To commemorate that association we have collected together bits and pieces of information from Kavilco’s records and Rayonier’s website to create the following story of their 23-year relationship. Like many long-term relationships, there have been ups and downs, but everyone would agree, it was profitable.

Rayonier started out in 1926 as Rainier Pulp and Paper Company, opening their first mill in Shelton, Washington. Rayonier was the first to recognize an opportunity to use the area’s plentiful Western hemlock tree species for the production of a superior grade of bleached paper pulp. Later their scientists teamed up with Du Pont, the leading producer of rayon, and perfected the world’s first pulp made from hemlock and rayon designed especially for the growing rayon industry. The name was derived from combining rayon and Mt. Rainier.

After becoming publicly traded on the New York Stock Exchange in 1937, Rayonier began to expand its interests to the Southeastern part of the United States, completing their first pulp mill in Florida in 1939, and in Georgia in 1954. The mill in Georgia quickly doubled in size to meet the growing demand and offices were opened in Europe. Markets were developed in the Far East and offices were opened in Asia too.

In 1968, Rayonier became a wholly owned subsidiary of ITT Corporation, a large conglomerate, and was then known as ITT Rayonier.

Kavilco is Born
In 1971, ANCSA created Native village corporations, granting each village corporation entitlement to acreage of their choosing. An integral part of the ANCSA agreement was that the Native village corporations would have the rights to all of the assets on the surface of those lands, including timber rights. ANCSA land entitlement was based on the number of shareholders and Kavilco was the smallest Village Corporation in Southeast Alaska, having only 120 shareholders.

Kavilco's 1980 Board of Directors from left to right standing: Louis Jones, Sr., Fred Olsen, Sr., Louis A. Thompson, Willard Jones; seated: Helen Dailey, Roberta Campbell, Ramona Hamar, Estelle Thompson, Rosemarie Trambitas. The inset is David Peele who was a member of the board in 1979.

This first sale produced considerable interest in industry circles because of its size and the price. Counting interest, the sale to ITT Rayonier of timber in the Skowl Arm area could bring as much as $280 per thousand board feet, which was remarkably higher than most other Southeast Alaska Native Corporation timber sales.

Kavilco finally received the land patent from the United States on December 5, 1979, making it the first Village Corporation in Southeastern Alaska to receive all of its land entitlement under ANCSA. The land patent entitles the corporation to the surface estate, meaning everything above ground. The ANCSA law gave the regional corporation (Sealaska) a patent to the rights to the subsurface estate. As promised, Rayonier made the first payment and Kavilco paid each of its shareholders $25,000 in January 1980 for a total initial shareholder distribution of $3,000,000. The distribution was the largest single payment made to individual shareholders of a Native corporation (at that time) since ANCSA was passed in 1971.

Benefits for Shareholders
In addition to the initial distribution, the Board of Directors and General Manager of Kavilco planned a distribution of $100 per share to each shareholder every year for the next 10 years. Each shareholder having 100 shares would receive $10,000 annually for 10 years or $100,000 by 1990. Adding the initial $25,000 payment that would be $125,000!

Imagine now, that in 1979, the Village of Kasaan did not have a road connecting it to the rest of Prince of Wales Island. They had only one telephone in the village, located in the community building. A person would have to get in their boat or floatplane and travel around the island to get fuel, supplies or medical care. Part of Kavilco’s commitment to its shareholders was to improve conditions in Kasaan. They donated 20 cedar poles from their land for a new Kasaan Community Building foundation, land and gravel for a fuel storage facility, and installed a second telephone in Kasaan. In 1981, Kavilco opened Kasaan Forest Products, their very own timber company. Their plan was to hire village residents to cut select timber and mill it into lumber at their own sawmill to be shipped to specialty buyers. They built and equipped a sawmill and their first customer was the Village of Kasaan.

Rayonier had formed a Foundation in 1952 to contribute charitable donations to causes in the communities in which it operated. In 1980, Rayonier made available to the Board of Directors information about their education grants. Beginning in 1980, Rayonier annually contributed $2,500 to be used by Kavilco shareholders for education. The Board of Directors selected a committee to pick the winners of the grant. These grants continued until 1988 for a total of $17,500 given to Kavilco shareholders. We have attempted to list all of the recipients here: Karla Olsen-Smith, Fred Olsen, Jr., Patrick Olsen, Thomas Hanbury, III, Jeane Breinig (who later became a Director), Jessie Cook, and Brian Coburn.

In 1980, Rayonier established a customer base in China, only one year after the restoration of US/China diplomatic relations. Trade overseas was essential because the U.S. economy was in a recession. Interest rates were at all-time highs, housing starts were way down and the timber market was dropping off. Housing starts in China, however, were way up, and companies within the Peoples Republic were experimenting with capitalism by competing against each other for international trade.

T I M B E R !
The U.S. timber market was in a terrible downward spiral that did not level off until 1987. The original timber “cruise” or inventory that was done for all of the Southeast Alaska Native Corporations had overstated the quantity and quality of Kavilco’s timber holdings. Kavilco hired Forest and Land Management, Inc., an independent firm, to conduct a more accurate cruise and they discovered the errors were substantial. Rayonier conducted their own cruise and confirmed the lower numbers. So, one year after the sales contract had been signed the timber market was down, the inventory was down and the quality of the inventory was not what anyone had anticipated it would be. Things were so grim that at one point Rayonier’s CEO wrote a letter to Kavilco asking to be let out of the 1979 contract.

As mentioned before, the original timber cruise by the company commissioned by Sealaska came in with a much higher count of marketable standing timber than the more accurate cruise done by Forest and Land Management. This created a loss on paper of millions of board feet of timber and a “write-down” in the value of the timber from $61,234,318 in 1982 to $46,655,168 in 1983.

Again in 1984, Kavilco had to write-down the value of its marketable timber, this time due to the plummeting timber market. Quoting from the 1984 Annual Report audited financial statements’ notes:

Kasaan Forest Products struggled to make a profit. Problems over the past couple of years with equipment and a lack of regular paying customers were having a negative effect on Kavilco’s bottom line. Kavilco ceased the solicitation of timber and at the end of 1984, the sawmill was closed.

During the Board meetings of 1985, the members were hammered with information about the continued decline in the timber industry. The only place, it seemed, where Rayonier could sell the timber it harvested was in China. In fact, Rayonier was one of only two timber companies that stationed a representative full time in the Peoples Republic.

China Comes to Town

Representatives from Chongqing International Economic and Technical Cooperative Company (CIETCC) with Agnes Swanson in Kavilco's Kasaan Office.

In October 1986, Kavilco entered into a partnership with Drexel, Burnham, Lambert, et al wherein Kavilco agreed to sell their remaining timber creating a net operating loss, then they would sell that net operating loss to Drexel.

In January 1987, it became clear that there was no hope of Kavilco making a direct sale to China so Kavilco struck a deal with Rayonier to sell the rest of the standing timber for $1,500,000 in February. This deal helped Rayonier offset their losses on the original sale and allowed Kavilco to establish the net operating loss required in their contract with Drexel. Rayonier signed a note to make payments over the course of the contract period until December 31, 2001. Kavilco, in turn, sold a portion of their net operating loss (NOL) to Drexel for $15,819,583, over $1,000,000 more than the timber was valued at in 1984. The terms of the payment were $321,667 in cash and a promissory note for $15,715,983 bearing interest at 12 percent, payable annually.

Carrying On
With the timber market finally showing signs of moderate recovery, Rayonier began harvesting again. They completed their harvest from Smith Cove and Kasaan Island, and began work on the Peninsula.

An integral part of harvesting logs is the creation of a road system to transport those cut trees to transfer and sorting yards. Rayonier created three miles of road on Kasaan Island, 8.4 miles in the Paul’s Bight area, 49.9 miles in the Smith Cove area, 25.6 miles of road in the Lyman Anchorage area and some in the Jacob Mountain area for that purpose. Once the timber was sorted it was trucked to Lyman for rafting or barge loading.

Many different logging companies, or sub-contractors, worked on harvesting or road construction. Depending on the area being cut, different methods were used such as high lead towers, shovel logging in smaller, level harvest units and helicopter logging for more difficult terrain.

In 1992, Rayonier gained control over extensive timberlands in New Zealand, and in 1994, once again became an independent public corporation in a spin-off from ITT. They started trading again on the New York Stock Exchange. In 1995, they moved their main operations from the Northwest to the Southeastern part of the United States with completion of a state-of-the-art research facility in Georgia. Rayonier still maintains two core interests, Timber and Land and Performance fibers. They now are headquartered in Florida.
Closure
The contract between Kavilco and Rayonier required the closing of all the logging roads, the removal of all bridge crossings and culverts, and that exposed soil on steep slopes be seeded with grass to prevent erosion. All this will be completed by the summer of 2002. The State of Alaska, Department of Natural Resources will conduct an inspection after that to confirm that environmental laws have been met.

Kavilco owes a great deal to its relationship with Rayonier and we wish them well in the future.

We wish Rayonier all the best, and "Háw'aa!"

The following contains a photographic study of the logging and development in the Smith Cove area from 1980 through 2001.