Since 1990, a number of fish and wildlife species that occur in streams and timberlands in the Pacific Northwest (Washington, Oregon, Idaho and northern California) have been listed as threatened or endangered in at least some portions of their ranges under the Endangered Species Act (ESA). These include the northern spotted owl, marbled murrelet, Umpqua River cutthroat trout, several Snake River salmon runs, coho salmon, bull trout and steelhead trout. Petitions have been filed to list other species and additional populations of some of those species as threatened or endangered under the ESA. A consequence of these listings has been, and a consequence of future listings may be, reductions in the sale and harvest of timber on federal timberlands in the Pacific Northwest. Federal and state requirements to protect habitat for threatened and endangered species have resulted in restrictions on timber harvest on some nonfederal timberlands in the Pacific Northwest, including some timberlands of the company. Additional regulatory actions taken by federal or state agencies to protect habitat for these species may, in the future, result in restrictions on timber harvests and other forest management practices in such states, including company timberlands in western Washington and western Oregon, could increase operating costs, and could affect timber supply and prices. The company believes that such restrictions will not have a significant effect on the company's total harvest of timber or production of forest products in 1999, although they may have such an effect in the future.

The listing of the red-cockaded woodpecker as an endangered species under the ESA had some effect on the harvest of public and private timber in the southeastern United States, but has had little effect on the company's operations. Other ESA-listed species (e.g., American burying beetle and gopher tortoise) occur on or near some of the company's southern timberlands, but have had little effect on the company's operations.

Other federal ESA listings, or designations of fish and wildlife species as endangered, threatened or otherwise sensitive under various state laws, could affect future timber harvests on some of the company's timberlands and could affect timber supply and prices in some regions. In addition, regulations protecting wetlands may affect future harvest and forest management practices on some of the company's timberlands, particularly in southeastern states.

In February 1995, the company obtained U.S. Fish and Wildlife Service approval of a Habitat Conservation Plan (HCP) and Incidental Take Permit with respect to northern spotted owls on approximately 209,000 acres of its Oregon coastal timberlands, which is expected to remain in effect for at least 50 years. In December 1996, the company applied to the US Fish and Wildlife Service and the National Marine Fisheries Service for an Incidental Take Permit covering approximately 400,000 acres of company timberlands in western Oregon. If the related HCP is approved and that permit is issued, the company would be authorized to "take" members of species currently listed or proposed for listing under the ESA and members of all or most species that may become listed in the future in the course of conducting forest management and other activities on those lands. Under both HCPs, there are limits on the amounts of covered lands that can be sold or exchanged unless the new owner agrees to be bound by the HCP and related documents or the agencies approve the change in ownership. The company also has obtained from the US Fish and Wildlife Service an Incidental Take Permit for the American burying beetle covering approximately 25,000 acres of lands in Oklahoma and has entered into agreements with the US Fish and Wildlife Service to reduce uncertainties under the ESA with respect to red-cockaded woodpeckers on some of its timberlands in North Carolina and northern spotted owls on some of its timberlands in Washington.

Forest practice acts in some of the states in which the company has timber increasingly affect present or future harvest and forest management activities. For example, forest practice acts in Washington and Oregon limit the size of clearcuts; require that some timber be left unharvested in riparian areas and sometimes in other areas to protect water quality, fish habitat and wildlife; regulate construction of forest roads and conduct of other forest management activities; require reforestation following timber harvest; and contain procedures for state agencies to review and approve proposed forest practice activities. Other states and some local governments regulate certain forest practices through various permit programs. Each of the states in which the company owns timberlands has developed "best management practices" (BMPs) to reduce the effects of forest practices on water quality and aquatic habitats. Additional and more stringent regulations and regulatory programs may be adopted by various state and local governments to achieve water-quality standards under the Clean Water Act or to preserve aquatic habitats. These current or future forest practice acts, BMPs and other programs may reduce the volumes of timber that can be harvested, increase operating and administrative costs, and make it more difficult to respond to rapid changes in markets, extreme weather or other unexpected circumstances. >