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A Presentation of the Humboldt Watershed Council1.

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1 A Presentation of the Humboldt Watershed Council1

2 2 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.

3 A Presentation of the Humboldt Watershed Council3 We have an excellent opportunity to address the one issue that most has dominated our county for the last 20 years From crisis comes opportunity

4 A Presentation of the Humboldt Watershed Council4 What Does PL Mean to Humboldt County? Largest private landowner ~220,000 acres Largest private industrial employer ~835 jobs ~$40 million in payroll ~$80 million in goods and services

5 A Presentation of the Humboldt Watershed Council5 What Does PL Mean to Humboldt County?

6 A Presentation of the Humboldt Watershed Council6 What Does PL Mean to Humboldt County?

7 A Presentation of the Humboldt Watershed Council7 What Does PL Mean to Humboldt County?

8 A Presentation of the Humboldt Watershed Council8 What Does PL Mean to Humboldt County?

9 A Presentation of the Humboldt Watershed Council9 What Does PL Mean to Humboldt County?

10 A Presentation of the Humboldt Watershed Council10 What Does PL Mean to Humboldt County?

11 A Presentation of the Humboldt Watershed Council11 What Does PL Mean to Humboldt County?

12 A Presentation of the Humboldt Watershed Council12 What Does PL Mean to Humboldt County? Humboldt County has been strongly divided for the last 20 years PL has been at the center of that division

13 A Presentation of the Humboldt Watershed Council13 How did we get here? A brief history of the Pacific Lumber Company, 1985 to present

14 A Presentation of the Humboldt Watershed Council 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

15 A Presentation of the Humboldt Watershed Council 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.”

16 A Presentation of the Humboldt Watershed Council Maxxam Takeover “The fight is not over.”

17 A Presentation of the Humboldt Watershed Council 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…”

18 A Presentation of the Humboldt Watershed Council Pacific Meridian Study

19 A Presentation of the Humboldt Watershed Council Pacific Meridian Study “An Analysis of Environmental Impacts Associated With Pacific Lumber Company’s Timber Management Program”

20 A Presentation of the Humboldt Watershed Council Pacific Meridian Study Examined four long- term management alternatives, and analyzed their potential environmental and social impacts.

21 A Presentation of the Humboldt Watershed Council21 “Alternative A” Examined two different sustained-yield alternatives which would have provided both steady timber and steady employment

22 A Presentation of the Humboldt Watershed Council22 “Alternative B” “Harvest would increase substantially to 394 MMBF per year and then decline”

23 A Presentation of the Humboldt Watershed Council23 “Alternative B” “Pacific Lumber’s employment would increase significantly at first, dropping off as harvest declined”

24 A Presentation of the Humboldt Watershed Council24 “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.”

25 A Presentation of the Humboldt Watershed Council25 Rate of Harvest Skyrocketted 10X the historical average 3X the previous highest rate ever

26 A Presentation of the Humboldt Watershed Council26 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

27 A Presentation of the Humboldt Watershed Council27 Freshwater and Elk River

28 A Presentation of the Humboldt Watershed Council28 Freshwater Watershed

29 A Presentation of the Humboldt Watershed Council29 Elk River Watershed

30 A Presentation of the Humboldt Watershed Council30 North Fork Elk River

31 A Presentation of the Humboldt Watershed Council31 North Fork Elk River

32 A Presentation of the Humboldt Watershed Council32 North Fork Elk River

33 A Presentation of the Humboldt Watershed Council33 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…”

34 A Presentation of the Humboldt Watershed Council34

35 A Presentation of the Humboldt Watershed Council35

36 A Presentation of the Humboldt Watershed Council36

37 A Presentation of the Humboldt Watershed Council37

38 A Presentation of the Humboldt Watershed Council38 Howard Heights Bridge Designed high-water mark for 50-year flood event

39 A Presentation of the Humboldt Watershed Council39 Howard Heights Bridge Designed high- water mark meets roadway 25’ past the end of the bridge

40 A Presentation of the Humboldt Watershed Council40 Howard Heights Bridge December, year flood event High-water mark 9 inches above design level

41 A Presentation of the Humboldt Watershed Council 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

42 A Presentation of the Humboldt Watershed Council42 November 21, inches over 3 days Exceeds 1955 flood level

43 A Presentation of the Humboldt Watershed Council43 January 14, inches over 3 days Exceeds 50-year design flood level

44 A Presentation of the Humboldt Watershed Council44 December 28, inches over 3 days Exceeds 1955 flood level

45 A Presentation of the Humboldt Watershed Council45 December 28, 2005

46 A Presentation of the Humboldt Watershed Council46 North Fork Bridge

47 A Presentation of the Humboldt Watershed Council47 North Fork Bridge

48 A Presentation of the Humboldt Watershed Council48 North Fork Bridge

49 A Presentation of the Humboldt Watershed Council49 North Fork Bridge

50 A Presentation of the Humboldt Watershed Council50 North Fork Bridge Cross-sectional area reduced by 60%

51 A Presentation of the Humboldt Watershed Council51 Environmental Consequences in Elk River Sediment from upstream logging has decreased the channel capacity by 60%

52 A Presentation of the Humboldt Watershed Council52 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

53 A Presentation of the Humboldt Watershed Council53 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

54 A Presentation of the Humboldt Watershed Council54 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

55 A Presentation of the Humboldt Watershed Council55 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)

56 A Presentation of the Humboldt Watershed Council56 PL’s logging is right on target (est) % Actual Log Sales in mmbf Actual average harvest level Target average harvest level Difference

57 A Presentation of the Humboldt Watershed Council57 Harvest and Employment Harvest level Employees Mbf 1450 The slowdown in harvest and employment was foreseen from the beginning Mbf Mbf 830

58 A Presentation of the Humboldt Watershed Council58 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

59 A Presentation of the Humboldt Watershed Council59 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

60 A Presentation of the Humboldt Watershed Council60 The problem is not the cash flow in; The problem is the cash flow out Income vs.Expense

61 A Presentation of the Humboldt Watershed Council61 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?

62 A Presentation of the Humboldt Watershed Council62 Where did the money go? Dividends paid to Maxxam and subsidiaries by Scotia Pacific 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 Total to Maxxam$927.9 million

63 A Presentation of the Humboldt Watershed Council63 Where did the money go?

64 A Presentation of the Humboldt Watershed Council64 Where did the money go? “The function of PL is to throw off cash flow” Charles Hurwitz Maxxam CEO

65 A Presentation of the Humboldt Watershed Council65 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”

66 A Presentation of the Humboldt Watershed Council66 The future according to Maxxam Long-Term “Sustained Yield Plan” does not sustain either timber or jobs.

67 A Presentation of the Humboldt Watershed Council67 The future according to Maxxam PL’s new Scotia mill will handle more, smaller logs, faster, with 1/5 the number of employees

68 A Presentation of the Humboldt Watershed Council68 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? ”

69 A Presentation of the Humboldt Watershed Council69 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

70 A Presentation of the Humboldt Watershed Council70 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

71 A Presentation of the Humboldt Watershed Council71 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.

72 A Presentation of the Humboldt Watershed Council72 What’s it all mean? Most importantly, it is time to fix the real problem, so that we may begin to heal the division.

73 A Presentation of the Humboldt Watershed Council73


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