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decision to shut down sawmills when markets are poor. In 

 contrast, we continue to run our pulp mill based on incremental 

 economic contribution considerations. 



It is true that the timber industry in Southeast Alaska 

 went through very difficult times in the first half of the 

 1980' s. There were many factors which combined to aggravate 

 and extend the down cycle. However, since 1985 the situation 

 has thankfully changed for the good. This dramatic change has 

 occurred for several reasons. Our situation during the early 

 1980 's was greatly aggravated by the inordinate escalation in 

 logging costs, which began in the early 1970 *s and continued 

 thereafter. A large part of the cost escalation was driven by 

 enactment of laws and implementation of regulations by Congress 

 and the Forest Service. Our analysis shows that the cost to 

 KPC alone of logging cost increases above general inflation 

 amounted to $155 million from 1970 through 1985. Since 1986 

 logging costs have been brought more in line. This has been 

 one of the key factors in our dramatic economic recovery. 



We have restructured our operations and costs internally so 

 that today we believe we are as competitive as we can be in 

 these areas. Forest Service appraisals, using regional average 

 data, in determining the stumpage rates for KPC's contract on 

 March 1, 1984 compared with August 1, 1988 show a $75 per MBF 

 (log scale basis) reduction in manufacturing costs for 

 conversion of logs to lumber and pulp. KPC has consistently 

 been an industry leader in developing economics of return on 

 the forest harvest. KPC's recent construction of its new small 



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