Boise Cascade continues to refine business mission to wean itself from the endless cycles of boom and bust.

The word Cascade isn´t the only thing removed from Boise
Cascade´s new logo. The fir tree is gone, too.

That missing tree seems to symbolize the Boise company´s efforts to
start weaning itself from the endless cycles of boom and bust that are
the facts of life in the timber industry.

And as company officials prepare for their first quarter earnings
report on Tuesday and their annual shareholders´ meeting on
Thursday, they´re hopeful they can look beyond the poor year just
ended to a brighter, more profitable future.

But Boise, as the firm now calls itself, isn´t out of the woods —
figuratively or economically. Some analysts say the company should
get out of the timber business all together.

John Tumazos, an analyst with Prudential Securities in New York, said
Boise has carved out a very successful “niche” with its office products
division, a niche that has been able to prop up the more volatile and
cyclical nature of the company´s wood products and paper divisions.

Tumazos said it´s the paper and wood products divisions that have
been driving down shareholder value.

“Boise should be thought of as two separate and diverse companies,”
Tumazos said. “And I would suspect in five years you would see two
separate stocks and two separate companies.”

It´s not a new idea. Georgia Pacific Corp., a longtime rival,
announced two weeks ago that it was planning what it called “a
strategic separation” of its consumer products and packaging
business from its building products and distribution businesses.

Splitting up Boise Cascade, however, isn´t an option the company has considered, according
to company spokesman Mike Moser.

Part of the company´s strategy is the integration of its three operating divisions, making each
contribute to the success of the whole enterprise. Boise Cascade timberlands provide paper
and pulp for the company´s paper mills. And the paper mills provide the paper for the
company´s office products division.

Moser said the typically strong performance of Boise Cascade´s office products segment also
helps even out the earnings across the board for the company.

And most analysts agree that Boise Cascade — which remains the company´s official name
— is well positioned for the near-term future.

The company has already announced that it will report another quarter of losses, but
analysts say the it is expected to take a big jump in the latter half of 2002. Seven of the 12
analysts that cover the company now rate the stock a “buy” or “strong buy” in the upcoming
year. Most analysts believe the volatile paper and lumber products market has hit bottom and
prices should again be coming up. The target stock price for the year is also near $40,
compared to its current $35 level.

Bryon Korutz, a paper and forest products equity analyst with Standard and Poor´s, said he
maintains a “buy” rating for Boise Cascade because its strategy seems stronger than its
competitors.

“In 6 to 12 months, the company should be doing very well,” he said.

But at least part of that projected improvement is based on the cyclical nature of the timber
industry.

Analysts and company officials expect to see the market for wood and paper products
improve as the nation pulls itself out of recession.

The last two years have been bust years for timber products. And even if bust turns to boom,
there´s no reason to expect that the cycles won´t continue, and that another bust period will
follow.

That´s what happened in late 2000, when the company finally starting to see the benefits of
its strategy — a strategy that moved the company away from its manufacturing and forest
products roots to become a leader in office and building products distribution.

Sales were up, company stock was doing well and the future looked bright,.

Then came 2001. It was a year marked by the closure of its last two Idaho lumber mills,
continued sparring with environmental groups and a crashing economy.

Paper prices plummeted and demand for office products waned. Those factors, combined
with tough economy and the fallout from Sept. 11, haven´t allowed Boise Cascade — or any
company in the industry — to stand out.

“They (Boise Cascade) remain in the middle of the pack, slugging along in a difficult
environment,” said Steve Chercover, an analyst with D.A. Davidson in Portland.

The lower demand for the the company´s office products led to a drop in prices, which
impacted the company´s bottom line for 2001. Income for the year came in at $46.8 million for
the year compared to $121.3 million in 2000.

But now, on the eve of the company´s annual shareholder meeting, there´s a sense of
optimism at the Boise-based company.

In the last month, Boise Cascade has revamped its image by dropping Cascade from its
product brands and announced an end to old-growth timber harvesting — a practice that
sparked environmental protests in 2001.

The company is also continuing its progression from manufacturing to the distribution of
products, a move that analysts and company leaders say can only bring more value to
company shareholders.

Since 1994, when George Harad was first named chief executive officer, the company has
gradually increased its percentage of sales that come from distribution.In 1994 almost
two-thirds of the company´s income came from its manufacturing operations, but by 2001 the
picture had flipped — distribution accounted for two thirds of the company´s $7.9 billion in
sales.

“Boise Cascade office products performs splendidly with 4 to 5 percent profit margins,”
Tumazos said.

Although the office products division garners great praise there´s mixed opinions on the
paper and building products segments.

“I definitely feel it (office products) is a strong segment,” Korutz said. “And I definitely feel the
building products segment is not a great segment and paper is only a little bit better.”

Still a timber company

Despite the growing emphasis on office products and distribution, company officials say it
doesn´t mean the company will give up the harvest of timber.

“It´s an important part of our heritage, and it will remain in the core businesses of our
company,” said Susan Walton, director of corporate communications.

But even its timber operations are changing.

The company still owns 2.3 million acres of timber in six states, including Idaho. About 44
percent of Boise Cascade´s paper and building products are made from the company´s own
timber.

But the products coming out of Boise Cascade´s lumber mills differ from the products of the
past. Today the company is producing more of what it calls “value-added” products.

Value-added, an industry catch phrase, simply means products that have been enhanced to
serve a customer´s needs and in turn provide a better return on investment for the company.

Some of those products include I-beams for construction that are laminated from many
different types of wood and wood products rather than the solid lumber I-beams of the past.

This year the company also plans to open a new mill in Washington state that will make home
siding from recycled plastic grocery bags and packing material as well as waste wood from
things like pallets.

Moser said the company is using a patented process to bind the recycled wood and plastic
materials together into the siding product. The new mill should be in production by the third
quarter of this year, he said.

Although some analysts dismiss the company´s building products division, Chercover sees
value in the division.

“I think it´s been eclipsed by the office products,” Chercover said, “but the way I look at it, the
building products part is returning the cost of capital, so it´s a better piece of the puzzle.”

New products are also being introduced in the company´s paper division for distribution in its
office products division. One grade of paper that Moser said the company is excited about is
a new 100 percent recycled line that has just been introduced.

Analysts are also encouraged by Boise´s position in uncoated free sheet, the type of paper
that makes up the majority of people´s uses including copy paper. Boise has the largest
market share among its competitors in that grade of paper and could see a big boost when
paper prices pick up again, Korutz said.

Environmental issues

Recycled paper and siding not withstanding, some environmental groups continue to charge
that Boise Cascade isn´t being a good steward to the environment.

The company has been the target of numerous demonstrations in the last year at both its
Boise headquarters and its Ithaca, Ill., paper division headquarters. Environmental groups
have also been targeting many of Boise Cascade´s customers.

Most of the protests stem from the company´s stance on old-growth harvesting of trees. Until
last month, the company has harvested a limited amount of old growth timber, but Harad
announced in March that practice would be ending.

Company officials insist their decision to discontinue old-growth harvesting had very little to
do with the pressure from environmental groups.

“The primary reason that led to the decision is that only 1 percent of our wood fiber comes
from what most people call old growth and old growth has become less available,” Moser
said.

In the last year, Boise Cascade has lost two high profile contracts — outdoor clothing and
gear company Patagonia and copy shop giant Kinko´s. Environmentalists maintain the
contracts were lost because of Boise Cascade´s stance on old-growth harvest. Patagonia,
which bought office supplies from Boise Cascade, announced it was changing vendors
because of the company´s old-growth policies, but Kinko´s never confirmed that. And Boise
Cascade officials deny the Kinko´s contract was lost because of old growth.

”We win and lose bids all the time,” Harad said at the time.

Company analysts also don´t believe the old-growth issue has had a big impact on the
company´s bottom line, but they still credited the company for its decision.

Korutz said he was happy that logging of old growth is ending. ”But it was such a small part of
the company´s harvest that it´s not a dramatic change.”

To offer story ideas or comments, contact Ken Dey
[email protected] or 377-6428

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