Railroads & Clearcuts

Facts About Plum Creek Timber

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July 2005

compiled by George Draffan
www.endgame.org

 

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on Plum Creek

 

Plum Creek corporate headquarters:
999 Third Ave., Suite 2300, Seattle WA 98104-4096 USA
telephone (206) 467-3600 or 1-800-858-5347
corporate website http://www.plumcreek.com

Plum Creek Timber is one of the largest owners of timberland in the United States. More than half of the land was "inherited" from 19th century railroad public land grants which were supposed to be sold to homesteaders. This public land subsidy includes Plum Creek's timberland in Washington (310,000 acres) and in Montana (1,600,000 acres, where Plum Creek controls more than 90 percent of the timber industry's land in the state). to maps

Plum Creek Timber was structured as a limited partnership which was exempt from corporate income tax on profits exceeding $150 million a year. An incentive plan set up by Plum Creek's management gives a handful of executives and partners a disproportionate share of the profits (in 1997, management received 25 percent of the cash proceeds, although they owned only 2 percent of the shares). Plum Creek's perverse incentive plan and its high debt rate (67 percent, which is twice the U.S. corporate median) promotes rapid liquidation of the corporation's major asset (the forests). Plum Creek has been stripping the forests in the Northwest at a rate of more than 500 million board feet per year, and then selling off choice parcels of land for real estate development: a double liquidation. Plum Creek is also expanding beyond the Northwest by acquiring timberland in Louisiana and Arkansas (538,000 acres in 1996), and Maine (905,000 acres in 1998).

The "General Partner" which controlled Plum Creek Timber when it was an L.P. was SPO Partners, a Mill Valley-based privately-held group of investors associated with Texas oil billionaire Robert Bass. SPO controlled three of Plum Creek's eight board seats, and was represented by William Oberndorf, William Patterson and John H. Scully. In 1999, Plum Creek restructured as a real estate investment trust (REIT) in order to attract more institutional investors for further acquisitions. The REIT restructuring removed the disproportionate incentive system, but increased SPO's share of ownership from two percent to 27 percent, and gave SPO the right to nominate a majority of Plum Creek's directors. After the REIT restructuring, director George Dennison, president of the University of Montana, stepped down; newly elected were John G. McDonald, professor at the Graduate School of Business at Stanford University and board member of the National Association of Securities Dealers, and Hamid R. Moghadam, CEO of AMB Property, one of the largest public REITs in the U.S. The majority owner and controller of Plum Creek is called PC Advisory Partners (PC Intermediate Holdings), which holds 17,133,275 shares or 27 percent of Plum Creek's stock, and is still represented by Oberndorf, Patterson and Scully. Click here for information on Directors, Officers, and Shareholders.

 

before Georgia-Pacific acquisition

 Recent land transactions (click here to see maps)

2001
bought 3,900,000 acres in Southern US
bought 287,000 acres in Oregon
bought 542,000 acres in Appalachia and Northeastern US for $3.4 billion

2003
bought 139,000 acres in South Carolina, Arkansas, New Hampshire for $162 million
sold 78,000 in Northern US and 47,000 acres in Southern US

2002
bought 307,000 acres in Wisconsin for $141 million
sold 37,000 acres

2004
bought 78,000 acres in Arkansas and Maine for $66 million
sold 310,000 acres in Northern US and 67,000 in Southern US

Region

 Acres

Billion bd ft timber

Mfg facilities

Washington

310,000

2.1

 

Montana & Idaho

1,600,000

6.8

9

Arkansas & Louisiana

538,000

2.4

2

Maine

905,000

 

 

TOTAL

3,353,000

11.3

11

Timberland

"As of December 31, 2004, the Northern Resources Segment encompassed 3.4 million acres of timberlands in Idaho, Maine, Michigan, Montana, New Hampshire, Oregon, Washington, West Virginia and Wisconsin, and contained an estimated 121 million tons (41 million cunits) of standing timber.

In 2003, we renewed a sourcing agreement with Stimson Lumber Company to supply logs to Stimsonís Montana mills, based upon prevailing market prices, over a three-year period ending at December 31, 2006. We have an agreement with Roseburg Forest Products to supply its Oregon mills with logs, based upon prevailing market prices, expiring December 31, 2005. We have a pulpwood fiber supply agreement with Stora Enso North America Corporation, which expires December 31, 2005, under which we supply specified quantities of fiber at prevailing market prices to Storaís paper mills. We also have a long-term agreement to supply pulpwood fiber to Sappi Ltd.ís paper facility in Skowhegan, Maine, at prevailing market prices. The fiber supply agreement ends in 2023 and may be extended up to an additional 15 years at the option of Sappi Ltd. We also are committed to supply pulpwood, logs and wood chips, to Smurfit Stone Container Corporation under a long-term supply agreement, which expires on February 26, 2006. In addition to the Northern Resources Segment, our Manufactured Products Segment is also committed under this long-term supply agreement to provide residual wood chips from our log conversion operations to Smurfit Stone. The long-term supply agreements may restrict our ability to sell timberlands in certain areas within our Northern Resources Segment.

As of December 31, 2004, the Southern Resources Segment consisted of 4.4 million acres of timberlands (including approximately 320,000 acres of leased land) located in the states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas, and contained an estimated 158 million tons (45 million cunits) of standing timber.

In connection with The Timber Company Merger, our Southern Resources Segment entered into a long-term agreement to sell timber to Georgia-Pacific at prevailing market prices. The supply agreement expires in 2010 subject to an automatic 10-year renewal period, unless either party delivers a timely termination notice. We also have a long-term agreement to supply logs to West Fraser (South) Inc. at prevailing market prices. The supply agreement expires in 2015 and may be renewed for five-year periods thereafter upon mutual consent of both parties. Additionally, we also are committed to supply pulp logs to Graphic Packaging Corporation at prices that are based upon prevailing market prices under a long-term supply agreement. The supply agreement ends in 2016 and can be extended up to an additional 10 years by either party. We expect that our long-term supply agreements with Georgia-Pacific, Graphic Packaging Corporation and West Fraser (South) Inc. will provide us with ongoing secure markets for a substantial portion of the wood fiber harvested from our Southern Resources Segment timberlands. The long-term supply agreements may restrict our ability to sell timberlands in certain areas within our Southern Resources Segment." Source: 2004 US SEC Form 10-K

Real Estate

"We estimate that included in our approximately 7.8 million acres of timberlands are about 1.3 million acres of higher and better use timberlands and about 1.0 million acres of non-strategic timberlands. The higher and better use timberlands are expected to be sold over the next 15 years for conservation, residential or recreational purposes. The non-strategic timberlands, which consist of large blocks as well as smaller tracts, are expected to be sold over the next five to ten years. In the meantime, these timberlands continue to be used productively in our business of growing and selling timber.

From time to time, we transfer timberlands to wholly owned taxable REIT subsidiaries that may pursue various activities such as entitlement or zoning to prepare a property for an eventual sale.

We compete with numerous sellers of land in hundreds of local markets. Our sales tend to be tracts of 10 acres or more, with many transactions in excess of 1,000 acres, and occasional transactions exceeding 10,000 acres." Source: 2004 US SEC Form 10-K 

Revenues ($ millions)

 

2004

2003

2002

Timber

694

664

649

Real Estate

303

124

98

Manufacturing

518

397

381

Other

13

11

9

Total

1,528

1,196

1,137

 

Northern Resources Segment. The Northwest Resource region and the Northeast Resource region are aggregated into the Northern Resources Segment. The Northern Resources Segment consists of timberlands located in Idaho, Maine, Michigan, Montana, New Hampshire, Oregon, Washington, West Virginia and Wisconsin. The Northern Resources Segment grows timber for sale primarily in domestic regional markets. Additionally, some logs are sold in export markets, mainly the Pacific Rim countries and Canada. The Northern Resources Segment sells softwood and hardwood sawlogs and softwood and hardwood pulpwood. Softwood sawlogs are sold to regional lumber and plywood manufacturers. Logs harvested in Montana are sold mostly to our lumber and plywood mills (which are part of the Manufactured Products Segment). Hardwood sawlogs are sold primarily to furniture manufacturers. Softwood and hardwood pulpwood is sold to regional paper and packaging manufacturers.

Southern Resources Segment. The Southwest Resource region and the Southeast Resource region are aggregated into the Southern Resources Segment. The Southern Resources Segment consists of timberlands located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas. The Southern Resources Segment grows timber for sale in domestic regional markets. The Southern Resources Segment sells primarily softwood sawlogs and pulpwood. Softwood sawlogs are sold to regional lumber and plywood manufacturers. Softwood pulpwood is sold to regional paper and packaging manufacturers. Additionally, the Southern Resources Segment leases timberlands to third parties on an annual basis for recreational purposes.

Real Estate Segment. The Real Estate Segment consists of sales of higher and better use timberlands and sales of non-strategic timberlands. Management estimates that included in the companyís approximately 7.8 million acres of timberlands are about 1.3 million acres of higher and better use timberlands and about 1.0 million acres of non-strategic timberlands. The higher and better use timberlands are expected to be sold over the next 15 years for conservation, residential or recreational purposes. The non-strategic timberlands, which consist of large blocks as well as smaller tracts, are expected to be sold over the next five to ten years. In the meantime, these timberlands continue to be used productively in our business of growing and selling timber.

Manufactured Products Segment. The lumber and panel businesses are aggregated into the Manufactured Products Segment. The Manufactured Products Segment consists of four lumber mills, two plywood mills, two MDF facilities and one lumber remanufacturing facility in Montana, and one lumber remanufacturing facility in Idaho. The lumber facilities produce boards, studs, and dimension lumber and the panel facilities produce high-quality plywood and MDF panels. All of these products are targeted to domestic lumber retailers, home construction, and industrial customers, and to a lesser extent for export primarily to Canada. Residual chips are sold to regional pulp and paper manufacturers. Revenues from manufactured products by product line were as follows for the years ended December 31 (in $ millions):

 

2004

2003

2002

Lumber

235

192

203

Plywood

157

115

105

MDF

126

90

73

Total

518

397

381

Largest customer

Segment revenues from sales to a single customer in excess of 10% of total revenues (in $millions)

 

2004

2003

2002

Northern

8

12

14

Southern

144

136

152

Manufacturing

12

29

29

Total

164

177

195

 

Bank Debt

Credit Agreement, dated as of January 15, 2004, among Plum Creek Timberlands, L.P., Bank of America, N.A., as Administrative Agent, The Bank of Tokyo-Mitsubishi, Ltd., Seattle Branch, as Syndication Agent, Suntrust Bank, The Bank of Nova Scotia, Northwest Farm Credit Services, PCA and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York Branch, as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the Other Financial Institutions Party Thereto. (Form 10-Q, File No. 1-10239, for the quarter ended March 31, 2004).

Source: 2004 US SEC Form 10-K

 


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