Boise Cascade Corporation

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Boise Cascade Corporation

One Jefferson Square
P.O. 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: 19,619
Sales: $3.71 billion
Stock Exchanges: New York Midwest Pacific
SICs: 2421 Lumber: Rough, Sawed or Planed; 2436 Plywood, Softwood; 2621 Uncoated Paper; 2653 Stationery & Office Supplies; 5031 Corrugated & Solid Fiber Boxes; 5112 Newsprint Paper

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 large companies. The company owns 2.8 million acres of timberland in North America and holds long-term leases or licenses on an additional 3.3 million acres.

The firm was established under the name Boise Cascade Corportion 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, Boise Cascade 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 engineering 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 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 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 that 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 Boise Cascade weather downturns in its other markets, experienced similar problems as industrial firms cut back expenditures 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 manufactured containers for various products, and a chain of retail building materials centers that 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 oversupply 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.

Although periods of recession were not new to Boise Cascade, the severity of this economic slump, coupled with the company’s large investment in facility renovation and expansion, presented formidable challenges unrivaled in the company’s history. Within the paper industry, the grades of paper most severely affected by the recession were newsprint and uncoated business and printing papers—the two grade categories in which Boise Cascade was most heavily committed. To make matters worse, preservation limits on the harvesting of timber in the Pacific Northwest, where the company maintained a greater presence than its competitors, reduced the supply of timber and consequently negatively affected operating costs. Expansion costs, especially the company’s $550 million modernization program at its International Falls, Minnesota, paper mill, which was funded by borrowed money, raised its debt level, adding to the economic woes of the company. Boise Cascade’s office products division also felt the brunt of the recession, suffering substantial losses in sales and profits

To mitigate losses during the downturn, Boise Cascade formulated a business plan in 1990 to respond to the debilitating economic situation. The company decided to retain only those mills that could be upgraded to compete on a worldwide basis, to lessen its dependence on timber in the Pacific Northwest, and to sell assets that did not fit within its new strategic plan.

By the following year, the nation was still mired in a recession, and the paper industry continued to suffer from an oversupply of paper. Conditions at Boise Cascade were not much better. Facing its most difficult year ever, Boise experienced a drop in sales from 1990 levels; operating costs continued to rise due to timber supply reductions in the Pacific Northwest. The company, however, continued to invest heavily toward the expansion and modernization of its facilities, spending $2.2 billion on such programs over a three-year period. The combination of lower prices, increased operating costs, and the high interest payments stemming from capital investment projects, resulted in a net loss of over $79 million, a considerable drop from a profit of $267 million two years earlier. In an effort to streamline the company, Boise Cascade announced the sale of $250 million of assets it no longer deemed strategically prudent to own. In July of 1991, Boise Cascade sold its 50 percent interest in Durapack AG, a corrugated container manufacturer in Europe, for $50 million. Also in 1991, the company sold 29,500 acres of timberland in western Oregon and by January of 1992 had sold the wholesale segment of its office products distribution business.

Despite its efforts to recover from the downturn, Boise Cascade suffered even greater losses in 1992. Sales dropped to $3.7 billion from nearly $4 billion in 1991, and the company recorded a net loss of $227 million. Still plagued by the same problems that had affected the company since the beginning of the recession in 1989, Boise Cascade responded by expanding its production of specialized papers and increasing the breadth of its office products distribution business. After divesting its wholesale operations, the company expanded its commercial distribution channels by opening new facilities in South Carolina and Florida, and acquired an existing office products distribution business in Minnesota. A year earlier, Boise Cascade attempted to tap into the growing trend for recycled products by converting its Vancouver, Washington, mill into a recycled white paper facility. But none of these endeavors could wrest Boise Cascade from the grip of the recession.

As Boise Cascade entered 1993, the economic picture began to brighten. Demand for its paper products started to increase and the company’s loss for the first quarter was down to $12 million from $43 million during the first quarter of 1992. With the national economy on the mend, and five years of extensive expansion and modernization behind it, Boise Cascade’s prospects for the future were more optimistic than they were several years ago. Whether the company would be able to achieve a successful recovery and turn losses into profits depended largely on whether the billions of dollars spent on new and existing facilities would realize anticipated profits in the immediate future.