Boise Cascade Corporation

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Boise Cascade Corporation

One Jefferson Square
Post Office Box 50
Boise, Idaho 83728
U.S.A.
(208) 384-6161
Fax: (208) 384-7224

Public Company
Incorporated: 1931 as Boise Payette Lumber Company
Employees: 19,810
Sales: $4.19 billion
Stock Exchanges: New York Midwest Pacific

Boise Cascade Corporation has grown from a small local lumber company into a major manufacturer and distributor of forest products, ranging from paper to building materials. It also supplies office products to dealers and large companies. The company owns 2.8 million acres of timberland in North America and holds long-term leases or licenses on an additional 3.4 million acres.

The firm was established under its present name in 1957 through the merger of the Boise Payette Lumber Company and the Cascade Lumber Company of Yakima, Washington. Boise Payette had been one of Idaho’s top lumber producers since its formation in the 1930s; however, the building boom following World War II had seriously depleted its timberlands. The Cascade Lumber Company had been in operation since 1902 when it was founded by George S. Rankin, the owner of several other businesses in the Yakima Valley. Rankin had been joined in this new venture by a business associate, Fred V. Pennington, and other individuals experienced in lumber operations in the Midwest. Initially, Cascade owned timberland at the headwaters of the Yakima River, which it had purchased for $100,000, and also operated several retail lumber yards in the area in addition to its Yakima mill. These yards were closed in 1914 and consolidated into one lumber yard at the Yakima sawmill, which continued operating even after the merger with Boise Payette.

Robert V. Hansberger, who had joined Boise Payette in 1956 as president, saw the merger of the two companies as an opportunity for Boise Payette to replenish its timber supply. More importantly, combining the resources of the two firms would enable the resulting company to build a base of raw materials large enough to allow it to expand beyond lumber production into the manufacture of paper and pulp products.

In 1958, the company, now known as Boise Cascade, built a kraft pulp and paper mill in Wallula, Washington, and corrugated container plants at both Wallula, and Burley, Idaho. The paper and pulp area grew rapidly over the next five years with further expansion of the company’s paper and wood production capacity. In spite of this success, Hansberger and his management team recognized how vulnerable the company was because of the cyclical nature of the wood and paper industries. They decided to diversify into other areas as a hedge against possible downturns in demand for its forest products.

Since joining the company, Hansberger had filled the company’s top management ranks with graduates of the country’s leading business schools. He permitted these executives to operate independently and expand the company’s operating divisions as they saw fit. By 1969 Boise Cascade had completed over 30 mergers and acquisitions and had become the third largest forest products company in the United States. Its operations now encompassed such diverse activities as residential and mobile home construction, recreational vehicle production, publishing, and cruise management.

One of the company’s major interests during the mid-1960s was the field of real estate speculation and recreational land development. In 1967 alone, Boise Cascade acquired U.S. Land Company, Lake Arrowhead Development Company, and Pacific Cascade Land Company, and amassed real estate holdings of 126,000 acres in more than 12 states, with the majority of the land in California. Hoping to sell this property to large investors, the company met with little success and was forced to revise its strategy and develop the land itself into residential and recreational areas.

Although the company experienced greater success with this approach and sales were brisk, the new business division encountered several unanticipated problems. For example, Boise Cascade became a prime target for a growing ecological movement, particularly on the West Coast, which was concerned about the impact of the company’s plans on the environment. Activist groups often hampered the company’s efforts to gain approval for its developments from local planning agencies. Another major setback resulted from a series of lawsuits brought against Boise Cascade by the California attorney general. These legal actions were filed in response to complaints from prospective buyers about the tactics used by the company’s salesmen, many of whom had been inherited in the course of the company’s acquisitions of realty projects. The suits were eventually settled at a cost of $59 million.

In addition to these problems, the company also experienced serious cash flow difficulties related to its land development business. In this industry, the developer was responsible for paying the costs of constructing a community’s sewer and water systems. These costs, typically, were high and had to be paid immediately, yet the developer was unable to collect its revenues until up to seven years after its sales were made. In an attempt to infuse the firm with fresh capital to fund the land development business on an ongoing basis, Boise Cascade acquired Ebasco in 1969. Ebasco and it subsidiaries were in the engineering and construction business and provided enginering services to major utilities. It was particularly attractive to Boise Cascade because it was rich with cash. It held millions of dollars worth of Latin American bonds, payable in U.S. dollars, that had been gained through the sale of Ebasco’s utility operations in Argentina, Brazil, Chile, Colombia, and Costa Rica. By 1970, it was clear the the company’s land development business was in serious trouble, accumulating losses that placed the entire organization in jeopardy.

Upon the 1968 purchase of Princess Cruises, the company shifted its marketing efforts away from independent travel agencies, which had originally spurred the growth of the cruise line. Instead, it instituted a direct mail campaign that was developed internally and proved less effective in generating business. As a result, the cruise line went from profits to losses within a matter of months.

In an attempt to reverse its losses, Boise Cascade wrote off a significant portion of its real estate holdings and divested its residential housing operation, along with other assets judged to be inadequate performers or lying too far outside the company’s core business areas. In the light of the lead-development reversals, Robert Hansberger, the architect of the company’s rapid growth resigned in 1972 and was replaced as president and chief executive officer by John Fery. Fery had been hired as Hansberger’s assistant in 1957 and had ascended to executive vice president and director within ten years.

After taking the helm, Fery immediately placed tighter controls on the company’s internal management structure. He began selling off additional subsidiaries, including several Latin American investments gained in the Ebasco purchase, in order to reduce debt and refocus the firm’s energies on forest products. As a result of these measures, Boise Cascade moved from a $171 million net loss to a $142 million net profit in just one year. Fery also instituted a five-year, billion-dollar capital spending program that was intended to help reduce the company’s dependence on areas with correlating demand cycles, such as lumber and plywood, in favor of businesses with higher and more consistent growth potential. Fery’s strategy placed greater emphasis on the manufacture of products for the construction industry and on paper products which could be marketed directly to end users in business form printing, data processing, and publishing.

This initiative propelled Boise Cascade into the 1980s as a specialized and efficient manufacturer of forest products and owner of timberland. By 1982 the company encountered sluggish demand for its products on two key fronts. The housing industry was badly depressed, reducing the demand for building products. The company’s pulp and paper operation, intended to help the Boise Cascade weather downturns in its other markets, experienced similar problems as industrial firms cut back expenditure in response to the weakening economy. Over the next two years, the firm closed a number of inefficient or unprofitable mills and consolidated its marketing operations. In 1987, Boise Cascade sold its consumer packaging division, which had manufacturered containers for various products, and a chain of retail building materials centers, which had been acquired from Edwards Industries in 1979. Labor contracts with union employees were renegotiated in an attempt to reduce the company’s overall cost structure.

At this time, the Federal Trade Commission accused Boise Cascade of violating the Robinson-Patman Act and the Federal Trade Commission (FTC) Act. In its suit, filed in 1980, the FTC claimed that the company had purchased office products for resale to commercial users and retailers at prices below those available to competitors. The FTC subsequently issued a cease and desist order to the firm in 1986. However, in 1988, an appeals court reversed this directive, determining that the FTC had not effectively substantiated its claim that the company’s purchasing practices had adversely affected competition. The case was re-argued before the FTC, resulting in a renewed finding of violation, which was under appeal in 1991.

When the paper industry rebounded in 1986, Boise Cascade and other manufacturers began construction to increase both production and capacity to meet the demand. By 1990, however, this response to the market upswing resulted in an over-supply of paper and excess industry capacity that caused prices and profits to drop. Boise Cascade again found itself vulnerable to the peaks and valleys of another cyclical industry.

The company has survived the devastation of near bankruptcy caused by over-ambitious expansion into areas unrelated to its core business, and has learned how to hold its own in industries with unpredictable business cycles. In the building products industry, for example, the company has maintained profitability despite periodic slowdowns in housing construction by striving to be the lowest-cost supplier. Its office products group, which markets everything from paper clips to furniture, sustains a competitive edge by providing unique services to its customers. Capital spending, directed specifically toward the modernization and improvement of the company’s manufacturing plants, is seen as a top priority for long term growth in all operational areas.

Boise Cascade faces threats to its future success from two major external forces. Market conditions in the company’s two largest divisions, paper and building products, are highly dependent upon the strength or weakness of the overall economy. On another front, Boise Cascade must be prepared to respond appropriately to the environmental preservation movement. Although the company manages its own timberlands, it must purchase additional raw materials from other sources to meet its manufacturing needs fully. If preservationist groups are successful in their efforts to restrict access by forest products companies to timber the effects on Boise Cascade’s overall operations could be serious.

Over the long term, Boise Cascade and John Fery, who was appointed chairman in 1978, remain committed to growth, efficiency, and quality improvements throughout the company’s businesses. This strategy, which has effectively guided the company through its troubles in the past, is seen as the means by which Boise Cascade will in the future offer increased value to its shareholders and to the entire forest products industry.