Boise Cascade Corporation
Address:
1111 West Jefferson Street
P.O. Box 50
Boise, Idaho 83728-0001
U.S.A.
Telephone: (208) 384-6161
Fax: (208) 384-7224
http://www.bc.com
Statistics:
Public Company
Incorporated: 1931 as Boise Payette Lumber Company
Employees: 23,039
Sales: $6.16 billion (1998)
Stock Exchanges: New York Midwest
Ticker Symbol: BCC
NAIC: 113110 Timber Tract Operations; 113310 Logging; 321113 Sawmills; 321210 Veneer, Plywood, and Engineered Wood Product Manufacturing; 322100 Pulp, Paper, and Paperboard Mills; 322211 Corru-gated and Solid Fiber Box Manufacturing; 322230 Stationery Product Manufacturing; 421310 Lumber, Plywood, Millwork, and Wood Panel Wholesalers; 421330 Roofing, Siding, and Insulation Material Wholesalers; 421390 Other Construction Material Wholesalers; 453210 Office Supplies and Stationery Stores; 454110 Electronic Shopping and Mail-Order Houses; 454390 Other Direct Selling Establishments
Company Perspectives:
Our three core values say best who we are and how we do business at Boise Cascade: safety, integrity, and Total Quality.
Our safety record is one of the best in the forest products industry ... and in the United States. We're regularly recognized by our industry associations for safety excellence.
Our integrity shows in the relationships we've built with our customers. It's reflected in our efforts to study and protect wildlife in our forests. And it's conveyed in the communities where our employees' volunteer efforts help support hundreds of projects.
Total Quality is a commitment by each of us to always strive for excellence, to continuously improve the company's performance, and to consistently meet the expectations of our customers, employees, and shareholders. In short, Total Quality is the way we do business.
Our employees' commitment to our core values and their quest to give you the quality products and services you expect are why we're a leader in the building, paper, and office products industries.
Key Dates:
1902: Cascade Lumber Company of Yakima, Washington, is founded.
1931: Boise Payette Lumber Company is founded.
1957: Boise Cascade Corporation is created through the merger of Boise Payette Lumber and Cascade Lumber.
1958: The company's first pulp and paper mill and first corrugated container plants are built.
1964: Boise Cascade enters the office products distribution business.
1969: Diversification program results in various activities, including land development, recreational vehicle production, and cruise management.
1972: John Fery takes the helm, focusing the company on core areas: paper, building products, and office products distribution.
1987: Company sells its consumer packaging division.
1990: Recession hits Boise Cascade hard.
1992: Wholesale segment of office products distribution business is sold.
1994: Paper division begins three-year refocusing, with five paper mills sold or shut down.
1995: Company sells minority stake in Boise Cascade Office Product Corporation, retaining an 82.7 percent interest.
1999: Billerica, Massachusetts-based Furman Lumber, Inc., is acquired and merged into the company's wholesale building products unit.
Company History:
Boise Cascade Corporation has grown from a small local lumber company into a major manufacturer of wood products, paper, and paper products and a major distributor of building materials. Boise Cascade Office Products Corporation, a publicly traded company 81.2 percent owned by Boise Cascade Corporation, is a leading wholesaler of office products, including supplies, computer consumables, furniture, and paper. The company owns more than two million acres of timberland in North America and holds long-term leases or licenses on an additional 330,000 acres.
Lumber Beginnings
The firm was established under the name Boise Cascade Corporation 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 1931; 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 lumberyards in the area in addition to its Yakima mill. These yards were closed in 1914 and consolidated into one lumberyard 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.
Late 1960s: Diversification
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. In 1964 Boise Cascade entered the office products distribution business. 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 its 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.
1970s and 1980s: Divestments and Restructuring
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. In 1988, however, 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 reargued before the FTC, resulting in a renewed finding of violation.
Early 1990s Recession
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 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 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 had 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.
Mid-to-Late 1990s and Beyond
Boise Cascade continued to be troubled into 1994, suffering from the prolonged slump in paper prices and burdened by a $2 billion debt load. The company paid down some of the debt by issuing almost $500 million in preferred stock in 1992 and 1993. Overall sales were on the rise in 1993 and 1994, growing to $3.96 billion and $4.14 billion, respectively, but Boise Cascade continued in the red, posting net losses of $77 million in 1993 and $63 million in 1994. In April 1994 Fery retired from his position as CEO, remaining chairman, with George J. Harad, who had been president and chief operating officer, moving into the CEO slot. Harad soon took on the chairmanship as well.
During 1995 Boise Cascade rode a sharp increase in paper prices to record sales of $5.07 billion and net income of $352 million, which resulted in the company's first profitable year since 1990. That year the company was also in the midst of a three-year restructuring of its paper division, in which five paper mills were sold or shuttered and the division shifted to a primary focus on office, printing and converting, packaging, and value-added uncoated white papers. In 1995 the company sold its remaining stake in its Canadian newsprint unit, Rainy River Forest Products Inc. During the following year came the sale of a coated-paper mill in Rumford, Maine, and 667,000 acres of woodlands to Mead Corporation for about $650 million. Meanwhile, in April 1995 Boise Cascade also sold 17.3 percent of its office products subsidiary, Boise Cascade Office Products (BCOP), to the public in an initial public offering of 10.6 million shares at $12.50 per share. Immune to the ups and downs of the paper industry, BCOP had been a consistent bright spot for Boise Cascade since it exited from the wholesale sector in 1992. Revenues for BCOP increased from $672 million in 1992 to $1.99 billion in 1996 while net income increased from $19 million to $102 million during the same period.
Boise Cascade faced additional challenges in its wood products manufacturing unit, as prices for lumber were flat at the same time that timber sales from federal lands were dwindling, driving up production costs. Unable to operate them at acceptable levels of profitability, the company closed sawmills in Horseshoe Bend, Idaho, and Fisher, Louisiana, during 1998 and a sawmill in Elgin, Oregon, in 1999. A plywood plant in Yakima, Washington, had also been slated for closure but remained open following a major fire in September 1998 at the company's plywood plant in Medford, Oregon. In October 1999 Boise Cascade also sold 56,000 acres of timberland in central Washington to U.S. Timberlands Yakima, L.L.C. for about $60 million.
In September 1999 Boise Cascade completed the acquisition of Furman Lumber, Inc., based in Billerica, Massachusetts. The purchase added 12 regional building materials distribution centers in the East, Midwest, and South to the company's wholesale building products unit, which already boasted 16 such centers, most of which were located in the West. Boise Cascade thereby became a national distributor of various commodity and value-added building products. Furman had recorded fiscal 1999 sales of $574 million, while the company's building products distribution unit had posted sales of $861 million in 1998.
Boise Cascade did not fare as well with an attempted bid for Le Groupe Forex Inc., Canada's leading maker of oriented strand board, a product similar to plywood in strength but cheaper to produce. In a battle with Louisiana-Pacific Corporation waged in the summer of 1999, Boise Cascade lost a bidding war despite making two separate offers for Forex, of $470 million and $500 million.
Through the first nine months of 1999, Boise Cascade appeared headed for a possible turnaround year, with sales of $5.08 billion, an increase of almost ten percent over the same period during 1998, and net income of $124.3 million, a vast improvement over the net loss of $25.9 million recorded in 1998. In a period of consolidation brought about by industry-wide excess production, Boise Cascade--despite its improved performance&mdash⟩peared vulnerable to a takeover by a larger forest products rival. In addition to Louisiana-Pacific's takeover of Forex, International Paper Company acquired Union Camp Corporation, and Weyerhaeuser Company took over MacMillan Bloedel Ltd. Potential suitors of Boise Cascade could view the company's stake in Boise Cascade Office Products as a potential post-takeover cash-raising divestment, increasing the likelihood of a takeover.
Principal Subsidiaries:Boise Cascade Office Products Corporation (81.2%); Boise Southern Company; Minidoka Paper Company.
Principal Competitors:Bowater Inc.; Champion International Corporation; Georgia-Pacific Corporation; International Paper Company; Fort James Corporation; Louisiana-Pacific Corporation; The Mead Corporation; Potlatch Corporation; Smurfit-Stone Container Corporation; Temple-Inland Inc.; Westvaco Corporation; Weyerhaeuser Company; Willamette Industries Inc.; Corporate Express Inc.; Office Depot Inc.; Office Max Inc.; Staples Inc.; US Office Products Company.
Further Reading:
Anderson, Steven, 'Price Slump, Market Woes Prompt Boise Cascade Cuts,' Idaho Business Review, January 4, 1999, p. 9.
Bary, Andrew, 'No Paper Tiger,' Barron's, January 29, 1996, pp. 20-21.
Benoit, Ellen, 'Late Bloomer in the Forest,' Financial World, September 8, 1987.
'Boise Cascade Shifts Toward Tighter Control,' Business Week, May 15, 1971.
Carlton, Jim, 'Boise Cascade Bids About $470 Million for Timber Firm,' Wall Street Journal, July 29, 1999, p. A6.
------, 'Boise Cascade Bows out of Bidding War for Forex After Rival Increases Offer,' Wall Street Journal, August 16, 1999, p. B12.
Chipello, Christopher J., 'Stone-Consolidated Offers to Acquire Rainy River Forest for $552 Million,' Wall Street Journal, August 18, 1995, p. A5.
'Cinderella,' Forbes, November 15, 1972.
Downs, Tim, 'New Uncoated Free-Sheet Capacity Starts up at Boise's I-Falls Mill,' Pulp & Paper, May 1991, p. 98.
Fischl, Jennifer, 'Mead and Boise: The Long and the Short,' Financial World, November 18, 1996, p. 24.
Gonzalez, Jason, 'Boise, L-P Battle It out for Groupe Forex,' National Home Center News, August 9, 1999, pp. 9, 278.
Heiman, Grover, 'Getting Back to Basics,' Nation's Business, January 1983.
Narisetti, Raju, 'Mead to Buy Coated-Paper Mill, Woods from Boise Cascade for $650 Million,' Wall Street Journal, October 1, 1996, p. A4.
Richards, Bill, 'Boise Cascade May Be out of the Woods in First Period,' Wall Street Journal, April 12, 1993, p. B4.
Taylor, John H., 'Fery on the Defensive,' Forbes, November 12, 1990, pp. 52-58.
Tucker, John, 'Wood Products Companies Contemplating Their Futures: Boise Cascade, TJI Face Choices As Consolidation Comes to Industry,' Idaho Statesman, June 27, 1999, p. 1D.
Valentin, Erhard K., 'Anatomy of a Fatal Business Strategy,' Journal of Management Studies, May 1994, pp. 359ff.
'Will Quality Tell?,' Forbes, July 15, 1970.
Yang, Dori Jones, and Phillip L. Zweig, 'Boise Has a Lot of Paper Work to Do,' Business Week, May 9, 1994, pp. 78-79.
Source: International Directory of Company Histories, Vol. 32. St. James Press, 2000.
