Warm Springs Forest Products

$100 million forest products manufacturing firm; lender paid off

HAMSTREET ROLES:  Advisory, Operational Turnaround

SUMMARY:  Unprofitable sawmill and plywood production drove Native American tribe’s forest products operation into crippling debt; Hamstreet addressed sensitive cultural and employment issues in restructuring the company into a profitable concern.

THE BACKGROUND:  Warm Springs Forest Products had just added a small-log mill to its plywood and large-log operations when the national demand for plywood contracted sharply. The price of plywood plummeted and sank the company into a $13 million short-term debt it couldn’t pay. Fearing the loss of jobs among tribal members, the Warm Springs Tribal Council resisted closing operations and cutting employment. In an effort to diminish losses at the mills, the Confederated Tribes subsidized Warm Springs Forest Products by selling high-quality timber to it at one-fifth of market value.

THE CHALLENGE:  Hamstreet came in as a third party to help Warm Springs address the sensitive issue of creating a balance between making a profit and supplying the reservation with much-needed jobs. As a newcomer to tribal affairs, we listened carefully to local concerns and demonstrated our respect for the cultural and physical environment. At the same time, we had to persuade the Tribal Council to commit itself to a profit-making venture: without profits, there could be no jobs.

THE RESULTS:  As a first step, we led Warm Springs to close and liquidate its plywood mill despite the loss of nearly 200 jobs. The plywood industry was changing on a national scale and the mill would not benefit the tribe in the long run. Meanwhile, we focused on building up tribal resources from within. We trained a labor force on the reservation to run all aspects of the business by itself, implementing strict employment standards and helping to equip Indians for management positions. We also guided the Tribes in maximizing the worth of their forest lands by selling high-value species of timber at market rates. Finally, we shut down the large-log mill, which the reservation’s forest inventory could not sustain over the long term in an environmentally sound manner. Thanks to these changes and the gradual development of a strong tribal work force, Warm Springs paid off its lenders within two years. By that time, the company employed nearly as many Indians as before the plywood mill closed, turned an annual profit of 5%-6% from its small-log operation, and had short-term plans to add another 60 jobs.

For his work in leading Warm Springs to profitability, Clyde Hamstreet received the Turnaround Management Association’s 1994 award for Turnaround Practitioner of the Year.