Net cash provided by (used for)
operating activities (1,087) 553
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,636) (2,164)
Net proceeds from sale of assets 6,481 --
------------ ------------
Net cash provided by (used for)
investing activities 3,845 (2,164)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions, repurchases of and principal
payments on long-term debt (10,776) (8,756)
Restricted cash withdrawals, net 326 202
------------ ------------
Net cash used for financing activities (10,450) (8,554)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,692) (10,165)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,768 26,027
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,076 $ 15,862
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 25,369 $ 25,970
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Form 10-K. Any capitalized terms used but not
defined in these Condensed Notes to Consolidated Financial Statements are
defined in the "Glossary of Defined Terms" contained in Appendix A. All
references to the "Company" include the Company and its subsidiary
companies unless otherwise noted or the context indicates otherwise.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to
be expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at March 31, 1998, the
consolidated results of operations for the three months ended March 31,
1998 and 1997 and consolidated cash flows for the three months ended March
31, 1998 and 1997. The Company is an indirect, wholly owned subsidiary of
MGI. MGI is a wholly owned subsidiary of MGHI which is a wholly owned
subsidiary of MAXXAM.
SFAS No. 130 was issued in June 1997 with adoption required
for fiscal years beginning after December 31, 1997. SFAS No. 130 requires
the presentation of an additional income measure (termed "comprehensive
income"), which adjusts traditional net income for certain items that
previously were only reflected as direct charges to equity (such as minimum
pension liabilities). For the quarters ended March 31, 1998 and 1997, there
is not a significant difference between "traditional" net income and
comprehensive net income as the amount of the adjustments required to
arrive at comprehensive income is not significant.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Lumber $ 40,455 $ 41,737
Logs 9,759 14,342
------------- -------------
$ 50,214 $ 56,079
============= =============
</TABLE>
3. RESTRICTED CASH
Restricted cash represents the amount held by the trustee under
the indenture governing the Timber Notes of the Company's wholly owned
subsidiary, Scotia Pacific. In addition, cash and cash equivalents
includes $3,904,000 and $17,784,000 at March 31, 1998 and December 31,
1997, respectively, which is restricted for debt service payments on the
Timber Notes.
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
7.95% Scotia Pacific Timber Collateralized Notes
due July 20, 2015 $ 309,192 $ 319,965
10-1/2% Pacific Lumber Senior Notes due March 1,
2003 235,000 235,000
Revolving Credit Agreement 9,445 9,445
Other 587 590
------------ ------------
554,224 565,000
Less: current maturities (20,607) (19,429)
------------ ------------
$ 533,617 $ 545,571
============ ============
</TABLE>
5. CONTINGENCIES
The Company's business is subject to a variety of California and
federal laws and regulations dealing with timber harvesting, threatened and
endangered species and habitat for such species, and air and water quality.
Compliance with such laws and regulations plays a significant role in the
Company's business. While compliance with such laws, regulations and
judicial and administrative interpretations, together with the cost of
litigation incurred in connection with certain timber harvesting
operations, have increased the costs of the Company, they have not had a
significant adverse effect on the Company's financial position, results of
operations or liquidity. However, these laws and related administrative
actions and legal challenges have severely restricted the ability of the
Company to harvest virgin old growth timber, and to a lesser extent,
residual old growth timber on its timberlands.
On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California which
provides the framework for the acquisition by the United States and
California of the Headwaters Timberlands. A substantial portion of the
Headwaters Timberlands contains virgin old growth timber. Approximately
4,900 of these acres are owned by Salmon Creek, with the remaining acreage
being owned by Scotia Pacific (the Company having harvesting rights on
approximately 300 of such acres). The Headwaters Timberlands would be
transferred in exchange for (a) cash or other consideration from the United
States and California having an aggregate fair market value of $300
million, and (b) approximately 7,800 acres of timberlands to be acquired
from a third party. As part of the Headwaters Agreement, the Pacific
Lumber Parties agreed to not enter the Headwaters Timberlands to conduct
any logging or salvage operations.
Closing of the Headwaters Agreement is subject to various
conditions, including federal and California funding, approval of an SYP,
approval of a Multi-Species HCP and issuance of the Permits and the
issuance of certain tax agreements satisfactory to the Pacific Lumber
Parties.
In November 1997, President Clinton signed an appropriations bill
which contains authorization for the expenditure of $250 million of federal
funds towards consummation of the Headwaters Agreement. On February 27,
1998, Pacific Lumber, MAXXAM and various government agencies entered into
the HCP/SYP Agreement regarding certain understandings that they had
reached regarding the Multi-Species HCP, the Permits and the SYP. The
HCP/SYP Agreement provides that the Permits and Multi-Species HCP would
have a term of 50 years, and would limit the activities which could be
conducted by the Company in twelve forest groves to those which would not
be detrimental to marbled murrelet habitat. These groves aggregate
approximately 8,000 acres and consist of substantial quantities of virgin
and residual old growth redwood and Douglas-fir timber.
The Company believes that the HCP/SYP Agreement is a favorable
development that enhances its position in connection with legal and
regulatory challenges to its THPs as well as the prospects for consummation
of the Headwaters Agreement, the approval of the Multi-Species HCP and SYP
and the issuance of the Permits. Several species, including the northern
spotted owl, the marbled murrelet and the coho salmon, have been listed as
endangered or threatened under the ESA and/or the CESA. The Company has
developed federal and state northern spotted owl management plans which
permit harvesting activities to be conducted so long as the Company adheres
to certain measures designed to protect the northern spotted owl. The
potential impact of the listings of the marbled murrelet and the coho
salmon is more uncertain. If the Multi-Species HCP is approved, the
Company would be issued the Permits, which would allow limited incidental
"take" of listed species so long as there was no "jeopardy" to the continued
existence of the species and the Multi-Species HCP would identify the
measures to be instituted in order to minimize and mitigate the
anticipated level of take to the greatest extent possible. The
Multi-Species HCP would not only provide for the Company's compliance
with habitat requirements for currently listed species, it would also
provide greater certainty and protection for the Company with regard to
identified species that may be listed in the future. The Company is
attempting to include in the Multi-Species HCP a resolution of the
effect of potential regulatory limits by the EPA on sedimentation,
temperature and other factors for seventeen northern California rivers
and certain of their tributaries, including rivers within the Company's
timberlands. These limitations would be aimed at protecting water quality.
Lawsuits are pending or threatened which seek to prevent the
Company from implementing certain of its approved THPs or other operations.
While challenges with respect to the Company's young growth timber have
historically been limited, a lawsuit relating to the coho salmon was
recently filed under the ESA which relates to a significant number of
THPs covering young growth timber of the Company. While the Company
expects these environmentally focused objections and lawsuits to continue,
it believes that the HCP/SYP Agreement will enhance its position in
connection with these challenges. The Company also believes that the
Multi-Species HCP would expedite the preparation and facilitate approval
of its THPs.
The HCP/SYP Agreement also contains certain provisions relating
to the SYP. The Company expects to propose an LTSY which is approximately
10% less than the Company's average timber harvest over the last three
years. If the SYP is approved by the CDF, the Company will have complied
with certain BOF regulations requiring that timber companies project timber
growth and harvest on their timberlands over a 100-year planning period and
establish an LTSY harvest level. The SYP must demonstrate that the average
annual harvest over any rolling ten-year period will not exceed the LTSY
harvest level and that the Company's projected timber inventory is capable
of sustaining the LTSY harvest level in the last decade of the 100-year
planning period. An approved SYP is expected to be valid for ten years,
although it would be subject to review after five years. Thereafter,
revised SYPs will be prepared every decade that address the LTSY harvest
level based upon reassessment of changes in the resource base and other
factors.
The final terms of the SYP, the Multi-Species HCP and the Permits
are subject to additional negotiation and agreement among the parties as
well as public review and comment. While the parties are working
diligently to complete the Multi-Species HCP and the SYP as well as the
other closing conditions contained in the Headwaters Agreement, there can
be no assurance that the Headwaters Agreement will be consummated or that
an SYP, Multi-Species HCP or Permits acceptable to the Company will be
approved. If the Headwaters Agreement is not consummated and the
Company is unable to harvest or is severely limited in harvesting on various
of its timberlands, it intends to continue and/or expand its takings
litigation seeking just compensation from the appropriate governmental
agencies on the grounds that such restrictions constitute an uncompensated
governmental taking of private property for public use.
In the event that a Multi-Species HCP is not approved, the
Company will not enjoy the benefits of a more streamlined THP preparation
and review process. Furthermore, if a Multi-Species HCP acceptable to the
Company is not approved, it is impossible for the Company to determine the
potential adverse effect of the listings of the marbled murrelet and coho
salmon or the EPA's potential regulatory limitations on river sedimentation
on the Company's financial position, results of operations or liquidity until
such time as the various regulatory and legal issues are resolved; however,
if the Company is unable to harvest, or is severely limited in harvesting,
on significant amounts of its timberlands, such effect could be materially
adverse to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K subsequent
to the filing of the Form 10-K. Any capitalized terms used but not defined
in this Item are defined in the "Glossary of Defined Terms" contained in
Appendix A.
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in several places in this Form
10-Q. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors. These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions. This section and the Form 10-K identify other factors
that could cause such differences. No assurance can be given that these
are all of the factors that could cause actual results to vary materially
from the forward-looking statements.
RESULTS OF OPERATIONS
The Company is engaged in forest products operations. Its
business is seasonal in that the Company generally experiences lower first
quarter sales due largely to the general decline in construction-related
activity during the winter months. Accordingly, the Company's results for
any one quarter are not necessarily indicative of results to be expected
for the full year. The following table presents selected operational and
financial information for the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
(In millions of dollars,
except shipments and
prices)
<S> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 10.2 13.0
Redwood common grades 33.7 36.6
Douglas-fir upper grades 1.9 2.5
Douglas-fir common grades 9.2 19.4
Other 2.2 3.0
------------ ------------
Total lumber 57.2 74.5
============ ============
Logs (2) 9.4 11.1
============ ============
Wood chips (3) 27.6 56.9
============ ============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,491 $ 1,322
Redwood common grades 538 541
Douglas-fir upper grades 1,269 1,211
Douglas-fir common grades 352 486
Logs (4) 414 400
Wood chips (5) 66 78
Net sales:
Lumber, net of discount $ 39.4 $ 50.0
Logs 3.9 4.4
Wood chips 1.8 4.4
Cogeneration power .6 1.0
Other .8 1.0
------------ ------------
Total net sales $ 46.5 $ 60.8
============ ============
Operating income $ 7.9 $ 16.5
============ ============
Operating cash flow (6) $ 13.4 $ 23.1
============ ============
Income (loss) before income taxes $ (3.1) $ 3.8
============ ============
Net income (loss) $ (2.0) $ 2.2
============ ============
Capital expenditures $ 2.6 $ 2.2
============ ============
<FN>
- ---------------
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of feet, net Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of
2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
(6) Operating income before depletion and depreciation, also referred to
as "EBITDA."
</TABLE>
Net sales
Net sales for the quarter ended March 31, 1998 decreased from the
comparable prior year quarter due primarily to lower shipments of lumber,
logs, and chips and to lower average realized prices for common grade
Douglas-fir lumber. This impact was partially offset by higher average
realized prices for upper grade redwood lumber. The decrease in volumes
was due largely to well-above-normal rainfall during the 1998 period which
reduced demand, hindered logging operations, slowed production, and
inhibited shipments.
Operating income and income (loss) before income taxes
Operating income and income (loss) before income taxes for the
three months ended March 31, 1998 decreased from the comparable prior year
period, principally due to the decrease in net sales discussed above. This
impact was partially offset by a gain on the sale of a non-timber property.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See above for cautionary information with respect to
such forward-looking statements.
The indentures governing the Senior Notes, Timber Notes and the
Revolving Credit Agreement contain various covenants which, among other
things, limit the ability of the Company and Scotia Pacific to incur
additional indebtedness and liens, to engage in transactions with
affiliates, to pay dividends and to make investments. As of March 31,
1998, under the most restrictive of these covenants, approximately $17.2
million of dividends could be paid by the Company to its parent.
As of March 31, 1998, $30.3 million of borrowings was available
under the Revolving Credit Agreement, of which $4.9 million was available
for letters of credit and $20.6 million was restricted to timberland
acquisitions. As of March 31, 1998, $9.4 million of borrowings were
outstanding and letters of credit outstanding amounted to $15.1 million.
As of March 31, 1998, the Company had consolidated long-term debt
of $505.5 million (net of current maturities and restricted cash deposited
in the Liquidity Account) as compared to $517.1 million at December 31,
1997. The decrease in long-term debt was principally due to principal
payments on the Timber Notes of $10.8 million. The Company anticipates
that cash from operations, together with existing cash, cash equivalents
and available sources of financing, will be sufficient to fund its working
capital and capital expenditure requirements for the next year. With
respect to its long-term liquidity, the Company believes that its existing
cash and cash equivalents, together with its ability to generate sufficient
levels of cash from operations and to obtain both short- and long-term
financing, should provide sufficient funds to meet its working capital and
capital expenditure requirements. However, due to its highly leveraged
condition, the Company is more sensitive than less leveraged companies to
factors affecting its operations, including litigation and governmental
regulation affecting timber harvesting practices (see "--Trends" below),
increased competition from other lumber producers or alternative building
products and general economic conditions.
TRENDS
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. See above for cautionary information with respect to
such forward-looking statements.
The Company's operations are subject to a variety of California
and federal laws and regulations dealing with timber harvesting, threatened
and endangered species and habitat for such species, and air and water
quality. Moreover, these laws and regulations are modified from time to
time and are subject to judicial and administrative interpretation.
Compliance with such laws, regulations and judicial and administrative
interpretations, together with the cost of litigation incurred in
connection with certain timber harvesting operations of the Company, have
increased the cost of logging operations. The Company is subject to
certain pending matters which could have a material adverse effect on its
consolidated financial position, results of operations or liquidity. There
can be no assurance that these pending matters or future governmental
regulations, legislation or judicial or administrative decisions would not
have a material adverse effect on the Company. See Part II, Item 1. "Legal
Proceedings" and Note 5 to the Condensed Consolidated Financial Statements
for further information regarding regulatory and environmental factors and
the Headwaters Agreement affecting the Company's operations.
Judicial or regulatory actions adverse to the Company, increased
regulatory delays and inclement weather in northern California,
independently or collectively, could impair the Company's ability to
maintain adequate log inventories and force the Company to temporarily idle
or curtail operations at certain lumber mills from time to time.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company. No
material developments have occurred with respect to such legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
3.1 By-Laws of the Company, amended November 19, 1993
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, who has signed this report on
behalf of the Registrant and as the principal accounting officer of the
Registrant.
THE PACIFIC LUMBER COMPANY
Date: May 1, 1998 By: /S/ GARY L. CLARK
Gary L. Clark
Vice President - Finance and
Administration
APPENDIX A
GLOSSARY OF DEFINED TERMS
BOF: California Board of Forestry
CDF: California Department of Forestry
CESA: California Endangered Species Act
Company: The Pacific Lumber Company, an indirect, wholly-owned subsidiary
of MGI
ESA: The federal Endangered Species Act
Form 10-K: The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended December 31,
1997
HCP: Habitat conservation plan
HCP/SYP Agreement: A February 27, 1998 Pre-Permit Application Agreement in
Principle entered into by Pacific Lumber, MAXXAM and various government
agencies regarding certain understandings that they had reached regarding
the Multi-Species HCP, the Permits and the SYP
Headwaters Agreement: The September 28, 1996 agreement between the Pacific
Lumber Parties, the United States and California which provides the
framework for the acquisition by the United States and California of the
Headwaters Timberlands
Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber
timberlands consisting of two forest groves commonly referred to as the
Headwaters Forest and the Elk Head Springs Forest
Liquidity Account: A liquidity account maintained by Scotia Pacific with
respect to the Timber Notes
LTSY: Long-term sustained yield
MAXXAM: MAXXAM Inc.
MGHI: MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM
MGI: MAXXAM Group Inc., a wholly owned subsidiary of MGHI
Multi-Species HCP: The habitat conservation plan covering multiple species
contemplated by the Headwaters Agreement
NMFS: National Marine Fisheries Service
Pacific Lumber Parties: Pacific Lumber, including its subsidiaries and
affiliates, and MAXXAM
Permits: The incidental take permits related to the Multi-Species HCP
Revolving Credit Agreement: The revolving credit agreement between the
Company and a bank which provides for borrowings of up to $60,000,000, of
which $20,000,000 may be used for standby letters of credit and $30,000,000
is restricted to timberland acquisitions
Salmon Creek: Salmon Creek Corporation, a wholly owned subsidiary of the
Company
Scotia Pacific: Scotia Pacific Holding Company, a wholly owned subsidiary
of the Company
Senior Notes: 10-1/2% Pacific Lumber Senior Notes due March
1, 2003
SFAS No. 130: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income"
SYP: Sustained yield plan establishing long-term sustained yield harvest
levels for a company's timberlands
THP: Timber harvesting plan required to be filed with and approved by the
CDF prior to the harvesting of timber
Timber Notes: the 7.95% Scotia Pacific Timber Collateralized Notes due
July 20, 2015
USFWS: United States Fish and Wildlife Service
BY-LAWS
OF
THE PACIFIC LUMBER COMPANY
(a Delaware corporation)
Amended November 19, 1993
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held
at such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held at such time as shall be designated from time to time by the Board of
Directors. At each annual meeting the stockholders shall elect a Board of
Directors by plurality vote and transact such other business as may be
properly brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders
may be called by the Board of Directors.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and hour of the meeting shall be given
by or at the direction of the Board of Directors to each stockholder
entitled to vote at the meeting at least ten, but not more than sixty, days
prior to the meeting. Notice of any special meeting shall state in general
terms the purpose or purposes for which the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holders of a
majority of the issued and outstanding shares of the capital stock of the
corporation entitled to vote at a meeting, present in person or represented
by proxy, shall constitute a quorum for the transaction of business at such
meeting; but, if there be less than a quorum, the holders of a majority of
the stock so present or represented may adjourn the meeting to another time
or place, from time to time, until a quorum shall be present, whereupon the
meeting may be held, as adjourned, without further notice, except as
required by law, and any business may be transacted thereat which might
have been transacted at the meeting as originally called.
Section 6. Voting. At any meeting of the stockholders, every
registered owner of shares entitled to vote may vote in person or by proxy
and, except as otherwise provided by statute, in the Certificate of
Incorporation or these By-Laws, shall have one vote for each such share
standing in his name on the books of the corporation. Except as otherwise
required by statute, the Certificate of Incorporation or these By-Laws, all
matters, other than the election of directors, brought before any meeting
of the stockholders shall be decided by a vote of a majority in interest of
the stockholders of the corporation present in person or by proxy at such
meeting and voting thereon, a quorum being present.
Section 7. Inspectors of Election. The Board of Directors, or, if
the Board shall not have made the appointment, the chairman presiding at
any meeting of stockholders, shall have power to appoint one or more
persons to act as inspectors of election at the meeting or any adjournment
thereof, but no candidate for the office of director shall be appointed as
an inspector at any meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board or, in
his absence, the President shall preside at all meetings of the
stockholders. In the absence of both the Chairman of the Board and the
President, a majority of the members of the Board of Directors present in
person at such meeting may appoint any other officer or director to act as
chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the corporation
shall act as secretary of all meetings of the stockholders. In the absence
of the Secretary, the chairman of the meeting shall appoint any other
person to act as secretary of the meeting.
ARTICLE II
Board of Directors
Section 1. Number of Directors. The number of Directors of the
corporation shall not be less than three nor more than seven, and may from
time to time be changed by action of not less than a majority of the
members of the Board of Directors then in office.
Section 2. Vacancies. Whenever any vacancy shall occur in the Board
of Directors by reason of death, resignation, removal, increase in the
number of directors or otherwise, it may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole
remaining director, for the balance of the term, or, if the Board has not
filled such vacancy, it may be filled by the stockholders.
Section 3. First Meeting. The first meeting of each newly elected
Board of Directors, of which no notice shall be necessary, shall be held
immediately following the annual meeting of stockholders or any adjournment
thereof at the place the annual meeting of stockholders was held at which
such directors were elected, or at such other place as a majority of the
members of the newly elected Board who are then present shall determine,
for the election or appointment of officers for the ensuing year and the
transaction of such other business as may be brought before such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors, other than the first meeting, may be held without notice at such
times and places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board, the
President or any two directors. Notice of the time and place of each
special meeting shall be given by or at the direction of the person or
persons calling the meeting by mailing the same at least three days before
the meeting or by telephoning, telegraphing or delivering personally the
same at least twenty-four hours before the meeting to each director.
Except as otherwise specified in the notice thereof, or as required by
statute, the Certificate of Incorporation or these By-Laws, any and all
business may be transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at which
one or more of the members of the Board of Directors or of a committee
designated by the Board of Directors shall participate by means of
conference telephone or similar communications equipment shall be deemed to
have been held at the place designated for such meeting, provided that at
least one member is at such place while participating in the meeting.
Section 7. Organization. Every meeting of the Board of Directors
shall be presided over by the Chairman of the Board, or, in his absence,
the President. In the absence of the Chairman of the Board and the
President, a presiding officer shall be chosen by a majority of the
directors present. The Secretary of the corporation shall act as secretary
of the meeting, but, in his absence, the presiding officer may appoint any
person to act as secretary of the meeting.
Section 8. Quorum; Vote. A majority of the directors then in office
(but in no event less than one-third of the total number of directors)
shall constitute a quorum, for the transaction of business, but less than a
quorum may adjourn any meeting to another time or place from time to time
until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice. Except as otherwise required by
statute, the Certificate of Incorporation or these By-Laws, all matters
coming before any meeting of the Board of Directors shall be decided by the
vote of a majority of the directors present at the meeting, a quorum being
present.
Section 9. Removal of Directors. Any one or more of the directors
shall be subject to removal with or without cause at any time by the
stockholders.
ARTICLE III
Committees
Section 1. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate from among
its members an Executive Committee to consist of three or more members and
may designate one of such members as chairman. The Board may also
designate one or more of its members as alternates to serve as a member or
members of the Executive Committee in the absence of a regular member or
members. Except as provided in Section 4 of this Article III, the
Executive Committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and the Executive Committee may authorize the
seal of the corporation to be affixed to all papers which may require it.
Section 2. Other Committees. The Board of Directors, acting by a
majority of the whole Board, may also appoint from among its own members or
otherwise such other committees as the Board may determine, to have such
powers and duties as shall from time to time be prescribed by the Board and
which, in the discretion of the Board, may be designated as committees of
the Board.
Section 3. Quorum and Discharge. A majority of the entire committee
shall constitute a quorum for the transaction of business of any committee
and may fix its rules of procedure. The Board of Directors may discharge
any committee either with or without cause at any time.
Section 4. Powers of Committees. No committee designated or
appointed by the Board of Directors shall have the power or authority of
the Board in reference to (a) amending the Certificate of Incorporation,
(b) adopting an agreement of merger or consolidation, (c) recommending to
the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, (d) recommending to the stockholders
a dissolution of the corporation or a revocation of dissolutions, (e)
amending the By-Laws of the corporation, (f) declaring dividends, (g)
designating committees, (h) filling vacancies among committee members or
(i) removing officers. The Executive Committee shall have the power and
authority of the Board to authorize the issuance of shares of capital stock
of the corporation of any class or any series of any class.
Section 5. Committee Meetings. Regular meetings of any committee
designated or appointed by the Board of Directors shall be held at such
times and places and on such notice, if any, as the committee may from time
to time determine. Special meetings of any committee designated or
appointed by the Board may be called by order of the Chairman of the Board,
Vice Chairman of the Board, President of the corporation, Chairman of the
committee or any two members of any such committee. Notice shall be given
of the time and place of each special meeting by mailing the same at least
two days before the meeting or by telephoning, telegraphing or delivering
personally the same at least twenty-four hours before the meeting to each
committee member. Except as otherwise specified in the notice thereof or
as required by law, the Certificate of Incorporation or these By-Laws, any
and all business may be transacted at any regular or special meeting of a
committee. The Secretary of the corporation shall keep the minutes of the
meetings of all committees designated or appointed by the Board of
Directors and shall be the custodian of all corporation records.
ARTICLE IV
Officers
Section 1. General. The Board of Directors shall elect the officers
of the corporation, which shall include a President, a Secretary and a
Treasurer and such other or additional officers (including, without
limitation, a Chairman of the Board, one or more Vice Chairmen of the
Board, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries
and Assistant Treasurers) as the Board of Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer or agent shall be subject to
removal with or without cause at any time by the Board of Directors.
Vacancies in any office, whether occurring by death, resignation, removal
or otherwise, may be filled by the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the
corporation shall, unless otherwise ordered by the Board of Directors, have
such powers and duties as generally pertain to his respective office as
well as such powers and duties as from time to time may be conferred upon
him by the Board of Directors. Unless otherwise ordered by the Board of
Directors after the adoption of these By-Laws, the Chairman of the Board,
or, when the office of Chairman of the Board is vacant, the President,
shall be the chief executive officer of the corporation.
Section 4. Power to Vote Stock. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board and the President each shall
have full power and authority on behalf of the corporation to attend and to
vote at any meeting of stockholders of any corporation in which this
corporation may hold stock, and may exercise on behalf of this corporation
any and all of the rights and powers incident to the ownership of such
stock at any such meeting and shall have power and authority to execute and
deliver proxies, waivers and consents on behalf of the corporation in
connection with the exercise by the corporation of the rights and powers
incident to the ownership of such stock. The Board of Directors, from time
to time, may confer like powers upon any other person or persons.
ARTICLE V
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of the
corporation shall be in such form as the Board of Directors may from time
to time prescribe and shall be signed by the Chairman of the Board or a
Vice Chairman of the Board or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
corporation shall be transferable on the books of the corporation only by
the holder of record thereof, in person or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of
shares, with an assignment or power of transfer endorsed thereon or
delivered therewith, duly executed, and with such proof of the authenticity
of the signature and of authority to transfer, and of payment of transfer
taxes, as the corporation or its agents may require.
Section 3. Ownership of Stock. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner
thereof in fact and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
ARTICLE VI
Miscellaneous
Section 1. Corporate Seal. The seal of the corporation shall be
circular in form and shall contain the name of the corporation and the year
and state of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to
fix, and from time to time to change, the fiscal year of the corporation.
ARTICLE VII
Amendment
The Board of Directors shall have the power to make, alter or repeal
the By-Laws of the corporation subject to the power of the stockholders to
alter or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE VIII
Indemnification
The corporation shall indemnify any director or officer of the
corporation to the full extent permitted by law. Without limiting the
generality of the foregoing, each director and officer of the corporation
shall be indemnified by the corporation against all costs, expenses and
liabilities reasonably incurred by him in connection with or resulting from
any action, suit or proceeding to which he may be made a party by reason of
his being or having been a director or officer of the corporation except in
relation to matters which shall have been occasioned by the willful
misconduct or dishonesty of such officer or director. The foregoing right
of indemnification shall cover amounts paid in settlement of any such
action, suit or proceeding when such settlement appears to be in the
interest of the corporation. The foregoing right of indemnification shall
not be exclusive of other rights to which he may be entitled as a matter of
law.
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 24,076
<SECURITIES> 0
<RECEIVABLES> 9,053
<ALLOWANCES> 0
<INVENTORY> 50,214
<CURRENT-ASSETS> 93,744
<PP&E> 180,292
<DEPRECIATION> 84,306
<TOTAL-ASSETS> 587,909
<CURRENT-LIABILITIES> 49,293
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 587,909
<SALES> 46,514
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<CGS> 30,279
<TOTAL-COSTS> 30,279
<OTHER-EXPENSES> 8,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,197
<INCOME-PRETAX> (3,137)
<INCOME-TAX> (1,098)
<INCOME-CONTINUING> (2,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,039)
<EPS-PRIMARY> 0
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