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Northwest timber touches Big Apple

New York-based U.S. Timberlands cites increased logging and hauling costs for its declining profits

Mail Tribune

PINEHURST - Incongruities abound when you try to equate anything about the Southern Oregon Cascades and Manhattan.

True, skyscrapers pierce the air somewhat like evergreens on the rugged terrain here in southeast Jackson County. The real connection, however, between stands of Ponderosa pine and canyons of steel are 26,600 acres of former Weyerhaeuser land now owned by U.S. Timberlands Co. L.P., with offices 10 stories above Madison Avenue.

"Northwest timber is about as good as you get," says Thomas C. Ludlow, U.S. Timberlands' chief financial officer. As far as the headquarters' location, "In this business, it doesn't matter whether you were in Portland, Ore., or Portland, Maine."

U.S. Timberlands is a limited partnership with 10,000 investors. The so-called pass-throughs earnings are not corporately taxed. Investors, however, are liable for taxes.

U.S. Timberlands and affiliate U.S. Timberlands Yakima own 670,000 acres of timberland and cutting rights on another 3,700 acres, totaling an estimated 1.9 billion board feet of merchantable timber volume in Oregon and Washington east of the Cascade Range. The company was formed in 1997, putting together former Weyerhaeuser and Ochoco Lumber Co. holdings.

The company harvested 250 million board feet last year, mostly in Oregon. Because the price of logs has fallen in recent decades, U.S. Timberlands may have to harvest some of its land more rapidly than it planned.

"The value of our holdings are only as good as the money it can generate in the long run," Ludlow says. "In 1997, Douglas fir logs were going for $750 per thousand board feet. Today, it's $350."

The company's gross profits were $24.3 million on sales of $75.6 million in 2000, but sales and profits tumbled in 2001 as the company reported $600,000 profit on $54.6 million revenue.

Among the reasons the company cited for its declining profits in federal filings were increased logging and hauling costs, as well as lower delivered log and stumpage values.

Canadian wood products operations have something to do with that, but so does competition from New Zealand, Mexico, Chile, Peru and other offshore outposts where labor prices range from half of what they are here to far-smaller fractions.

"Yet, on the Chicago Board of Options, lumber futures are up," Ludlow says. "Think of the value of the dollar and the offshore prices. Even if our guys are getting $14 hour and they're paying $14 an hour in Canada, that $14 in Canada is a heckuva lot less than in the U.S. Every time the Canadian dollar drops it adds like $100 million to the bottom line of Canadian forest product companies. Their expenses are all in Canadian dollars that are worth 35 percent less than ours."

In November 2000, management led by John M. Rudey, chairman, chief executive officer and general partner, announced that senior management was exploring taking the company private. Six class-action lawsuits have been filed against the company in Delaware. They've been withdrawn twice, but were filed again recently when the management group made its latest offering.

The units were selling at $1.75 on April 23 when the company made a revised buyout offer of $2.75 per unit. The company previously offered $1.875 cash and $1.875 in 7-year notes per unit.

Although some of the company's land holdings were first re-planted in the 1960s, many of the company's trees are years away from harvest. Thus, investors desiring regular dividends have found it to be the wrong instrument.

"We're planting trees today that we won't harvest for 50 years," Ludlow says. "When people are looking for quarterly distributions this isn't a good venue for their investment. It would be better in private hands."

Martin Lugus, was a 28-year veteran with Weyerhaeuser, before joining U.S. Timberlands. He's the vice president of timberland operations, overseeing forest management, nursery and orchard plantings.

"The job is pretty much the same as it was with Weyerhaeuser," he says.

Ponderosa pine seedlings account for 74 percent of the company's plantings and lodgepole pine 24 percent. White and Douglas fir each make up — percent of the plantings.

The company's 15 field supervisors - also former Weyerhaeuser foresters - observe the contracted logging, planting, cruising, layout and site preparation.

Contractors go through an intense three-month planting phase March through May, putting in roughly 300 2-year-old seedlings per acre.

Reach reporter Greg Stiles at 776-4463 or e-mail

Northwest timber touches Big Apple