A Presentation of the Humboldt Watershed Council
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Pacific Lumber is in Crisis. Pacific Lumber’s financial crisis has nothing to do with external forces. PL’s crisis is the predictable result of intentional, deliberate decisions made over many years. From crisis comes opportunity.

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Pacific Lumber is in Crisis

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A Presentation of the Humboldt Watershed Council


Pacific Lumber is in Crisis

  • Pacific Lumber’s financial crisis has nothing to do with external forces.

  • PL’s crisis is the predictable result of intentional, deliberate decisions made over many years.

A Presentation of the Humboldt Watershed Council


From crisis comes opportunity

We have an excellent opportunity to address the one issue that most has dominated our county for the last 20 years

A Presentation of the Humboldt Watershed Council


What Does PL Meanto Humboldt County?

  • Largest private landowner

    • ~220,000 acres

  • Largest private industrial employer

    • ~835 jobs

    • ~$40 million in payroll

    • ~$80 million in goods and services

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Mean to Humboldt County?

A Presentation of the Humboldt Watershed Council


What Does PL Meanto Humboldt County?

  • Humboldt County has been strongly divided for the last 20 years

  • PL has been at the center of that division

A Presentation of the Humboldt Watershed Council


How did we get here?

A brief history of the Pacific Lumber Company, 1985 to present

A Presentation of the Humboldt Watershed Council


1985 Maxxam Takeover

Charles Hurwitz buys PL with help of Michael Milken and Ivan Boeskey

PL debt before takeover: $30 million

PL debt after takeover: $879 million

A Presentation of the Humboldt Watershed Council


1985 Maxxam Takeover

“We do not feel that this impending take over will be in the best interest of ourselves, the shareholders, and the communities in which our company serves.”

A Presentation of the Humboldt Watershed Council


1985 Maxxam Takeover

“The fight is not over.”

A Presentation of the Humboldt Watershed Council


1985 Hammon, Jensen, Wallen & Asssociates

“Pacific Lumber’s forests cannot sustain a doubling of 1985 harvests indefinitely.

Continuance of double 1985 harvest levels for many years beyond year 20 will result in liquidation of the forest…”

A Presentation of the Humboldt Watershed Council


1987 Pacific Meridian Study

A Presentation of the Humboldt Watershed Council


1987 Pacific Meridian Study

“An Analysis of Environmental Impacts Associated With Pacific Lumber Company’s Timber Management Program”

A Presentation of the Humboldt Watershed Council


1987 Pacific Meridian Study

Examined four long-term management alternatives, and analyzed their potential environmental and social impacts.

A Presentation of the Humboldt Watershed Council


“Alternative A”

Examined two different sustained-yield alternatives which would have provided both steady timber and steady employment

A Presentation of the Humboldt Watershed Council


“Alternative B”

“Harvest would increase substantially to 394 MMBF per year and then decline”

A Presentation of the Humboldt Watershed Council


“Alternative B”

“Pacific Lumber’s employment would increase significantly at first, dropping off as harvest declined”

A Presentation of the Humboldt Watershed Council


“Alternative B”

“Large older trees would be harvested and by 2008, the standing inventory would consist of trees smaller than are currently used by PL’s mills.”

A Presentation of the Humboldt Watershed Council


Rate of Harvest Skyrocketted

  • 10X the historical average

  • 3X the previous highest rate ever

A Presentation of the Humboldt Watershed Council


Rate of Harvest Skyrocketted

  • Between 1987 and 1996, PL cut its inventory by 3.3 billion board feet

  • Average of 300 million board feet per year

  • More than half of their inventory in 10 years

  • Equivalent to a 20-year rotation

A Presentation of the Humboldt Watershed Council


Freshwater and Elk River

A Presentation of the Humboldt Watershed Council


Freshwater Watershed

A Presentation of the Humboldt Watershed Council


Elk River Watershed

A Presentation of the Humboldt Watershed Council


North Fork Elk River

A Presentation of the Humboldt Watershed Council


North Fork Elk River

A Presentation of the Humboldt Watershed Council


North Fork Elk River

A Presentation of the Humboldt Watershed Council


Environmental Consequences of “Alternative B”

  • “Due to its accelerated rate of harvest, Alternative B (is) most likely… to cause significant levels of sedimentation, adverse soil effects, elevated water temperatures, increased peak flows, and induce mass movement events.”

  • “Alternatives B and D are the most likely of the alternatives analyzed to produce cumulative watershed effects…”

A Presentation of the Humboldt Watershed Council


A Presentation of the Humboldt Watershed Council


A Presentation of the Humboldt Watershed Council


A Presentation of the Humboldt Watershed Council


A Presentation of the Humboldt Watershed Council


Howard Heights Bridge

Designed high-water mark for 50-year flood event

A Presentation of the Humboldt Watershed Council


Howard Heights Bridge

Designed high-water mark meets roadway 25’ past the end of the bridge

A Presentation of the Humboldt Watershed Council


Howard Heights Bridge

December, 1955

100-year flood event

High-water mark 9 inches above design level

A Presentation of the Humboldt Watershed Council


1955 Flood

“The 1955 flood occurred following weeks of above-normal precipitation in the county, with rainfall measurements reaching as high as 24 inches over three days”

Humboldt County General Plan Update Natural Resources and Hazards Report

Chapter 11.1 Historical Floods

A Presentation of the Humboldt Watershed Council


November 21, 1998

5.69 inches over 3 days

Exceeds 1955 flood level

A Presentation of the Humboldt Watershed Council


January 14, 2000

1.36 inches over 3 days

Exceeds 50-year design flood level

A Presentation of the Humboldt Watershed Council


December 28, 2002

3.68 inches over 3 days

Exceeds 1955 flood level

A Presentation of the Humboldt Watershed Council


December 28, 2005

A Presentation of the Humboldt Watershed Council


North Fork Bridge

A Presentation of the Humboldt Watershed Council


North Fork Bridge

A Presentation of the Humboldt Watershed Council


North Fork Bridge

A Presentation of the Humboldt Watershed Council


North Fork Bridge

A Presentation of the Humboldt Watershed Council


North Fork Bridge

Cross-sectional area reduced by

60%

A Presentation of the Humboldt Watershed Council


Environmental Consequences in Elk River

Sediment from upstream logging has decreased the channel capacity by 60%

A Presentation of the Humboldt Watershed Council


Does PL care about its neighbors?

“When I think about lack of character, I think about… those Freshwater residents and their lawyers who extorted money from the company…”

“…they lead empty lives…”

Robert Manne, PL CEO

September 11, 2003

A Presentation of the Humboldt Watershed Council


PL’s rate of harvest

Hawthorne Timber

Mendocino Redwood

Green Diamond

Pacific Lumber Co.

194,000 acres

232,000 acres

500,000 acres

220,000 acres

80 Mbf

40 Mbf

135 Mbf

162 Mbf

PL logs at 2 to 4 times the rate of other redwood companies

A Presentation of the Humboldt Watershed Council


PL Earnings Since 1985

Sold Cutting and Welding Division

Sold office building in San Francisco

Gutted PL’s employee pension fund

Sold the Butano Forest

Dividend from 1998 refinancing

Headwaters Forest

Timber harvest income since 1986

Total income since 1985:

$325 million

$30 million

$60 million

$7 million

$250 million

$480 million

$2.5 billion

$3.6 Billion

A Presentation of the Humboldt Watershed Council


Planned depletion of timber

“It is assumed that the Company will harvest the following amount of timber per year for each of the periods set forth below:”

July 1998 through December 2007 (9.5 years)…162,274 Mbfe

January 2008 through December 2017 (10 years)…132,131 Mbfe

January 2018 through December 2028 (10.5 years)… 87,692 Mbfe

(Scotia Pacific Offering Memorandum, July 9th, 1998)

A Presentation of the Humboldt Watershed Council


PL’s logging is right on target

Actual Log Sales in mmbf

Actual average harvest level

Target average harvest level

Difference

2000153.40

2001167.90

2002178.60

2003166.30

2004144.10

(est) 2005 145.00

159.20

162.27

-1.9%

A Presentation of the Humboldt Watershed Council


Harvest and Employment

1984

120 Mbf

830

1997

410 Mbf

1450

2005

145 Mbf

845

Harvest level

Employees

The slowdown in harvest and employment was foreseen from the beginning

A Presentation of the Humboldt Watershed Council


Income vs.Expense

YearOperating Income

(EBITDA)

1998$59.9 million

1999$31.2 million

2000$34.9 million

2001$65.7 million

2002$30.2 million

2003$47.0 million

2004$34.0 million

Interest Expense

$43.9 million

$65.5 million

$62.6 million

$58.9 million

$57.9 million

$56.9 million

$55.2 million

A Presentation of the Humboldt Watershed Council


Who’s at fault?

"Due to its highly leveraged condition, the Company (Scotia) is more sensitive than less leveraged companies to factors affecting its operations, including low log prices, governmental regulation and litigation affecting timber harvesting practices on the Company Timberlands, and general economic conditions."

Statement from ScoPac 10K filings

A Presentation of the Humboldt Watershed Council


Income vs.Expense

The problem is not the cash flow in;

The problem is the cash flow out

A Presentation of the Humboldt Watershed Council


PL Earnings Since 1985

Total earnings since 1985:

Total debt in 1985:

Total debt in 2006:

$3.6 Billion

$868 Million

$749 Million

Where did the money go?

A Presentation of the Humboldt Watershed Council


Where did the money go?

94$88.9 million

95$59 million

96$76.9 million

97$60.8 million

98$533 million

01 $79.9 million

02 $29.4 million

Dividends paid to Maxxam and subsidiaries by Scotia Pacific

Total to Maxxam$927.9 million

A Presentation of the Humboldt Watershed Council


Where did the money go?

A Presentation of the Humboldt Watershed Council


Where did the money go?

“The function of PL is to throw off cash flow”

Charles Hurwitz

Maxxam CEO

A Presentation of the Humboldt Watershed Council


The future according to Maxxam

  • Sustained Yield Plan allows unsustainable logging through 2007

  • Harvests will decline 46% from 2007 to 2018

  • “for each decade thereafter through (2048), the SYP contemplates a reduction in the… annual timber harvest”

A Presentation of the Humboldt Watershed Council


The future according to Maxxam

Long-Term “Sustained Yield Plan” does not sustain either timber or jobs.

A Presentation of the Humboldt Watershed Council


The future according to Maxxam

PL’s new Scotia mill will handle more, smaller logs, faster, with 1/5 the number of employees

A Presentation of the Humboldt Watershed Council


Pacific Lumber is in Crisis

Bankruptcy Warning Wields an Ax

"They are using their employees as human shields, and they are threatening to shut down the whole company if the governor does not intervene,"

EDITORIAL

Loggers' Sneak Play

“…is it too late to get our $480 million back?”

A Presentation of the Humboldt Watershed Council


Who’s at fault?

“MAXXAM has put PALCO at risk by borrowing large sums of money, not paying down its long-term debt, and thereby keeping PALCO a highly leveraged company.

Michael Gjerde, SWRCB

A Presentation of the Humboldt Watershed Council


What happens if PL goes bankrupt?

“in the threatened case of … bankruptcy, both timber harvest and milling would continue, and local workers would keep working but under the oversight of a Federal Bankruptcy judge. It is true that the local economy would probably experience some slowdown, but most of the “economic harm” would be borne by the Timber Note holders.”

Michael Gjerde, SWRCB

A Presentation of the Humboldt Watershed Council


What’s it all mean?

Pacific Lumber’s financial crisis has nothing to do with external forces, and everything to do with internal decisions.

Our community deserves a full and open accounting of what Maxxam has done to this company.

A Presentation of the Humboldt Watershed Council


What’s it all mean?

Most importantly, it is time to fix the real problem, so that we may begin to heal the division.

A Presentation of the Humboldt Watershed Council


A Presentation of the Humboldt Watershed Council


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