**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549** FORM 10-K

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

** **

**For the year endedDecember 31, 2006**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

** **

**For the****transitionperiod from                           to                     **

**CommissionFile Number:  333-122770**

**Boise Cascade Holdings, L.L.C.**

(Exact name of registrant as specified inits charter)

 

| **Delaware**                                                     |   | **20-1478587**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization)  |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **1111  West Jefferson Street  P.O. Box 50  Boise, Idaho 83728** |

 

**(208)384-6161**

(Registrant’stelephone number, including area code)

**Securitiesregistered pursuant to Section 12(b) of the Act:  None**

**Securitiesregistered pursuant to Section 12(g) of the Act:  None**

Indicate by check mark if registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.    Yes o    No x

Indicate by check mark if the registrant is not required tofile reports pursuant to Section 13 or Section 15(d) of the Act.    Yes x    No o

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.     Yes o     No x

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Large acceleratedfiler  o                             Acceleratedfiler  o                          Non-acceleratedfiler  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).      Yes o     No x

As of January 31,2007, the registrant did not have any voting or nonvoting equity held bynonaffiliates.

The registrant, a limitedliability company, has no common stock outstanding. Equity units issued andoutstanding on January 31, 2007, were as follows:
| **Series**                  | ** ** | **Units  Outstanding as of January 31, 2007** | ** ** |
|-----------------------------|------------|----------------------------------------------------|------------|
| Series A Common  Units |       | 66,000,000                                         |       |
| Series B Common  Units |       | 547,464,490                              |       |
| Series C Common  Units |       | 39,576,540                                         |       |

 

These units are neither registered nor publicly traded.

DOCUMENTS INCORPORATEDBY REFERENCE

None.

 

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**Table of Contents**

**PART I**
| Item 1.  |   | Business                                           |   | 1      |
|----------|--------|----------------------------------------------------|--------|--------|
|     |   | Corporate Structure                                |   | 2      |
|     |   | Building Materials Distribution                    |   | 2      |
|     |   | Wood Products                                      |   | 4      |
|     |   | Paper                                              |   | 6      |
|     |   | Packaging & Newsprint                          |   | 9      |
|     |   | Competition                                        |   | 11     |
|     |   | Environmental Issues                               |   | 13     |
|     |   | Capital Investment                                 |   | 13     |
|     |   | Seasonality                                        |   | 13     |
|     |   | Working Capital                                    |   | 13     |
|     |   | Acquisitions  and Divestitures                     |   | 13     |
|     |   | Employees                                          |   | 13     |
|     |   | Identification of Executive Officers               |   | 13     |
|     |   |                                               |   |   |
| Item 1A. |   | Risk Factors                                       |   | 14     |
|     |   |                                               |   |   |
| Item 1B. |   | Unresolved Staff Comments                          |   | 19     |
|     |   |                                               |   |   |
| Item 2.  |   | Properties                                         |   | 19     |
|     |   | Building Materials Distribution                    |   | 20     |
|     |   | Wood Products                                      |   | 20     |
|     |   | Paper                                              |   | 20     |
|     |   | Packaging & Newsprint                          |   | 21     |
|     |   |                                               |   |   |
| Item 3.  |   | Legal Proceedings                                  |   | 21     |
|     |   |                                               |   |   |
| Item 4.  |   | Submission of Matters to a Vote of Securityholders |   | 21     |

 

**PART II**
| Item 5.  |   | Market for Registrant’s Common Equity, Related  Stockholder Matters, and Issuer Purchases of Equity Securities |   | 22     |
|----------|--------|---------------------------------------------------------------------------------------------------------------------|--------|--------|
|     |   |                                                                                                                |   |   |
| Item  6. |   | Selected  Financial Data                                                                                            |   | 23     |
|     |   |                                                                                                                |   |   |
| Item 7.  |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                         |   | 25     |
|     |   | Acquisition of Assets From OfficeMax                                                                                |   | 25     |
|     |   | Effects of the Forest Products Acquisition                                                                          |   | 25     |
|     |   | Merger With Boise Land & Timber Holdings Corp.                                                                  |   | 27     |
|     |   | Our Segments                                                                                                        |   | 27     |
|     |   | Factors That Affect Our Operating Results                                                                           |   | 28     |
|     |   | Results of Operations                                                                                               |   | 33     |
|     |   | Recent Trends and Operational Outlook                                                                               |   | 41     |
|     |   | Industry Mergers and Acquisitions                                                                                   |   | 42     |
|     |   | Acquisitions                                                                                                        |   | 42     |
|     |   | Divestitures                                                                                                        |   | 42     |
|     |   | Liquidity and Capital Resources                                                                                     |   | 43     |
|     |   | Contractual Obligations                                                                                             |   | 49     |
|     |   | Off-Balance-Sheet  Activities                                                                                       |   | 50     |
|     |   | Guarantees                                                                                                          |   | 50     |
|     |   | Inflationary and Seasonal Influences                                                                                |   | 50     |
|     |   | Disclosures of Financial Market Risks                                                                               |   | 51     |
|     |   | Financial Instruments                                                                                               |   | 53     |
|     |   | Income Taxes                                                                                                        |   | 53     |
|     |   | Environmental                                                                                                       |   | 54     |
|     |   | Critical  Accounting Estimates                                                                                      |   | 55     |

ii

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|           |   | New and Recently Adopted Accounting Standards                                            |   | 61     |
|-----------|--------|------------------------------------------------------------------------------------------|--------|--------|
|      |   | Non-GAAP  Financial Measures                                                             |   | 62     |
|      |   |                                                                                     |   |   |
| Item 7A.  |   | Quantitative and  Qualitative Disclosures About Market Risk                              |   | 64     |
|      |   |                                                                                     |   |   |
| Item 8.   |   | Consolidated Financial Statements                                                        |   | 65     |
|      |   | Notes to Consolidated Financial Statements                                               |   | 70     |
|      |   | 1.    Summary of Significant Accounting Policies                     |   | 70     |
|      |   | 2.    Purchase of OfficeMax’s Forest Products and Paper  Assets |   | 75     |
|      |   | 3.    Merger With Boise Land & Timber Holdings Corp.             |   | 76     |
|      |   | 4.    Purchase of Central Texas Corrugated’s Assets             |   | 77     |
|      |   | 5.    Transactions With Related Parties                              |   | 78     |
|      |   | 6.    Other  (Income) Expense, Net                                   |   | 80     |
|      |   | 7.    Leases                                                         |   | 80     |
|      |   | 8.    Income  Taxes                                                  |   | 81     |
|      |   | 9.    Receivables                                                    |   | 83     |
|      |   | 10.  Investment in Equity Affiliate                                            |   | 83     |
|      |   | 11.  Goodwill and Intangible Assets                                            |   | 84     |
|      |   | 12.  Asset Retirement Obligations                                              |   | 85     |
|      |   | 13.  Debt                                                                      |   | 86     |
|      |   | 14.  Financial  Instruments                                                    |   | 88     |
|      |   | 15.  Retirement and Benefit Plans                                              |   | 90     |
|      |   | 16.  Redeemable  Equity Units                                                  |   | 94     |
|      |   | 17.  Capital                                                                   |   | 98     |
|      |   | 18.  Segment  Information                                                      |   | 100    |
|      |   | 19.  Commitments and Guarantees                                                |   | 106    |
|      |   | 20.  Consolidating Guarantor and Nonguarantor Financial  Information           |   | 108    |
|      |   | 21.  Legal Proceedings and Contingencies                                       |   | 119    |
|      |   | 22.  Quarterly Results of Operations (unaudited)                               |   | 119    |
|      |   |                                                                                     |   |   |
|      |   | Report of Independent Registered Public Accounting  Firm                                 |   | 120    |
|      |   |                                                                                     |   |   |
| Item 9.   |   | Changes In and Disagreements With Accountants on  Accounting and Financial Disclosure    |   | 121    |
|      |   |                                                                                     |   |   |
| Item 9A.  |   | Controls and Procedures                                                                  |   | 121    |
|      |   |                                                                                     |   |   |
| Item  9B. |   | Other  Information                                                                       |   | 121    |

 

**PART III**
| Item 10. |   | Directors, Executive Officers, and Corporate  Governance                                        |   | 122    |
|----------|--------|-------------------------------------------------------------------------------------------------|--------|--------|
|     |   |                                                                                            |   |   |
| Item 11. |   | Executive Compensation                                                                          |   | 125    |
|     |   |                                                                                            |   |   |
| Item 12. |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   | 142    |
|     |   |                                                                                            |   |   |
| Item 13. |   | Certain Relationships and Related Transactions, and  Director Independence                      |   | 144    |
|     |   |                                                                                            |   |   |
| Item 14. |   | Principal Accounting Fees and Services                                                          |   | 147    |

 

**PART IV**
| Item 15. |       | Exhibits and Financial Statement Schedules |       | 149        |
|----------|------------|--------------------------------------------|------------|------------|
|     |       |                                       |       |       |
|     |       | Signatures                                 |       | 150        |
|     |       |                                       |       |       |
|     |       | Index to Exhibits                          |       | 151        |
|     | ** ** | ** **                                 | ** ** | ** ** |
|     |       | Certifications                             |       |       |

 

iii

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**PART 1**

We have publiclytraded, registered debt securities, which require us to file reports with theSecurities and Exchange Commission (SEC). All of our SEC filings, which includethis Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,Registration Statements, Current Reports on Form 8-K, and allrelated amendments are available free of charge via Electronic Data GatheringAnalysis and Retrieval (EDGAR) through the SEC website at www.sec.gov. We alsoprovide copies of our SEC filings at no charge upon request and make electroniccopies of our reports available through our website at www.bc.com as soon asreasonably practicable after we file or furnish such reports to the SEC.Attached as exhibits to this Form 10-K are certifications of ourChief Executive Officer and Chief Financial Officer required underSection 302 of the Sarbanes-Oxley Act of 2002.

***ITEM 1.             BUSINESS***

As used in this 2006 AnnualReport on Form 10-K, the term “Boise” means Boise Cascade Holdings,L.L.C. and its consolidated subsidiaries and, where the context relates toperiods prior to the acquisition of OfficeMax Incorporated’s (OfficeMax) forestproducts and paper assets, to their predecessors in interest. The terms “BoiseForest Products Operations” and “predecessor” refer to the results of theforest products and paper assets of OfficeMax that we acquired onOctober 29, 2004 (inception) from OfficeMax. OfficeMax was formerly knownas Boise Cascade Corporation. We acquired the names “Boise” and “Boise Cascade”as part of the acquisition of OfficeMax’s forest products and paper assets (theForest Products Acquisition). The terms “we,” “us,” and “our” mean Boise withrespect to periods after the Forest Products Acquisition and Boise ForestProducts Operations with respect to periods prior to the Forest ProductsAcquisition. See Note 2, Purchase of OfficeMax’s Forest Products and PaperAssets, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K for more information related to the Forest ProductsAcquisition.

The consolidated financial statements present thefinancial results of Boise for the years ended December 31, 2006 and 2005,and the period of October 29 (inception) through December 31, 2004,and the results of OfficeMax’s forest products operations for the period ofJanuary 1 through October 28, 2004. When we refer to the 2004 resultsin this Form 10-K, we are referring to the entire year, both theperiod owned by the predecessor company and the period owned by Boise.

We are a diversified North American paper and forestproducts company. We are headquartered in Boise, Idaho. We operate our businessin the following five reportable segments: Building Materials Distribution, Wood Products, Paper,Packaging & Newsprint, and Corporate and Other (support staffservices). We present information pertaining to each of our five segments andthe geographic areas in which they operate in Note 18, SegmentInformation, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K.

1

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***Corporate Structure***

The following chart summarizes ourcorporate structure and equity ownership at December 31, 2006 (based onvoting power):

###### ***BuildingMaterials Distribution***

# *Products*

Weare a leading national inventory-carrying wholesale distributor of buildingmaterials. We distribute a broad line of building materials, includingengineered wood products (EWP), oriented strand board (OSB), plywood, lumber,and general line items such as framing accessories, composite decking, roofing,siding, and insulation. We purchase most of these building materials fromthird-party suppliers and market them primarily to customers that resellbuilding materials to professional builders in the residential, light commercialconstruction, and repair-and-remodeling markets. In 2006, EWP sales generated16% of revenue in this segment. We believe our broad product line provides ourcustomers with a one-stop resource for their needs and lowers per-unit freightcosts. We also have expertise in special-order sourcing and merchandisingsupport, and our nationwide supplier relationships allow us to offer excellentcustomer service on top brands in the building materials industry.

2

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The followingtable sets forth segment sales and earnings before interest, taxes,depreciation, and amortization (EBITDA) for the periods indicated:
| ** ** | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** ** | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through ** | ** ** | **January 1  through ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** ** | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** ** | ** ** | **(millions)**                            | ** ** |
| Sales      |       | $                                         | 2,950.3    |                  | $          | 3,052.3 |   | $ | 401.7 |   | $ | 2,442.4 |   | $ | 2,047.8 |   | $ | 1,696.1 |   |
|       |       |                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| EBITDA (a) |       | 84.6                                      |       | 109.0                 |       | 11.6 |   | 84.9 |   | 54.8 |   | 32.2 |   |
|            |            |                                           |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)                                  For more information about our use of EBITDA,see “Non-GAAP Financial Measures” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

# *Facilities*

We operate 29 wholesale building materials distribution facilitieslocated strategically throughout the United States. Since 2000, we haverelocated or expanded several facilities. This expansion has occurred throughboth acquisitions and organic growth. We increased our national footprint byadding two facilities in California, one in 2002 and another in 2005. We alsoadded a facility in Ohio during 2003. We are currently in the process of addinga location in northern Florida that we expect to be operational by the end offirst quarter 2007.

# *RawMaterials and Input Costs*

We purchase the majority of the building materials wedistribute from third-party suppliers. Approximately 30% of the lumber,commodity panels, and engineered wood products purchased by Building MaterialsDistribution during 2006 were purchased from our Wood Products segment. Our vendorbase includes over 1,300 suppliers. We generally do not have long-termsupply contracts with our vendors. This flexibility and our national presenceallow us to obtain favorable price and term arrangements.

# *Sales,Marketing, and Distribution*

Utilizing centralized information systems, each ofour distribution centers implements its own distribution and logistics modeltailored to the customers it serves. We operate a fleet of trucks to delivermaterials on a regularly scheduled basis. We have a large decentralized salesforce able to use timely and accurate market information and local productknowledge to support customers.

# *Customers*

Our customer basein this segment includes a wide range of customers across multiple marketsegments and various end markets. In 2006, a majority of our sales in thissegment were to “pro dealers,” retail distributors that sell building materialsto professional builders in the residential, light commercial construction, andrepair-and-remodeling markets. We also service retail lumberyards, homeimprovement centers, and other industrial accounts.

# *Business**Plan*

Weintend to continue to expand our building materials distribution network intonew geographic markets and to grow in our existing markets. Since 2000, we have relocated or expandedseveral facilities, mostly in the eastern United States. Sales in thissegment have grown from $1.6 billion in 2001 to almost $3.0 billionin 2006. The business has grown successfully by acquiring facilities, openingnew locations, relocating and expanding existing facilities, and capturinglocal market share through superior customer service.

3

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***Wood Products***

# *Products*

Overthe past ten years, we have shifted our product focus from commodity products,such as plywood and lumber, to EWP, which has more stable prices and highermargins. We are a leading producer of EWP, consisting of laminated veneerlumber (LVL), a high-strength engineered lumber often used in beams; I-joists,a structural support typically used in floors and roofs; and laminated beams.We believe we are the second-largest EWP manufacturer in North America, with anestimated market share of approximately 20% in 2006. EWP accounted for 47% ofour sales in this segment in 2006. As a result of growth in new housingconstruction and substitution trends away from traditional wide-dimensionlumber to EWP, our EWP sales grew from 1998 through 2006 at a compound annualrate of 16%. We continue to produce plywood, particleboard, dimension lumber,and high-quality ponderosa pine lumber, a premium lumber grade sold tomanufacturers of specialty wood windows, moldings, and doors and as boards fora variety of end uses. Our wood products are used in new residential and lightcommercial construction, in residential repair and remodeling, and in someindustrial uses such as furniture and cabinets.

The following table setsforth segment sales and EBITDA for the periods indicated:
| ** **     | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **     | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **     | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **     | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **     | ** ** | **(millions)**                            | ** ** |
| Sales          |       | $                                         | 1,155.9    |                  | $          | 1,294.4 |   | $ | 200.1 |   | $ | 1,159.9 |   | $ | 1,115.7 |   | $ | 1,004.2 |   |
|           |       |                                      |       |                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| EBITDA (a) (b) |       | 64.9                                      |       | 142.4                 |       | 18.9 |   | 226.5 |   | 77.7 |   | 37.1 |   |
|                |            |                                           |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)                                  The period of January 1 throughOctober 28, 2004, included a $46.5 million pretax gain for the saleof our predecessor’s 47% interest in Voyageur Panel.

(b)                                 For more information about our use of EBITDA,see “Non-GAAP Financial Measures” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

# *Facilities*

We currently operate an integrated network ofthree EWP facilities and ten plywood and veneer plants, eight ofwhich manufacture inputs used in our EWP facilities. We also operatefive sawmills and one particleboard plant. The following table listsannual capacities of our Wood Products facilities as of December 31, 2006,and production for the year then ended (excluding our Independence, Oregon,veneer plant, which was closed in January 2007):
| ** **                                               | ** ** | **Number  of Mills** | ** ** | **Capacity (a)** | ** ** | **Production** | ** ** |
|----------------------------------------------------------|------------|---------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                                               | ** ** | ** **                | ** ** | **(millions)**        | ** ** |
| Engineered wood  products (EWP) (b)                 |       | 3                         |       |                  |       |           |       |
| Laminated veneer lumber (LVL) (cubic feet)               |       |                      |       | 27.5                  |       | 18.7           |       |
| I-joists (equivalent lineal feet)                        |       |                      |       |                  |       | 202            |       |
| Plywood and  veneer (sq. ft.) (3/8” basis) (c) |       | 9                         |       | 1,600                 |       | 1,546          |       |
| Lumber (board  feet)                                     |       | 5                         |       | 270                   |       | 244            |       |
| Particleboard  (sq. ft.) (3/4” basis)               |       | 1                         |       | 170                   |       | 158            |       |
| Brazilian veneer (sq.  ft.) (3/8” basis) (d)   |       | 1                         |       | 170                   |       | 153            |       |

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(a)                                  Capacity is production assuming normal operating shiftconfigurations. Accordingly, production can exceed capacity under someoperating conditions.

(b)                                 A portion of LVL production is used tomanufacture I-joists at two EWP plants. Capacity is based on LVL productiononly. In 2006, we increased capacity by 2.5 million cubic feet, a 10%increase, compared with 2005.

4

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(c)                                  Production and capacity applicable to plywood only.Approximately 22% of the plywood we produced in 2006 was utilized internally toproduce EWP.

(d)                                 Most of the veneer is used for production of LVL at ourplant in Alexandria, Louisiana. The remainder is processed into plywood inBrazil or sold in the open market.

*Raw Materials and Input Costs*

Ourdomestic plywood and veneer facilities use Douglas fir, white woods, and pinelogs as raw materials. We use ponderosa pine, spruce, and white fir logs tomanufacture various grades of lumber. Our EWP facilities in Louisiana andOregon use veneers and parallel-laminated veneer panels produced by ourfacilities and purchased from third parties, together with OSB purchased fromthird parties, to manufacture LVL and I-joists. Our manufacturing facilitiesare located in close proximity to active wood markets. We have long-termmarket-based contracts for a significant portion of our fiber needs. Other importantmaterials used to manufacture and prepare our wood products for sale includeresins, adhesives, plastic strapping, and lumber wrap, which we purchase bothon the open market and through long-term contracts.

# During 2006, energy, primarily electricity, natural gas, and fuel oil,accounted for approximately 4% of the sum of our materials, labor, and otheroperating expenses, including fiber costs, in this segment. We purchasesubstantial portions of our natural gas and electricity under supply contracts,most of which are with local providers in regions in which our facilities arelocated. Our gas contracts have pricing mechanisms based primarily on currentmarket prices, and our electricity contracts have pricing mechanisms basedprimarily on published tariffs. In addition, we also use derivativeinstruments such as natural gas swaps, options, or a combination of theseinstruments to mitigate price risk. For more information about our derivativeinstruments, see “Disclosures of Financial Market Risks” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

*Sales,Marketing, and Distribution*

Sales of plywood, lumber, and particleboard are managed centrally byproduct. Our EWP sales force is managed centrally through a main office thatoversees regional sales teams. Our sales force provides a variety of technicalsupport services for our EWP, including integrated design, engineering, productspecification software, distributor inventory management software, and job-packpreparation systems.

The following table lists sales volumes for our WoodProducts facilities for the periods indicated:
| ** **                                       | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **                                       | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                       | ** ** | **(millions)**                            | ** ** |
| Laminated veneer  lumber (LVL) (cubic feet) |       | 12.1                                      |       | 12.3                  |       | 1.8 |   | 10.1 |   | 9.8 |   | 7.8 |   |
| I-joists  (equivalent lineal feet)               |       | 219                                       |       | 243                   |       | 31 |   | 192 |   | 200 |   | 166 |   |
| Plywood (sq.  ft.) (3/8” basis)             |       | 1,268                                     |       | 1,328                 |       | 243 |   | 1,228 |   | 1,655 |   | 1,603 |   |
| Lumber (board  feet)                             |       | 277                                       |       | 327                   |       | 60 |   | 303 |   | 364 |   | 395 |   |
| Particleboard (sq. ft.)  (3/4” basis)       |       | 157                                       |       | 165                   |       | 22 |   | 134 |   | 153 |   | 189 |   |

 

# *Customers*

Our Building Materials Distribution segment is ourWood Products segment’s largest customer, representing approximately 38% of itsoverall sales, including approximately 60% of its EWP sales, in 2006. Ourthird-party customers in this segment include wholesalers, major retailers, andindustrial converters in both domestic and export markets.

5

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*BusinessPlan*

We plan to further expand our market position in EWP.We believe EWP will continue to gain market share from traditional buildingproducts and that margins for EWP, over time, will continue to exceed those formost commodity wood-based building products. We are focused on leveraging ourcompetitive cost structure, comprehensive customer service offering, designsupport capabilities, and efficient distribution network to continue to gainmarket share among homebuilders, building products retailers, and otherdistributors. To that end, we have increased LVL capacity7.5 million cubic feet, which represents a 38% increase since 2004. Thiscapacity provides a platform to further expand our presence in EWP.

###### ***Paper***

# *Products*

We manufacture andsell uncoated free sheet (including cut-size office papers, commercial printingpaper, envelope papers, and a wide range of value-added papers), market pulp,and containerboard (corrugating medium). Many of our paper products are commodityproducts, while others have specialized features that make these productsvalue-added. Our value-added grades include high-bright and colored cut-sizeoffice papers and custom-developed specialty papers for such uses as label andrelease. We sell to customers both directly from our mills and throughdistribution centers. In 2006, we were the fourth-largest manufacturer ofuncoated free sheet in North America, with annual uncoated free sheetproduction capacity of approximately 1.5 million short tons (a short tonis equal to 2,000 pounds) and market share of approximately 11% in 2006. During2006, uncoated free sheet accounted for approximately 88% of segment sales.

Thefollowing table sets forth segment sales and EBITDA for the periods indicated:
| ** ** | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** ** | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** ** | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** ** | ** ** | **(millions)**                            | ** ** |
| Sales      |       | $                                         | 1,494.7    |                  | $          | 1,417.8 |   | $ | 230.1 |   | $ | 1,140.4 |   | $ | 1,257.1 |   | $ | 1,285.1 |   |
|       |       |                                      |       |                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| EBITDA (a) |       | 125.4                                     |       | 112.6                 |       | 27.3 |   | 83.1 |   | 112.6 |   | 174.5 |   |
|            |            |                                           |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)                                  For more information about our use of EBITDA,see “Non-GAAP Financial Measures” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

Ourcommodity-grade paper products are produced primarily on our larger papermachines in long, high-volume production runs that achieve economies of scale.On our smaller paper machines, our cost-competitively manufactured value-addedgrades are displacing the production of commodity grades. Value-added gradestend to require shorter production runs, generate higher and more stableprices, and have higher margins over time. Sales volumes of value-added grades increased14%, from 436,000 tons in 2005 to 498,000 tons in 2006. Thisincreased focus on value-added grades is an important component of ourstrategy. In support of this strategy, we are spending approximately$70 million to modify our uncoated free sheet paper machine at ourWallula, Washington, mill, which currently produces a variety of commoditypaper grades, to enable it to produce pressure sensitive papers as well ascommodity grades. As of December 31, 2006, spending on this projecttotaled $34 million. We expect to spend the remaining amount in 2007.

We generally sell market pulp in quantities approximately equal to themarket pulp we purchase; therefore, any market price and cost changes generallytend to offset one another. We also benefit from long-term pulp supplycontracts at our mills that buy market pulp. We produce corrugating medium for use in ourPackaging & Newsprint segment.

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*Facilities*

We manufacture our uncoated free sheet paper atfour mills in the United States. These mills had an annual capacity of1.5 million short tons of uncoated free sheet as of December 31,2006. Our uncoated free sheet paper mills are supported byconverting machines that, on a net basis, can produce approximately1 million short tons of cut- and folio-size sheets annually. Thisincludes approximately 0.2 million tons of capacity from our Salem,Oregon, converting operations, which we plan to close by the end of thirdquarter 2007.

The following table sets forth the annual capacities ofmanufacturing locations in our Paper segment as of December 31, 2006, andproduction for the year then ended:

|                                 | ** ** | **Number of  Machines** | ** ** | **Capacity (a)** | ** ** | **Production** | ** ** |
|---------------------------------|------------|------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                      | ** ** | ** **                   | ** ** | **(short tons)** | ** ** |
| **PULP  AND PAPER MILLS**       |       |                         |       |                  |       |           |       |
| Jackson, Alabama                |       |                         |       |                  |       |           |       |   |
| Uncoated free sheet             |       | 2                            |       | 495,000               |       | 498,000        |       |   |
| International Falls,  Minnesota |       |                         |       |                  |       |           |       |   |
| Uncoated free sheet             |       | 4                            |       | 548,000               |       | 524,000        |       |   |
| St. Helens,  Oregon             |       |                         |       |                  |       |           |       |   |
| Uncoated free sheet             |       | 3                            |       | 268,000               |       | 261,000        |       |   |
| Market pulp                     |       | —                       |       | 94,000                |       | 69,000         |       |
| Wallula,  Washington            |       |                         |       |                  |       |           |       |
| Uncoated free sheet             |       | 1                            |       | 236,000               |       | 237,000        |       |
| Market pulp                     |       | 1                            |       | 130,000               |       | 118,000        |       |
| Containerboard (medium)         |       | 1                            |       | 134,000               |       | 132,000        |       |
|                            | ** ** | **12**                       | ** ** | **1,905,000**         | ** ** | **1,839,000**  | ** ** |
|                            |       |                         |       |                  |       |           |       |
| **ANNUAL  CAPACITY BY PRODUCT** |       |                         |       |                  |       |           |       |
| Uncoated free  sheet            |       |                         |       | 1,547,000             |       |           |       |
| Containerboard  (medium)        |       |                         |       | 134,000               |       |           |       |
| Market pulp                     |       |                         |       | 224,000               |       |           |       |
|                            |       |                         | ** ** | **1,905,000**         |       |           |       |

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(a)                                  Capacityassumes production 24 hours perday, 365 days per year, less days allotted for planned maintenance.Accordingly, production can exceed capacity under some operating conditions. 

*Raw Materialsand Input Costs*

Wood fiber is ourprincipal raw material in this segment. The primary sources of wood fiber aretimber and its byproducts, such as wood chips, wood shavings, and sawdust. Mostof our manufacturing facilities are located in close proximity to active woodmarkets. We have long-term market-based contracts for a portion of our fiberneeds. We obtain some of our wood residuals from our sawmills and wood productsfacilities in the Pacific Northwest and, to a lesser extent, in the South, andthe remainder are purchased from outside sources. We also obtain fiber for ourpulp mills in the Pacific Northwest from our cottonwood fiber farm nearWallula, Washington.

All of our paper mills haveon-site pulp production facilities. Some of our paper mills also purchase pulpfrom third parties. In addition to wood fiber and market pulp, we purchasewastepaper to convert into recycled pulp for use in our paper products. Otherimportant raw materials used in this segment include precipitated calcium carbonate,sodium chlorate, sodium hydroxide, and dyes.

We generally purchase rawmaterials through contracts or open-market purchases. Our contracts aregenerally with suppliers located in closest proximity to the specific facilitythey supply, and they generally contain price adjustment mechanisms to accountfor market price and expense volatility.

# Our Paper segment consumes substantial amounts ofenergy, such as electricity, natural gas, and fuel oil. During 2006, energycosts accounted for approximately 15% of the aggregate amount of materials,labor, and other operating expenses, including fiber costs, in this segment. Wepurchase substantial portions of our natural gas and electricity under supplycontracts, most of which are between a specific plant and a specific localprovider. Under most of these contracts, the providers are bound to provide uswith all of our needs for a particular type of energy at a specific facility.Most of these contracts have pricing mechanisms that adjust or set prices basedon current market prices. In addition, we also 

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# usederivative instruments such as natural gas swaps, options, or a combination ofthese instruments to mitigate price risk. For more information about ourderivative instruments, see “Disclosures of Financial Market Risks” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

# *Sales,Marketing, and Distribution*

Our uncoated free sheet is sold primarily by our own sales personnel. Wesell to customers both directly from our mills and through distributioncenters. This allows us to respond quickly to customer demands. In 2006, weprocessed a majority of our uncoated free sheet orders electronically, eitherover the Internet or using Electronic Data Interchange, a computer-to-computerpurchase ordering and tracking system.

The followingtable sets forth sales volumes of paper and paper products for the periodsindicated:
| ** **               | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|--------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **               | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **               | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **               | ** ** | **(millions)**                            | ** ** |
| Uncoated free  sheet     |       | 1,497                                     |       | 1,516                 |       | 246 |   | 1,249 |   | 1,396 |   | 1,425 |   |
| Containerboard  (medium) |       | 132                                       |       | 128                   |       | 23 |   | 110 |   | 126 |   | 123 |   |
| Market pulp and  other   |       | 112                                       |       | 142                   |       | 27 |   | 138 |   | 146 |   | 179 |   |
|                     | ** ** | **1,741**                                 | ** ** | **1,786**             | ** ** | **296** | ** ** | **1,497** | ** ** | **1,668** | ** ** | **1,727** | ** ** |

 

*Customers*

Ourlargest customer in this segment is OfficeMax. In 2006, sales to OfficeMaxaccounted for $575.4 million of paper segment sales, including 45% of ouruncoated free sheet sales volume and 80% of our office papers sales volume. InOctober 2004, OfficeMax agreed to purchase from us its full North Americanrequirements for cut-size office paper, to the extent we choose to supply suchpaper to them, through December 2012. The price for paper sold under thissupply agreement approximates market prices. OfficeMax’s purchase obligationsunder the agreement will phase out over a four-year period beginning one yearafter the delivery of notice of termination, but not prior to December 31,2012. This supply agreement provides us with access to one of North America’slargest office products sales and distribution networks, giving us acompetitive advantage from the perspective of market access and customersupply-chain management.

In addition to OfficeMax, wehave approximately 800 uncoated free sheet paper customers, none of whichindividually represents a material portion of our sales. Our customers includepaper merchants, commercial and financial printers, paper converters such asenvelope and form manufacturers, and customers who use our paper for specialtyapplications such as label and release products. The majority of thesecustomers purchase products through individual purchase orders. In addition toour paper supply agreement with OfficeMax, we have long-term relationships withother customers, although no single relationship, other than the one withOfficeMax, is material to our business.

*Business Plan*

We plan to workclosely with our customers to develop and manufacture innovative value-addedpapers and service programs that respond to their changing needs and technicalrequirements. On our smaller machines, we will continue to displace theproduction of commodity grades with higher-margin value-added grades, which webelieve we can produce at competitive costs. By leveraging our existingcustomer relationships, design capabilities, competitive cost position, andefficient logistics network, we seek to become a leading North Americansupplier of value-added papers. In support of this strategy, we are spendingapproximately $70 million to modify our uncoated free sheet paper machineat our Wallula, Washington, mill, which currently produces a variety ofcommodity paper grades, to enable it to produce pressure sensitive papers aswell as commodity grades.

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Our long-termsupply agreement with OfficeMax allows us to focus our largest paper machineson producing commodity products in long, high-volume production runs. Thisrelationship allows us to continue to improve the capacity utilization of ourlargest paper machines, leverage supply-chain efficiencies, and develop andtest product and packaging innovations. We plan to leverage the expertisedeveloped in this relationship to better serve our other customers and developnew customers and products while pursuing productivity improvements and costreductions.

###### ***Packaging& Newsprint***

# *Products*

Wemanufacture and sell containerboard (linerboard) and corrugated containers andsheets, as well as newsprint. The following table sets forth segment sales andEBITDA for the periods indicated:
| ** ** | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** ** | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** ** | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** ** | ** ** | **(millions)**                            | ** ** |
| Sales      |       | $                                         | 766.5      |                  | $          | 731.6 |   | $ | 128.9 |   | $ | 565.6 |   | $ | 638.1 |   | $ | 633.4 |   |
|       |       |                                      |       |                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| EBITDA (a) |       | 96.1                                      |       | 61.0                  |       | 13.3 |   | 33.5 |   | 25.4 |   | 18.4 |   |
|            |            |                                           |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)                                  For more information about our use of EBITDA,see “Non-GAAP Financial Measures” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

Containerboard is used in the production of corrugated containers andsheets. Our corrugated containers are used in the packaging of fresh fruit andvegetables, processed food, beverages, and other industrial and consumerproducts. Corrugated sheets are primarily sold to converters who finish thesheets into corrugated container products. During 2006, we producedapproximately 554,000 short tons of linerboard and our Paper segmentproduced approximately 132,000 tons of corrugating medium. Our corrugatedcontainer and sheet plants consumed approximately 505,000 tons ofcontainerboard or the equivalent of 74% of our containerboard production.

Wemanufactured approximately 415,000 tons of newsprint during 2006,primarily for use in printing daily newspapers and other publications in NorthAmerica.

# *Facilities*

Wemanufacture containerboard (linerboard) and newsprint at our mill in DeRidder,Louisiana. This mill is one of the largest paper mills in North America, withan approximate annual production capacity of 1 million short tons as ofDecember 31, 2006. We also manufacture corrugated containers and sheets atfive plants in the Northwest and one sheet feeder plant in Texas, with anaggregate annual capacity of approximately 9.3 billion square feet, basedon operating the plants five days a week, 24 hours a day.

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The following table sets forth annual capacities ofour containerboard (linerboard) and newsprint mill in DeRidder, Louisiana, asof December 31, 2006, and production for the year then ended:

|                             | ** ** | **Number of  Machines** | ** ** | **Capacity (a)** | ** ** | **Production** | ** ** |
|-----------------------------|------------|------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                  | ** ** | ** **                   | ** ** | **(short tons)**      | ** ** |
| **PULP  AND PAPER MILL**    |       |                         |       |                  |       |           |       |
| DeRidder,  Louisiana        |       |                         |       |                  |       |           |       |
| Containerboard (linerboard) |       | 1                            |       | 559,000               |       | 554,000        |       |
| Newsprint                   |       | 2                            |       | 426,000               |       | 415,000        |       |
|                        | ** ** | **3**                        | ** ** | **985,000**           | ** ** | **969,000**    | ** ** |

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(a)                                  Capacity assumes production 24 hours per day,365 days per year, less days allotted for planned maintenance.

# *RawMaterials and Input Costs*

Woodfiber is the principal raw material in this segment. The primary sources ofwood fiber are timber and its byproducts, such as wood chips, wood shavings,and sawdust. Our DeRidder manufacturing facility is located in close proximityto active wood markets. We have long-term market-based contracts for asignificant portion of our fiber needs. We obtain some of our wood residualsfrom our wood products plants in the South, and the remainder are purchasedfrom outside sources.

Wegenerally purchase raw materials through contracts or open-market purchases.Our contracts are generally with suppliers located in close proximity to thespecific facility they supply, and they generally contain price adjustmentmechanisms to account for market price and expense volatility.

# Our Packaging & Newsprint segment consumes substantial amountsof energy, such as electricity and natural gas. During 2006, energy costsaccounted for approximately 15% of the sum of materials, labor, and otheroperating expenses, including fiber costs, in this segment. We purchasesubstantial portions of our natural gas and electricity under supply contracts.Under most of these contracts, the providers are bound to supply us with all ofour needs for a particular type of energy at a specific facility. Our gascontracts have pricing mechanisms based primarily on current market prices, andour electricity contracts have pricing mechanisms based primarily on publishedtariffs. We also use derivative instruments such as natural gasswaps, options, or a combination of these instruments to mitigate price risk.For more information about our derivative instruments, see “Disclosures ofFinancial Market Risks” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” of this Form 10-K.

*Sales,Marketing, and Distribution*

Ourcontainerboard (linerboard) and corrugated containerboard and corrugatedproducts are sold by brokers or our own sales personnel. We market ournewsprint through Abitibi-Consolidated (Abitibi) pursuant to an arrangement,whereby Abitibi purchases all of the newsprint we produce at a price equal tothe price Abitibi’s mills in the southern United States receive from customers,less associated expenses and a sales and marketing discount. The newsprintprice is verified through a third-party review. Abitibi is one of the world’slargest producers and marketers of newsprint. It sells our newsprint primarilyin regional markets near our DeRidder, Louisiana, manufacturing facility. Ourcontract with Abitibi expires in 2008. The agreement automatically renews forone additional five-year term unless either party terminates the agreement atthe end of the initial term or at any time during the renewal term on one year’sprior written notice.

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Thefollowing table sets forth sales volumes of containerboard (linerboard), newsprint,and corrugated containers and sheets for the periods indicated:
|                                   | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **                        | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                        | ** ** | **(thousands of short tons)**             | ** ** |
| Containerboard (linerboard)  (a)  |       | 266                                       |       | 452                   |       | 81 |   | 382 |   | 451 |   | 479 |   |
| Newsprint                         |       | 411                                       |       | 408                   |       | 81 |   | 349 |   | 416 |   | 406 |   |
| ** **                        | ** ** | **(millions of square feet)**             | ** ** |
| Corrugated containers and  sheets |       | 6,599                                     |       | 4,770                 |       | 787 |   | 3,876 |   | 4,591 |   | 4,463 |   |

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(a)                                  Includes the impact of adopting Emerging Issues Task Force(EITF) 04-13, *Accounting for Purchasesand Sales of Inventory With the Same Counterparty*, effectiveJanuary 1, 2006, which required us to report our inventory buy/selltransactions on a net basis. In accordance with the provisions of EITF 04-13,prior-period financial information has not been reclassified to conform withthe current period’s presentation. See Note 1, Summary of SignificantAccounting Policies, of the Notes to the Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K for more information.

*Customers*

During 2006, we soldapproximately 48% of our linerboard in the open market, of which approximately24% was sold domestically. We sell our corrugated containers to over1,000 active customers, including large agricultural producers and foodand beverage processors. We sell corrugated sheets to over 200 converters whouse the sheets to manufacture corrugated containers for a variety of customers.We sell all of our newsprint to Abitibi, which sells to newspaper publisherslocated near our mill.

*Business Plan*

We operate our Packaging &Newsprint business segment to optimize cash flow through integration betweenour containerboard and converting operations and operational improvements inour facilities to lower costs and improve efficiency. The acquisition ofCentral Texas Corrugated (CTC) in February 2006 is a significant step in increasingour integration. We are a relatively small producer of newsprint, which is soldthrough Abitibi-Consolidated, one of the largest manufacturers of newsprint inthe world.

***Competition***

Themarkets in each of our business segments are large and highly competitive. Ourproducts and services compete with similar products manufactured anddistributed by others. Many factors influence our competitive position in eachof our operating segments. Those factors include price, service, quality,product selection, and convenience of location.

Some of our competitors in each of our segments are larger than we areand have greater financial resources. These resources afford those competitorsgreater purchasing power, increased financial flexibility, and more capitalresources for expansion and improvement, which may enable those competitors tocompete more effectively than we can.

*Building Materials Distribution*.  Thebuilding materials distribution markets in which we operate are highlyfragmented, and we compete in each of our geographic and product markets withnational, regional, and local distributors. We compete on the basis of deliverycost and speed, quality of service, and compatibility with customers’ needs,and our competition consists of distributors of all types of buildingmaterials. We compete with other national inventory-carrying distributors aswell as wholesale brokers and buying cooperatives, some of which have salesgreater than ours and/or have more extensive relationships with professional builders.If one or more of these competitors are able to leverage geographic coverageand/or customer relationships into new markets, our growth strategy in this 

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segment could be negativelyimpacted. In recent years, there has been consolidation amonghomebuilders, pro dealers, and big box retailers. As the customer baseconsolidates, this dynamic could impact our ability to maintain margins. Proximityto customers is an important factor inminimizing shipping costs and facilitating quick order turnaround and on-timedelivery. We believe our ability to obtain quality materials, from bothinternal and external sources, and our focus on customer service are ourprimary competitive advantages in this segment.

*Wood Products*.  Ourmarkets in this segment are large and highly competitive. There are severalmajor producers of most of our products, including EWP and plywood, as well asnumerous local and regional manufacturers. We have leading market positions inthe manufacture of EWP, plywood, and ponderosa pine lumber. We hold muchsmaller competitive positions with respect to our other building products. Ourproducts in this segment compete primarily on the basis of price, quality, andparticularly with respect to EWP, levels of customer service. We believe our cost-competitiveproduction facilities and our customer service are our principal competitiveadvantages in this segment. Most of our competitors are located in the UnitedStates and Canada, although competition from manufacturers in other countrieshas increased in recent years. Many of these foreign competitors have loweroperating costs than we do. We compete not only with manufacturers anddistributors of similar building products but also with products made fromalternative materials, such as steel and plastic. Some of our competitors,though, also enjoy strong reputations for product quality and customer service,and these competitors may have strong relationships with certain distributors,making it difficult for our products to gain additional market share. Some ofour competitors in this segment are more vertically integrated than we areand/or have access to internal sources of wood fiber, which may allow them tosubsidize their base manufacturing business in periods of rising fiber prices.

*Paper*.  Themarkets in which our Paper segment competes are large and highly competitive.Commodity grades of uncoated free sheet are globally traded, with numerousworldwide manufacturers, and as a result, these products compete primarily onthe basis of price. All of our paper manufacturing facilities are located inthe United States, and although we compete largely in the domestic market, wedo face competition from foreign producers, some of which have lower operatingcosts than we do. The level of this competition varies, depending on domesticand foreign demand and foreign currency exchange rates. In general, paperproduction does not rely on proprietary processes or formulas, except in highlyspecialized or custom grades.

About five majormanufacturers compete in the North American uncoated free sheet market, makingup approximately 75% of capacity. In 2006, we were the fourth-largest producerof uncoated free sheet in North America. Some of our competitors in thissegment are more vertically integrated than we are and/or have access tointernal sources of wood fiber, which may allow them to subsidize their basemanufacturing business in periods of rising fiber prices. Although price is theprimary basis for competition in most of our paper grades, quality and serviceare important competitive determinants, especially in value-added grades. Ourpaper products also compete with other paper grades, electronic transmission,and document storage alternatives. As the use of these alternatives continuesto grow, we may see variances in the overall demand for paper products orshifts from one type of paper to another.

During 2006, two of our major competitors in the uncoated free sheet paperbusiness, Domtar and Weyerhaeuser, announced their intent to combine theiruncoated free sheet paper businesses. This combination, if it is ultimatelyrealized, would result in a larger and potentially much stronger competitorthan the two companies operating their paper businesses independently. It isuncertain whether the combination will be realized and what the effects will beon our business.

*Packaging& Newsprint*. Containerboard (linerboard) and newsprint are globally tradedcommodities with numerous worldwide manufacturers, and as a result, theseproducts compete primarily on the basis of price. The intensity of competitionin these industries fluctuates based on demand levels and prevailing foreigncurrency exchange rates. Our corrugated container operations in the Northwesthave a leading regional market position and compete with several national andregional manufacturers. Our plant in Waco, Texas, known as CTC, producescorrugated sheets that are sold to sheet plants in the regions, where they areconverted into corrugated containers for a variety of customers. Some of our competitorshave lower operating costs than we do and/or enjoy greater integration betweentheir containerboard production and corrugated container production.

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In January of 2007, Abitibi-Consolidated, who sells the newsprint weproduce at our DeRidder mill under a long-term contract, announced their intentto merge with Bowater, another major newsprint producer. It is uncertainwhether the merger will be realized and what the effects will be on ourbusiness.

***Environmental Issues***

Ourdiscussion of environmental issues is presented under the caption “Environmental”in “Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations” and “Item 3.  Legal Proceedings” of this Form 10-K.

###### ***Capital Investment***

Informationconcerning our capital expenditures is presented under the caption “InvestmentActivities” in “Item 7.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations” ofthis Form 10-K.

***Seasonality***

Our building products businesses are dependent on housingstarts, repair-and-remodel activity, and light commercial and industrialconversion activities. Declines in building activity that may occur duringwinter affect our building products businesses. To a lesser degree, our paperbusinesses also experience some seasonality in their businesses, basedprimarily on buying patterns associated with particular products. For example,the demand for our corrugated container plants is influenced by agriculturaldemand in the Northwest. In addition, seasonally cold weather increases costs,especially energy consumption, at all of our manufacturing facilities.

***Working Capital***

We have no unusualworking capital practices. We believe our management practices with respect toworking capital conform to common business practices in the United States.

***Acquisitions andDivestitures***

Wemay engage in acquisition and divestiture discussions with other companies andmake acquisitions and divestitures from time to time. We review our operationsand dispose of assets that fail to meet our criteria for return on investmentor cease to warrant retention for other reasons. For more information about ouracquisitions and divestitures, see “Effects of the Forest Products Acquisition,”“Acquisitions,” and “Divestitures” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

***Employees***

As of December 31, 2006, we had10,191 employees. Approximately 5,000, or 49%, of these employees workpursuant to collective bargaining agreements. Our Jackson, Alabama, paper millcontract that covers approximately 370 workers expired in August 2006 andour contract at our St. Jacques, New Brunswick, Canada, I-joist plant thatcovers approximately 150 workers expired December 31, 2006. Thecontracts remain in place pending further negotiations. We are currently innegotiations for a new contract at our plywood and veneer facility in Brazil.The agreements at our International Falls, Minnesota, paper mill and our Nampa,Idaho, container plant both expire in second quarter 2007 and the agreement atour Wallula, Washington, container plant will expire in fourth quarter 2007. Wedo not expect material work interruptions or increases in our costs during thecourse of the negotiations with our collective bargaining units. Nevertheless,if our expectations are not accurate, we could experience a material labordisruption or significantly increased labor costs at one or more of ourfacilities, any of which could prevent us from meeting customer demand orreduce our sales and profitability.

***Identification of Executive Officers***

Information with respectto our executive officers is set forth in “Item 10.  Directors, Executive Officers, and CorporateGovernance” of this Form 10-K.

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***ITEM 1A.          RISKFACTORS***

ThisAnnual Report on Form 10-K contains forward-looking statements.Statements that are not historical or current facts, including statements aboutour expectations, anticipated financial results, projected capitalexpenditures, and future business prospects, are forward-looking statements.You can identify these statements by our use of words such as “may,” “will,” “expect,”“believe,” “should,” “plan,” “anticipate,” and other similar expressions. Youcan find examples of these statements throughout this report, including thedescription of our business in “Item 1. Business” and the Recent Trends and Operational Outlook section ofManagement’s Discussion and Analysis of Financial Condition and Results ofOperations. We cannot guarantee that our actual results will be consistent withthe forward-looking statements we make in this report. You should reviewcarefully the risk factors listed below, as well as those factors listed inother documents we file with the SEC. We do not assume an obligation to update anyforward-looking statement.

***The paper and forest products industry ishighly cyclical. Fluctuations in the prices of and the demand for our productscould result in smaller profit margins and lower sales volumes****.  *Historically, economic andmarket shifts, fluctuations in capacity, and changes in foreign currencyexchange rates have created cyclical changes in prices, sales volumes, andmargins for our products. The length and magnitude of industry cycles havevaried over time and by product but generally reflect changes in macroeconomicconditions and levels of industry capacity. Most of our paper products,including our cut-size office paper, containerboard, and newsprint, and many ofour wood products, including our plywood, lumber, and particleboard, arecommodities that are widely available from other producers. Even ournoncommodity products, such as value-added papers and EWP, are susceptible tocommodity dynamics. Because commodity products have few distinguishingqualities from producer to producer, competition for these products is basedprimarily on price, which is determined by supply relative to demand.

The overall levelsof demand for the commodity products we make and distribute, and consequentlyour sales and profitability, reflect fluctuations in levels of end-user demand,which depend in large part on general macroeconomic conditions in North Americaand regional economic conditions in our markets, as well as foreign currencyexchange rates. For example, demand for wood products depends on newresidential and light commercial construction and residentialrepair-and-remodeling activity, which are impacted by demographic trends,interest rate levels, weather, and general economic conditions. Demand for ourpaper products fluctuates with levels of employment, the state of durable andnondurable goods industries, and prevailing levels of advertising and printcirculation. In recent years, paper demand for some grades of paper has alsodecreased as electronic transmission and document storage alternatives becomemore prevalent.

Industry supply ofcommodity papers and wood products is also subject to fluctuation, as changingindustry conditions can influence producers to idle or permanently closeindividual machines or entire mills. In addition, to avoid substantial cashcosts in connection with idling or closing a mill, some producers will chooseto continue to operate at a loss, sometimes even a cash loss, which couldprolong weak pricing environments due to oversupply. Oversupply in thesemarkets can also result from producers introducing new capacity in response tofavorable short-term pricing trends.

Industry supply of commodity papers and wood productsis also influenced by overseas production capacity, which has grown in recentyears and is expected to continue to grow. While the weakness of the U.S.dollar has mitigated the levels of imports in recent years, a strengthening ofthe U.S. dollar is likely to increase imports of commodity papers and woodproducts from overseas, putting downward pressure on prices. Most NorthAmerican manufacturers of uncoated free sheet paper grades have increased thebrightness level of their products. This higher brightness level conforms tothe brightness level of papers sold in most other major markets in the world.This could make our products more vulnerable to imported products.

Prices for all ofour products are driven by many factors outside our control, and we have littleinfluence over the timing and extent of price changes, which are oftenvolatile. Because market conditions beyond our control determine the prices forour commodity products, the price for any one or more of these products mayfall below our cash production costs, requiring us to either incur short-termlosses on product sales or cease production at one or more of our manufacturingfacilities. Therefore, our profitability with respect to these products dependson managing our cost structure, particularly raw materials and energy prices,which represent the largest components of our operating costs and can 

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fluctuate based uponfactors beyond our control, as described below. If the prices of our productsdecline, or if our raw materials or energy costs increase, or both, demand forour products may decline, and our sales and profitability could be materiallyand adversely affected.

***We face strong competition in our markets.  ***Thepaper and forest products industry is highly competitive. We face competitionfrom numerous competitors, domestic as well as foreign. Some of our competitorsin each of our businesses are large, vertically integrated companies that havegreater financial and other resources, greater manufacturing economies ofscale, greater energy self-sufficiency, and/or lower operating costs than wedo. In addition, some of our competitors have less indebtedness than we do, andtherefore, more of their cash is available for business purposes other thandebt service. We may be unable to compete, particularly with respect to ourcommodity products, during the various stages of the business cycle.

***Further increases in the cost of our purchased energy orchemicals would lead to higher manufacturing costs, thereby reducing ourmargins.**** *Energy isone of our most significant raw materials, accounting for approximately 4%,15%, and 15% of the aggregate amount of materials, labor, and other operatingexpenses, including fiber costs, for our Wood Products, Paper, andPackaging & Newsprint segments, respectively, in 2006. Energy prices,particularly for electricity, natural gas, and fuel oil, have been volatile inrecent years and currently exceed historical averages. These fluctuationsimpact our manufacturing costs and contribute to earnings volatility. We have some flexibility to switchbetween fuel sources; however, we have significant exposure to natural gas andfuel oil price increases. Increased demand (which could be driven by coldweather) or further supply constraints could drive prices higher. The rates weare charged are impacted by the increase in natural gas prices, although thedegree of impact depends on each utility’s mix of energy resources andregulatory situation.

Other rawmaterials we use include various chemical compounds, such as precipitatedcalcium carbonate, sodium chlorate, sodium hydroxide, dyes, resins, andadhesives. Purchases of chemicals accounted for approximately 6%, 14%, and 5%of the aggregate amount of materials, labor, and other operating expenses,including fiber costs, for our Wood Products, Paper, and Packaging &Newsprint segments, respectively, in 2006. The costs of these chemicals havebeen volatile historically and are influenced by capacity utilization, energyprices, and other factors beyond our control.

For our commodityproducts, the relationship between industry supply and demand, rather thanchanges in the cost of raw materials, determines our ability to increaseprices. Consequently, we may be unable to pass increases in our operating coststo our customers in the short term. Any sustained increase in chemical orenergy prices would reduce our operating margins and potentially require us tolimit or cease operations of one or more of our machines.

***Some of our paper and wood products are vulnerable tolong-term declines in demand due to competing technologies ormaterials.  ***Our uncoated free sheet and newsprintcompete with electronic transmission and document storage alternatives, as wellas with paper grades we do not produce. As the use of these alternatives grow,demand for paper products may shift from one grade of paper to another or beeliminated altogether. For example, demand for newsprint has declined and maycontinue to decline as newspapers are replaced with electronic media, anddemand for our uncoated free sheet for use in preprinted forms has declined andmay continue to decline as the use of desktop publishing and on-demand printingcontinues to displace traditional forms. Demand for our containerboard maydecline as corrugated paper packaging is replaced with reusable plasticalternatives, particularly with respect to uses for perishable food products.Demand for plywood may also decline as customers continue to shift to orientedstrand board, a product we do not manufacture. Any substantial shift in demandfrom our products to competing technologies or materials could result in amaterial decrease in sales of our products.

***Our manufacturing businesses may have difficulty obtaininglogs and fiber at favorable prices or at all****.  *Wood fiber is our principalraw material, accounting for approximately 40%, 28%, and 14% of the aggregateamount of materials, labor, and other operating expenses, including fibercosts, for our Wood Products, Paper, and Packaging & Newsprintsegments, respectively, in 2006. Wood fiber is a commodity, and prices havehistorically been cyclical. Environmental litigation and regulatorydevelopments have caused, and may cause in the future, significant reductionsin the amount of logs and fiber available for commercial harvest in the UnitedStates. These reductions have caused the closure of plywood and lumberoperations in some of the geographic areas in which we operate. In addition,future domestic or foreign legislation and litigation concerning the use oftimberlands, the protection of 

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endangered species, thepromotion of forest health, and the response to and prevention of catastrophicwildfires could also affect log and fiber supply. Availability of harvestedlogs and fiber may be further limited by fire, insect infestation, disease, icestorms, windstorms, hurricanes, flooding, and other natural and man-made causes,thereby reducing supply and increasing prices. Wood fiber pricing is subject toregional market influences, and our cost of wood fiber may increase inparticular regions due to market shifts in those regions. In addition, ourability to obtain wood fiber from Brazil may be impacted by legal and politicalconditions in that country as well as transportation difficulties. Anysustained increase in wood fiber prices would increase our operating costs, andwe may be unable to increase prices for our products in response to increasedwood fiber costs due to additional factors affecting the demand or supply ofthese products.

***A material disruption at one of our manufacturing facilitiescould prevent us from meeting customer demand, reduce our sales, and/or negativelyimpact our net income.  ***Any of ourmanufacturing facilities, or any of our machines within an otherwiseoperational facility, could cease operations unexpectedly due to a number ofevents, including:

·            Maintenanceoutages;

·            Prolongedpower failures;

·            Anequipment failure;

·            Achemical spill or release;

·            Explosionof a boiler;

·            Theeffect of a drought or reduced rainfall on our water supply;

·            Disruptionsin the transportation infrastructure, including roads, bridges, railroadtracks, and tunnels;

·            Fires,floods, earthquakes, hurricanes, or other catastrophes;

·            Terrorismor threats of terrorism;

·            Labordifficulties; or

·            Otheroperational problems.

Future events may cause shutdowns, which may result in downtimeand/or may cause damage to our facilities. Any such downtime or facility damagecould prevent us from meeting customer demand for our products and/or requireus to make unplanned capital expenditures. If our machines or facilities wereto incur significant downtime, our ability to meet our production capacitytargets and satisfy customer requirements would be impaired, resulting in lowersales and net income.

***Our operations require substantial capital, and we may nothave adequate capital resources to provide for all of our capital requirements.  ***Ourmanufacturing businesses are capital-intensive, and we regularly incur capitalexpenditures to expand our operations, maintain our equipment, increase ouroperating efficiency, and comply with environmental laws. During 2006, ourtotal capital expenditures, excluding acquisitions, were approximately$154 million, including approximately $47 million for maintenancecapital (replacements) and approximately $9 million for environmentalexpenditures. We expect to spend approximately $185 million, excludingacquisitions, on capital expenditures during 2007, including approximately$77 million for maintenance capital (replacements) and approximately$10 million for environmental expenditures. We anticipate our availablecash resources and cash generated from operations will be sufficient to fundour operating needs and capital expenditures for at least the next year.However, if we require additional funds, we may not be able to obtain them onfavorable terms, or at all. In addition, our debt service obligations reduceour available cash flows. If we cannot maintain or upgrade our equipment as werequire or ensure environmental compliance, we could be required to cease orcurtail some of our manufacturing operations or we may become unable tomanufacture products that can compete effectively in one or more of ourmarkets.

***Our operations are affected by our relationship withOfficeMax.  ***Until October 2004, we operated asbusiness units of OfficeMax and not as a stand-alone company. For the yearended December 31, 2006, sales to OfficeMax accounted for approximately45% of our uncoated free sheet volume, including approximately 80% of ouroffice paper volume. We anticipate that OfficeMax will continue to be ourlargest customer and that we will continue to depend on its distributionnetwork for a 

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substantial portion ofour uncoated free sheet sales in the future. In connection with the ForestProducts Acquisition, OfficeMax retained and indemnified us against certainliabilities related to our business. Furthermore, we and OfficeMax entered intoan Additional Consideration Agreement, pursuant to which OfficeMax may berequired to make substantial payments to us. Any significant deterioration inOfficeMax’s financial condition or our relationship with OfficeMax, or asignificant change in OfficeMax’s business strategy, could result in OfficeMaxceasing to be our customer or failing to satisfy its contractual obligations tous, which in turn could reduce our sales and subject us to additional materialliabilities.

In addition, wemay be required to make substantial payments to OfficeMax in connection withagreements we entered into related to the Forest Products Acquisition. Wecurrently indemnify OfficeMax for breaches of representations, warranties, andcovenants made in the Asset Purchase Agreement, as well as for all liabilitieswe assumed in connection with the Forest Products Acquisition. Ourindemnification obligations with respect to breaches of representations andwarranties are, with certain exceptions, subject to a deductible of$20.7 million, and our indemnification obligations are capped at$248.9 million in the aggregate. The Additional Consideration Agreementalso requires us to pay OfficeMax, to the extent that the average market pricefor a benchmark grade of cut-size office paper manufactured within our Papersegment exceeds a specified amount, up to an aggregate cap of$125 million. If we are required to make substantial payments to OfficeMaxin respect of our indemnification obligations, the resulting outflows of cashwould adversely affect our operating results and financial condition. Inaddition, if we are required to make substantial payments to OfficeMax underthe Additional Consideration Agreement, our financial condition would beadversely affected.

***We are subject to significant environmental regulation andenvironmental compliance expenditures, as well as other potential environmentalliabilities.  ***We are subject to a wide range ofgeneral and industry-specific environmental laws and regulations, particularlywith respect to air emissions, wastewater discharges, solid and hazardous wastemanagement, and site remediation. Our capital expenditures for environmentalcompliance were approximately $9 million, $17 million, and $8 millionin 2006, 2005, and 2004, respectively, and we expect to incur approximately$10 million in 2007. We expect to continue to incur significant capitaland operating expenditures in order to maintain compliance with applicableenvironmental laws and regulations. If we fail to comply with applicableenvironmental laws and regulations, we may face civil or criminal fines,penalties, or enforcement actions, including orders limiting our operations orrequiring corrective measures, installation of pollution control equipment, orother remedial actions.

As owners andoperators of real estate, we may be liable under environmental laws for cleanupand other damages, including tort liability, resulting from releases ofhazardous substances on or from our properties. We may have liability underthese laws whether or not we knew of, or were responsible for, the presence ofthese substances on our property, and in some cases, our liability may not belimited to the value of the property. OfficeMax retains responsibility forenvironmental liabilities that occurred with respect to businesses, facilities,and other assets not purchased by us in the Forest Products Acquisition. Inaddition, OfficeMax generally indemnifies us for hazardous substance releasesand other environmental violations that occurred prior to the Forest ProductsAcquisition or arose out of pre-Forest Products Acquisition operations at thebusinesses, facilities, and other assets purchased by us. However, OfficeMaxmay not have sufficient funds to fully satisfy its indemnification obligationswhen required, and in some cases, we may not be contractually entitled toindemnification by OfficeMax. Furthermore, we are not entitled toindemnification for liabilities incurred due to releases and violations ofenvironmental laws occurring after the Forest Products Acquisition. Enactmentof new environmental laws or regulations or changes in existing laws orregulations might require significant expenditures. We may be unable togenerate funds or other sources of liquidity and capital to fund unforeseenenvironmental liabilities or expenditures.

***Labor disruptionsor increased labor costs could adversely affect our business.  ***Wecould experience a material labor disruption or significantly increased laborcosts at one or more of our facilities, either in the course of negotiations ofa labor agreement or otherwise, any of which could prevent us from meetingcustomer demand, reducing our sales and profitability. As of December 31,2006, we had 10,191 employees. Approximately 5,000, or 49%, of theseemployees work pursuant to collective bargaining agreements. OurJackson, Alabama, paper mill contract that covers approximately370 workers expired in August 2006 and our contract at ourSt. Jacques, New Brunswick, Canada, I-joist plant that coversapproximately 150 workers expired December 31, 2006. The contractsremain in place pending further negotiations. We are currently in negotiationsfor a new contract at our plywood and veneer facility in Brazil. The agreementsat our International Falls, Minnesota, paper mill and our Nampa, Idaho,container plant both expire in second quarter 2007 and the agreement at our Wallula,Washington, container plant will expire in fourth quarter 2007. We do notexpect material work interruptions or increases in our costs during the 

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course of the negotiations with our collective bargaining units.Nevertheless, if our expectations are not accurate, we could experience amaterial labor disruption or significantly increased labor costs at one or moreof our facilities, any of which could prevent us from meeting customer demandor reduce our sales and profitability.

***Our substantial indebtedness couldadversely affect our financial condition and impair our ability to operate ourbusiness. ***As ofDecember 31, 2006, we had $1.2 billion of outstanding indebtedness,including $538.9 million of indebtedness under our senior secured creditfacilities (excluding unused availability under our revolving credit facilityand outstanding and undrawn letters of credit), $250.0 million of seniornotes, $400.0 million of senior subordinated notes, $25.0 million ofnet borrowings outstanding under our accounts receivable securitizationprogram, and $3.2 million in short-term borrowings. This level of indebtednesscould have important consequences on our business, financial condition, andoperating results, including the following:

·            Itmay limit our ability to borrow money or sell stock to fund our workingcapital, capital expenditures, acquisitions, and debt service requirements andother financing needs;

·            Ourinterest expense would increase if interest rates in general increase because asubstantial portion of our indebtedness, including all of our indebtednessunder our senior secured credit facilities and the senior notes, bears interestat floating rates;

·            Itmay limit our flexibility in planning for, or reacting to, changes in ourbusiness and future business opportunities;

·            Weare more highly leveraged than some of our competitors, which may place us at acompetitive disadvantage;

·            Itmay make us more vulnerable to a downturn in our business, industry, or theeconomy in general;

·            Asubstantial portion of our cash flow from operations is dedicated to therepayment of our indebtedness, including indebtedness we may incur in thefuture, and will not be available for other business purposes; and

·            Therewould be a material adverse effect on our business and financial condition ifwe were unable to service our indebtedness or obtain additional financing asneeded.

***We may not be able to generate sufficient cash flows to meetour debt service obligations.***   Our ability to makepayments on and to refinance our indebtedness and to fund planned capitalexpenditures depends on our ability to generate cash from our future operations.This, to a certain extent, is subject to general economic, financial,competitive, legislative, regulatory, and other factors that are beyond ourcontrol.

Our business maynot generate sufficient cash flow from operations, or future borrowings underour senior secured credit facilities or from other sources may not be availableto us in an amount sufficient to enable us to repay our indebtedness or to fundour other liquidity needs, including capital expenditure requirements. Asubstantial portion of our indebtedness bears interest at floating rates, andaccordingly, if interest rates rise, our debt service requirements willincrease. We may not be able to refinance any of our indebtedness oncommercially reasonable terms, or at all. If we cannot service ourindebtedness, we may have to take actions such as selling assets, seekingadditional equity, or reducing or delaying capital expenditures, strategicacquisitions, investments, and alliances, any of which could impede theimplementation of our business strategy or prevent us from entering intotransactions that would otherwise benefit our business. Additionally, we maynot be able to affect such actions, if necessary, on commercially reasonableterms, or at all.

***The terms of our senior secured credit agreement (CreditAgreement) and the indenture governing our notes restrict our ability tooperate our business and to pursue our business strategies.  ***Our CreditAgreement and the indenture governing our notes contain, and any futureindebtedness of ours would likely contain, a number of restrictive covenantsthat impose significant operating and financial restrictions on us. Our CreditAgreement and the indenture governing our notes limit our ability, among otherthings, to:

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·            Incuradditional indebtedness or enter into sale/leaseback transactions;

·            Sellassets, including capital stock of subsidiaries;

·            Agreeto limitations on the ability of our subsidiaries to make distributions;

·            Enterinto transactions with our affiliates;

·            Incurliens;

·            Enterinto new lines of business; and

·            Engagein consolidations, mergers, or sales of substantially all of our assets.

Our CreditAgreement also requires us to achieve specified financial and operating resultsand maintain compliance with specified financial ratios. Our ability to complywith these ratios may be affected by events beyond our control.

The restrictionscontained in our senior secured credit agreement and the indenture could:

·            Limitour ability to plan for or react to market conditions or meet capital needs orotherwise restrict our activities or business plans; and

·            Adverselyaffect our ability to finance our operations, strategic acquisitions,investments or alliances, or other capital needs or to engage in other businessactivities that would be in our interest.

***ITEM 1B.          UNRESOLVEDSTAFF COMMENTS***

We have nounresolved comments from the Commission staff.

***ITEM 2.             PROPERTIES***

We own substantially all of our facilities. Our propertiesare in good operating condition and are suitable and adequate for the operationsfor which they are used. We own substantially all equipment used in ourfacilities. Information concerning production capacity and the utilization ofour manufacturing facilities is presented in “Item 1.  Business” of this Form 10-K.

Following is a list of our facilities by segment as ofJanuary 31, 2007. In 2006, we sold our headquarters building in Boise,Idaho. In connection with the sale, we leased back approximately 65% of thebuilding over a staggered lease term of ten to 12 years. Our corporateheadquarters continues to be located in Boise, Idaho.

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***Building MaterialsDistribution***

The following tablesummarizes our 29 Building Materials Distribution facilities:

| Location                      | ** ** | **Owned  or  Leased** | ** ** | **Approximate  Warehouse  Square Footage** | ** ** |
|-------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|
| Phoenix, Arizona              |       | Owned/Leased          |       | 32,027                                          |       |
| Lathrop, California           |       | Leased                |       | 162,000                                         |       |
| Riverside, California         |       | Leased                |       | 131,263                                         |       |
| Denver, Colorado              |       | Owned                 |       | 203,212                                         |       |
| Grand Junction,  Colorado     |       | Owned                 |       | 82,000                                          |       |
| Orlando, Florida              |       | Owned                 |       | 105,000                                         |       |
| Tucker, Georgia               |       | Leased                |       | 79,620                                          |       |
| Boise, Idaho                  |       | Owned                 |       | 62,297                                          |       |
| Idaho Falls, Idaho            |       | Owned                 |       | 51,752                                          |       |
| Rochelle, Illinois            |       | Leased                |       | 86,000                                          |       |
| Annapolis Junction,  Maryland |       | Owned/Leased          |       | 14,000                                          |       |
| Westfield,  Massachusetts     |       | Leased                |       | 112,400                                         |       |
| Wayne, Michigan               |       | Leased                |       | 40,500                                          |       |
| Lakeville, Minnesota          |       | Leased                |       | 72,000                                          |       |
| Billings, Montana             |       | Owned                 |       | 77,024                                          |       |
| Portsmouth, New  Hampshire    |       | Owned/Leased          |       | 39,400                                          |       |
| Delanco, New Jersey           |       | Owned/Subleased       |       | 15,000                                          |       |
| Albuquerque, New Mexico       |       | Owned                 |       | 30,000                                          |       |
| Greensboro, North  Carolina   |       | Leased                |       | 88,140                                          |       |
| Marion, Ohio                  |       | Leased                |       | 60,250                                          |       |
| Tulsa, Oklahoma               |       | Owned                 |       | 128,552                                         |       |
| Memphis, Tennessee            |       | Owned                 |       | 38,926                                          |       |
| Dallas, Texas                 |       | Owned                 |       | 137,840                                         |       |
| Sugarland, Texas              |       | Leased                |       | 104,949                                         |       |
| Salt Lake City, Utah          |       | Owned                 |       | 114,610                                         |       |
| Spokane, Washington           |       | Owned/Leased          |       | 43,060                                          |       |
| Vancouver, Washington         |       | Leased                |       | 50,600                                          |       |
| Woodinville, Washington       |       | Owned/Leased          |       | 32,200                                          |       |
| Yakima, Washington            |       | Owned/Leased          |       | 33,779                                          |       |

 

###### ***Wood Products***

The following table summarizes our Wood Productsfacilities:
| **Facility Type**     | ** ** | **Number of  Facilities** | ** ** | **Locations**                                      | ** ** |
|----------------------------|------------|--------------------------------|------------|----------------------------------------------------|------------|
| LVL/I-joist plants         |       | 3                              |       | Louisiana, Oregon, and  Canada                     |       |
| Plywood and veneer  plants |       | 10                             |       | Louisiana (2), Oregon  (6), Washington, and Brazil |       |
| Sawmills                   |       | 5                              |       | Oregon (3) and  Washington (2)                     |       |
| Particleboard plant        |       | 1                              |       | Oregon                                             |       |
| Wood beam plant            |       | 1                              |       | Idaho                                              |       |

 

***Paper***

The following table summarizes our Paper facilities:
| **Facility Type**  | ** ** | **Number of  Facilities** | ** ** | **Locations**                               | ** ** |
|-------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|
| Pulp and paper mills    |       | 4                              |       | Alabama, Minnesota,  Oregon, and Washington |       |
| Distribution centers    |       | 2                              |       | California and Illinois                     |       |
| Converting facility (a) |       | 1                              |       | Oregon                                      |       |

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(a)           We plan to close the Oregonconverting facility by the end of third quarter 2007.

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***Packaging & Newsprint***

Thefollowing table summarizes our Packaging & Newsprint facilities:

| Facility Type                           | ** ** | **Number of  Facilities** | ** ** | **Locations**                                  | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|
| Pulp and paper mill                          |       | 1                              |       | Louisiana                                      |       |
| Corrugated container and sheet feeder plants |       | 6                              |       | Idaho (2), Oregon, Texas, Utah, and Washington |       |

 

***ITEM 3.             LEGALPROCEEDINGS***

We are a party to routine legal proceedings that arisein the ordinary course of our business. We are not currently a party to anylegal proceedings or environmental claims that we believe would have a materialadverse effect on our financial position, results of operations, or cash flows.

***ITEM4.            ******SUBMISSION OF MATTERS TO AVOTE OF SECURITYHOLDERS***

None.

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**PART II**

 

***ITEM5.******                                      MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIES***

We are a limited liability company, and the equity in ourcompany is neither listed nor publicly traded in any market. The equity unitsissued and outstanding on January 31, 2007, were as follows:

| Series A Common Units |   | 66,000,000  |
|-----------------------|--------|-------------|
| Series B Common Units |   | 547,464,490 |
| Series C Common Units |   | 39,576,540  |

 

As of January 31, 2007,OfficeMax owned all of the Series A equity units. FPH and OfficeMax owned438,464,490 and 109,000,000 Series B equity units, respectively. FPH holdsall 39,576,540 Series C equity units.

The Series A equityunits accrue dividends daily at a rate of 8% per annum on the holder’s capitalcontributions (net of any distributions previously received by such holder)plus any accumulated dividends. Accrued and unpaid dividends accumulate on theSeries A equity units on June 30 and December 31 of each year.At December 31, 2006 and 2005, $7.2 million and $3.5 million, respectively,of dividends were accrued on our Consolidated Balance Sheets as an increase inthe value of the Series A equity units. Neither the Series B norSeries C equity units accrue dividends, but they do participate indistributions (liquidating and otherwise).

We do not have compensationplans that provide for the issuance of equity in our company. The ManagementEquity Agreement described elsewhere in this Annual Report on Form 10-Kprovides for the grant of equity units in FPH, our majority owner.

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***ITEM 6.******                                     ******SELECTED FINANCIAL DATA***

The followingtable sets forth our selected financial data for the periods indicated andshould be read in conjunction with the disclosures in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Item 8.  Consolidated Financial Statements” of thisForm 10-K.
| ** **                                                                         | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                                                         | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                         | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **                                                                         | ** ** | **2006 (a)**                         | ** ** | **2005 (b)**     | ** ** | **2004 (c)** | ** ** | **2004 (d)** | ** ** | **2003 (e)** | ** ** | **2002** | ** ** |
| ** **                                                                         |       | **(millions)**                            |       |
| **Assets**                                                                         | ** ** | ** **                                | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| Current assets                                                                     |       | $                                         | 1,083      |                  | $          | 1,136 |   | $ | 1,112 |   | $ | 1,049 |   | $ | 699 |   | $ | 704 |   |
| Property and equipment,  net                                                       |       | 1,503                                     |       | 1,549                 |       | 1,510 |   | 2,191 |   | 2,252 |   | 2,299 |   |
| Deferred financing  costs                                                          |       | 31                                        |       | 38                    |       | 84 |   | 17 |   | 8 |   | 5 |   |
| Note receivable from  related party                                                |       | —                                    |       | —                |       | 158 |   | — |   | — |   | — |   |
| Other                                                                              |       | 88                                        |       | 91                    |       | 68 |   | 109 |   | 165 |   | 157 |   |
| ** **                                                                         | ** ** | **$**                                     | **2,705**  | ** **            | **$**      | **2,814** | ** ** | **$** | **2,932** | ** ** | **$** | **3,366** | ** ** | **$** | **3,124** | ** ** | **$** | **3,165** | ** ** |
| ** **                                                                         | ** ** | ** **                                | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| **Liabilities and Capital**                                                        | ** ** | ** **                                | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| Current liabilities                                                                |       | $                                         | 504        |                  | $          | 546 |   | $ | 438 |   | $ | 701 |   | $ | 495 |   | $ | 534 |   |
| Long-term debt, less  current portion                                              |       | 1,214                                     |       | 1,366                 |       | 1,967 |   | 1,109 |   | 1,222 |   | 1,160 |   |
| Note payable to related  party, net                                                |       | —                                    |       | 271                   |       | — |   | — |   | — |   | — |   |
| Other                                                                              |       | 148                                       |       | 153                   |       | 157 |   | 691 |   | 678 |   | 667 |   |
| Redeemable equity units                                                            |       | 24                                        |       | 13                    |       | 10 |   | — |   | — |   | — |   |
| Capital                                                                            |       | 815                                       |       | 465                   |       | 360 |   | 865 |   | 729 |   | 804 |   |
| ** **                                                                         | ** ** | **$**                                     | **2,705**  | ** **            | **$**      | **2,814** | ** ** | **$** | **2,932** | ** ** | **$** | **3,366** | ** ** | **$** | **3,124** | ** ** | **$** | **3,165** | ** ** |
| ** **                                                                         | ** ** | ** **                                | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net sales**                                                                      | ** ** | **$**                                     | **5,780**  | ** **            | **$**      | **5,907** | ** ** | **$** | **873** | ** ** | **$** | **4,862** | ** ** | **$** | **4,654** | ** ** | **$** | **4,276** | ** ** |
| ** **                                                                         | ** ** | ** **                                | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |
| Income (loss) before  cumulative effect of accounting change                       |       | $                                         | 72         |                  | $          | 121 |   | $ | 25 |   | $ | 69 |   | $ | (43 | ) | $ | (61 | ) |
| Cumulative effect of  accounting change, net of income tax                         |       | —                                    |       | —                |       | — |   | — |   | (4 | ) | — |   |
| Net income (loss)                                                                  | ** ** | **$**                                     | **72**     | ** **            | **$**      | **121** | ** ** | **$** | **25** | ** ** | **$** | **69** | ** ** | **$** | **(47** | **)** | **$** | **(61** | **)** |
| Earnings before interest, taxes, depreciation, and amortization  (EBITDA) (f) | ** ** | **$**                                     | **339**    | ** **            | **$**      | **401** | ** ** | **$** | **65** | ** ** | **$** | **382** | ** ** | **$** | **238** | ** ** | **$** | **221** | ** ** |

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(a)                                  Included a $3.7 million gain for changes in ourretiree healthcare programs.

(b)                                 Included a net $9.9 million gain for thechange in the fair value of interest rate swaps related to our amended andrestated senior credit facilities.

Included the write-off of $43.0 millionof deferred financing costs resulting from the repayment of the Tranche Bterm loan.

Included a $9.9 million gain for changesto our retiree healthcare programs.

(c)                                  As a result of purchase price accounting, wewrote up the value of our inventory, which increased the costs and expensesrecognized by us upon the sale of the inventory by $20.2 million for theperiod of October 29 (inception) through December 31, 2004.

(d)                                 Included a $46.5 million pretax gain for the sale of ourpredecessor’s 47% interest in Voyageur Panel (see Note 10, Investment inEquity Affiliate of the Notes to the Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K).

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Included $7.1 million of costs incurredin connection with the February 2004 sale of our predecessor’s plywood andlumber operations in Yakima, Washington.

Included $12.7 million of expense,primarily for a one-time retention bonus OfficeMax granted to our employees.

Included $14.6 million of noncash restrictedstock expenses.

(e)                                  Included a net $7.2 million one-time taxbenefit related to a favorable tax ruling, net of changes in other tax items.

Included a $14.7 million pretax chargefor the write-down of impaired assets at our predecessor’s plywood and lumberoperations in Yakima, Washington, in December 2003.

(f)                                    The following table reconciles netincome (loss) to EBITDA for the periods indicated:
| ** **                                   | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** | **Year Ended December 31** | ** ** |
| ** **                                   | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                         |       | **(millions)**                            |       |
| Net income (loss)                            |       | $                                         | 72         |                  | $          | 121 |   | $ | 25 |   | $ | 69 |   | $ | (47 | ) | $ | (61 | ) |
| Change in fair value of  interest rate swaps |       | —                                    |       | (10                   | )          | — |   | — |   | — |   | — |   |
| Interest expense                             |       | 112                                       |       | 166                   |       | 22 |   | 72 |   | 93 |   | 94 |   |
| Interest income                              |       | (4                                        | )          | (3                    | )          | (2 | ) | — |   | (1 | ) | (1 | ) |
| Income tax provision  (benefit)              |       | 4                                         |       | (2                    | )          | — |   | 47 |   | (37 | ) | (45 | ) |
| Depreciation,  amortization, and depletion   |       | 155                                       |       | 129                   |       | 20 |   | 194 |   | 230 |   | 234 |   |
| EBITDA                                       | ** ** | **$**                                     | **339**    | ** **            | **$**      | **401** | ** ** | **$** | **65** | ** ** | **$** | **382** | ** ** | **$** | **238** | ** ** | **$** | **221** | ** ** |

 

EBITDA represents income (loss) beforeinterest (interest expense, interest income, and change in fair value ofinterest rate swaps), income tax provision (benefit), and depreciation,amortization, and depletion. EBITDA is the primary measure used by our chiefoperating decision makers to evaluate segment operating performance and todecide how to allocate resources to segments. We believe EBITDA is useful toinvestors because it provides a means to evaluate the operating performance ofour segments and our company on an ongoing basis using criteria that are usedby our internal decision makers and because it is frequently used by investorsand other interested parties in the evaluation of companies with substantialfinancial leverage. We believe EBITDA is a meaningful measure because itpresents a transparent view of our recurring operating performance and allowsmanagement to readily view operating trends, perform analytical comparisons,and identify strategies to improve operating performance. For example, webelieve that the inclusion of items such as taxes, interest expense, andinterest income distorts management’s ability to assess and view the coreoperating trends in our segments. EBITDA, however, is not a measure of ourliquidity or financial performance under generally accepted accountingprinciples (GAAP) and should not be considered as an alternative to net income(loss), income (loss) from operations, or any other performance measure derivedin accordance with GAAP or as an alternative to cash flow from operatingactivities as a measure of our liquidity. The use of EBITDA instead of netincome (loss) or segment income (loss) has limitations as an analytical tool,including the inability to determine profitability; the exclusion of interestexpense, interest income, change in the fair value of interest rate swaps, andassociated significant cash requirements; and the exclusion of depreciation,amortization, and depletion, which represent significant and unavoidableoperating costs, given the level of our indebtedness and the capitalexpenditures needed to maintain our businesses. Management compensates forthese limitations by relying on our GAAP results. Our measures of EBITDA arenot necessarily comparable to other similarly titled captions of othercompanies due to potential inconsistencies in the methods of calculation. 

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***ITEM7.******                                      MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF******OPERATIONS***

We begin Management’sDiscussion and Analysis of Financial Condition and Results of Operations(MD&A) with a general overview of the inception of our operations, which isdiscussed in “Acquisition of Assets From OfficeMax” and “Effects of the ForestProducts Acquisition.” This overview is followed by a discussion of the BoiseLand & Timber Holdings Corp. (Timber Holdings) merger with and intous. Next, we discuss our operating segments and “Factors That Affect OurOperating Results” to give the reader an overview of the goals and challengesof our business and the direction in which our business and products aremoving. We then review our “Results of Operations” for 2006 compared with 2005,2005 compared with 2004, and the two months ended December 31, 2004, concludingwith our “Recent Trends and Operational Outlook” and “Industry Mergers andAcquisitions” sections, in which we discuss recent industry activity and ouroutlook for 2007. Following the analysis of our results, we discuss our “Acquisitions”and “Divestitures.” We then provide an analysis of changes in our balance sheetand cash flows and discuss our financial commitments in the sections entitled “Liquidityand Capital Resources,” “Contractual Obligations,” “Off-Balance-SheetActivities,” “Guarantees,” “Disclosures of Financial Market Risks,” and “FinancialInstruments.” These sections are followed by a discussion of the “CriticalAccounting Estimates” we believe are important to understanding the assumptionsand judgments incorporated in our reported financial results. We conclude witha discussion of our “Non-GAAP Financial Measures.”

This MD&A includes statements regarding ourexpectations with respect to our performance, liquidity, and capital resources.Such statements, along with any other nonhistorical statements in thediscussion, are forward-looking. These forward-looking statements are subjectto numerous risks and uncertainties, including, but not limited to, the risksand uncertainties described in “Item 1A. Risk Factors” of this Form 10-K. Our actual results maydiffer materially from those contained in or implied by any of theseforward-looking statements.

***Acquisition of Assets FromOfficeMax***

Ouroperations began on October 29, 2004 (inception), when we acquired theforest products and paper assets of OfficeMax (the Forest ProductsAcquisition). Before the Forest Products Acquisition, OfficeMax was known asBoise Cascade Corporation. We acquired the names “Boise” and “Boise Cascade” aspart of the Forest Products Acquisition. We acquired OfficeMax’s forestproducts and paper assets, other than its timberland operations, for anaggregate purchase price of $2.2 billion, including approximately$140 million of related fees and expenses. Concurrently with the ForestProducts Acquisition, Timber Holdings, an entity that was majority-owned by ourmajority owner, Forest Products Holdings, L.L.C. (FPH), acquired fromOfficeMax its timberland operations. In 2005, Timber Holdings sold itstimberlands, and in November 2006, Timber Holdings merged with and into us. Formore information related to the merger, see “Merger With Boise Land &Timber Holdings Corp.” in this Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

***Effects of the ForestProducts Acquisition***

*PurchaseAccounting*

Weaccounted for the Forest Products Acquisition using the purchase method ofaccounting. As a result, the purchase price of $2.2 billion was allocatedto the tangible and intangible assets acquired and liabilities assumed based ontheir respective fair values as of the date of the Forest Products Acquisition.The purchase price was determined based on negotiations between OfficeMax andMadison Dearborn Partners (MDP), our equity sponsor who controls FPH.

Compared with thepredecessor period presented, the allocation of the purchase price resulted ina decrease in depreciation expense related to our acquired assets because weallocated a lower fair value to the acquired assets. We also assigned newestimated useful lives, resulting in an average useful life of 11.5 years,compared with nine years for our predecessor. We wrote up the value of theinventory by $20.2 million, resulting in increased costs and expensesrecognized by us upon the sale of the inventory during the period ofOctober 29 (inception) through December 31, 2004.

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*RestructuringActivities*

In connection withthe Forest Products Acquisition, we evaluated the acquired facilities andorganizational structure. In accordance with the provisions of Emerging IssuesTask Force (EITF) 95-3, *Recognition of Liabilitiesin Connection With a Purchase Business Combination*, exit activitiesrelated to the Forest Products Acquisition increased goodwill. We had one yearfrom the acquisition date to finalize our restructuring plans and adjustgoodwill.

AtDecember 31, 2006, we had approximately $0.6 million of restructuringreserves related to severance costs recorded in “Accrued liabilities,Compensation and benefits.” The severance costs related to costs forapproximately 350 terminated employees. The remaining reserve relates toseverance payments that will be paid by the end of 2007. Of the$0.6 million remaining restructuring reserve, $0.5 million isrecorded in our Paper segment, and $0.1 million is in Corporate and Other.Restructuring reserve liability account activity related to these charges is asfollows:

|                                                  | ** ** | **Severance**  | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|
|                                             |       | **(millions)** |       |
| 2004  restructuring reserve                      |       | $              | 13.8       |       | $          | 0.5        |       | $ | 14.3 |   |
| Charges against  reserve                         |       | (1.0           | )          | —     |       | (1.0       | )          |
| Restructuring  reserve at December 31, 2004 |       | 12.8           |       | 0.5        |       | 13.3       |       |
|                                             |       |           |       |       |       |       |       |
| Additions to  restructuring reserve              |       | 6.9            |       | 0.2        |       | 7.1        |       |
| Charges against  reserve                         |       | (16.2          | )          | (0.6       | )          | (16.8      | )          |
| Restructuring  reserve at December 31, 2005 |       | 3.5            |       | 0.1        |       | 3.6        |       |
|                                             |       |           |       |       |       |       |       |
| Charges against  reserve                         |       | (2.9           | )          | (0.1       | )          | (3.0       | )          |
| Restructuring  reserve at December 31, 2006 | ** ** | **$**          | **0.6**    | ** ** | **$**      | **—** | ** ** | **$** | **0.6** | ** ** |

 

*MaterialOngoing Agreements With OfficeMax*

Inconnection with the Forest Products Acquisition, we entered into the followingagreements with OfficeMax:

*Paper Supply Agreement*.  Underthis agreement, OfficeMax will purchase from us all of its North Americanrequirements for cut-size office paper, to the extent we choose to supply suchpaper to them, through December 2012 at prices approximating marketprices. The agreement renews automatically for additional one-year terms unlesseither party gives notice of termination. If the agreement terminates,OfficeMax will be required to ratably phase out its purchases of our paper overa four-year period beginning on January 1 following the last year of theagreement. The earliest the four-year phase out period could begin is January 1,2013.

*AdditionalConsideration Agreement*.  As part of the ForestProducts Acquisition, we entered into an Additional Consideration Agreementwith OfficeMax, pursuant to which we agreed to adjust the purchase price basedon changes in paper prices over the six-year period following the ForestProducts Acquisition. Under the Additional Consideration Agreement, we couldpay to OfficeMax, or OfficeMax could pay to us, a maximum aggregate amount of$125.0 million, in each case net of payments received. After eachanniversary of the Forest Products Acquisition, we review paper prices with theprovisions of the Additional Consideration Agreement to determine whether anyamounts are owed or receivable under the agreement. For the first and secondanniversary periods, which ended October 29, 2005 and 2006, neither Boisenor OfficeMax owed additional consideration for the purchase price. Thepurchase price recorded for the Forest Products Acquisition does not includethe effect, if any, of contingent consideration. Any payments made or receivedpursuant to the Additional Consideration Agreement will be treated asadjustments to the purchase price and, therefore, will not be reported in ourConsolidated Statement of Income but will be included in consolidated EBITDAfor purposes of certain covenants under our debt agreements. For moreinformation 

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about the AdditionalConsideration Agreement, see “Item 13. Certain Relationships and Related Transactions, and DirectorIndependence” of this Form 10-K.

***MergerWith Boise Land & Timber Holdings Corp.***

At the time ofthe Forest Products Acquisition, Boise Land & Timber Holdings Corp. (TimberHoldings) acquired the timberlands of OfficeMax. At the time of the timberlandsacquisition, our majority owner, FPH, held an 80.1% majority interest in TimberHoldings, and OfficeMax (through its subsidiary) held the remaining 19.9%interest. In 2005, Timber Holdings sold its timberlands. In connection with thesale, its subsidiary, Boise Land & Timber Corp. (Timber Corp.), made a$264.8 million loan to us. The amount of this related-party loan wassubject to adjustment based on transactions between Timber Corp. and us. InNovember 2006, we repaid the $281.3 million balance of the loan fromTimber Corp. Immediately thereafter, Timber Holdings merged with and into us,which effectively transferred the loan repayment proceeds to us. In the merger,Timber Holdings transferred all of its ownership in Timber Corp. to FPH and asubsidiary of OfficeMax.

As a result of the merger transaction, FPH andOfficeMax were deemed to have used the loan repayment proceeds to make anadditional investment in the equity of our company. OfficeMax, the sole holderof our Series A equity units, used approximately $34.8 million tomake an additional investment in our Series A equity units. FPH and OfficeMaxused an aggregate of $245.6 million to make an additional investment inour Series B equity units. After the purchase, FPH and OfficeMax continuedto hold 80.1% and 19.9%, respectively, of our Series B equity units andthe number of equity units held remained the same.

In addition, as part of the note repayment andthe merger transaction, we amended our senior secured credit agreement (CreditAgreement) so that Timber Corp. is no longer a party to and/or guarantor of thelending arrangements provided for in the Credit Agreement. The amendment had noeffect on the amount owed under the Credit Agreement, terms of payment,interest rate, availability of additional credit, or other material terms ofthe Credit Agreement.

***Our Segments***

We operate our business using five reportablesegments:  Building MaterialsDistribution, Wood Products, Paper, Packaging & Newsprint, andCorporate and Other. These segments represent distinct businesses that aremanaged separately because of differing products and services. Each of thesebusinesses requires distinct operating and marketing strategies. Managementreviews the performance of the company based on these segments. Historically,OfficeMax conducted Boise Forest Products Operations in three segments:  Boise Building Solutions, Boise PaperSolutions, and Corporate and Other. We have recast the financial statements ofour predecessor included herein to conform with our current segmentpresentation. OfficeMax historically allocated the results of its timberlandoperations to each of its Boise Building Solutions and Boise Paper Solutionssegments. Since we did not acquire the timberland operations from OfficeMax,they are not included in these financial statements.

*BuildingMaterials Distribution. *OurBuilding Materials Distribution segment is a leading nationalinventory-carrying wholesale distributor of building materials. We distribute abroad line of building materials, including engineered wood products (EWP),oriented strand board (OSB), plywood, lumber, and general line items such asframing accessories, composite decking, roofing, siding, and insulation. Wepurchase most of these building materials from third-party suppliers and marketthem primarily to customers that resell building materials to professional buildersin the residential, light commercial construction, and repair-and-remodelingmarkets.

*WoodProducts. *Our Wood Products segment manufactures and sells EWP, consisting oflaminated veneer lumber (LVL), a high-strength engineered lumber often used inbeams; I-joists, a structural support typically used in floors and roofs;and laminated beams. We also produce plywood, particleboard, dimension lumber,and high-quality ponderosa pine lumber, a premium lumber grade sold primarilyto manufacturers of specialty wood windows, moldings, and doors. Our woodproducts are used in new residential and light commercial construction and inresidential repair and remodeling. Most of these products are sold towholesalers, major retailers, and industrial converters or through our ownwholesale building materials distribution outlets. During 2006, approximately43% of the wood products we manufactured, including approximately 60% of ourEWP, were sold to our Building Materials Distribution segment.

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*Paper. *OurPaper segment manufactures and sells uncoated free sheet (including cut-sizeoffice papers, commercial printing paper, envelope papers, and a wide range ofvalue-added papers), market pulp, and containerboard (corrugating medium). Manyof our paper products are commodity products, while others have specializedfeatures that make these products value-added. Our value-added grades includehigh-bright and colored cut-size office papers and custom-developed specialtypapers for such uses as label and release. We sell to customers both directlyfrom our mills and through distribution centers. In 2006, approximately 45% ofour uncoated free sheet sales volume, including about 80% of our office paperssales volume, was sold to OfficeMax.

*Packaging & Newsprint*.  Our Packaging & Newsprint segmentmanufactures and sells containerboard (linerboard) and newsprint at our mill inDeRidder, Louisiana. We also operate five corrugated container plants in theNorthwest and a sheet feeder plant in Waco, Texas, which we acquired inFebruary 2006. Our corrugated containers are used in the packaging of freshfruit and vegetables, processed food, beverages, and other industrial andconsumer products. Our Waco plant, known as Central Texas Corrugated, or CTC,produces corrugated sheets that are sold to sheet plants in the region, wherethey are converted into corrugated containers for a variety of customers. Ourcontainerboard and corrugated products are sold by brokers or our own salespersonnel. We market our newsprint through Abitibi-Consolidated (Abitibi)pursuant to an arrangement whereby Abitibi purchases all of the newsprint weproduce at a price equal to the price at which Abitibi sells newsprint producedat its mills located in the southern United States, less associated expensesand a sales and marketing discount. The newsprint price is verified through athird-party review.

*Corporate and Other*.  Our Corporate and Other segment includescorporate support staff services, related assets and liabilities, and foreign exchangegains and losses.

***Factors That Affect OurOperating Results***

Our results ofoperations and financial performance are influenced by a variety of factors,including the following:

·             General economicconditions, including but not limited to housing starts, repair-and-remodelactivity, nonresidential construction, white-collar employment, electronicsubstitution, durable goods production, and relative currency values;

·             Volatility in rawmaterial and energy prices;

·             Pricing volatility inour distribution business;

·             The commodity natureof our products and our ability to maintain margins;

·             Industry cycles andcapacity utilization rates;

·             Actions of suppliers,customers, and competitors; and

·             The other factorsdescribed in “Item 1A. Risk Factors” in this Form 10-K.

*Commodityand Value-Added Products and Product Margins*

Manyof the products we manufacture and distribute are widely available and can bereadily produced by our competitors. Because commodity products have fewdistinguishing qualities from producer to producer, competition for theseproducts is primarily based on price, which is determined by supply relative todemand. Generally, market conditions beyond our control determine the price forour commodity products, and the price for any one or more of these products mayfall below our cash production costs. Therefore, our profitability with respectto these products depends on managing our cost structure, particularly rawmaterials and energy prices, which also exhibit commodity characteristics.

Not all of ourproducts are commodities. Our EWP and specialty papers are differentiated fromcompeting products based on quality and product design, as well as relatedcustomer service. In the case of these value-added products, we are generallyable to influence price based on the strength of differentiation and levels ofcustomer service and are generally able to sell these products at higher 

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margins than ourcommodity products. In order to reduce our sensitivity to the cyclicality ofour industry, a fundamental component of our strategy is to increase productionof EWP as a share of our total Wood Products segment sales and increasespecialty and premium papers as a percent of our total Paper segment sales. Webelieve these products are less susceptible to commodity dynamics.

Comparing 2006with 2005, we increased sales of EWP from our Wood Products segment fromapproximately 44% of segment sales in 2005 to 47% of sales in 2006. Theincrease in EWP production capacity we implemented in 2005 allowed us tocontinue to grow this business during the first half of 2006; however, therecent slowdown in new residential construction will make it challenging tocontinue to grow our EWP sales in the short term. In our Paper segment, weincreased sales of specialty and premium papers from approximately 29% ofuncoated free sheet tons sold during 2005 to 33% of uncoated free sheet tonssold during 2006. The announced project to convert our Wallula, Washington,W-3 paper machine to enable it to produce pressure sensitive grades is akey step in providing us with the capacity to increase production of specialtyand premium paper grades.

*Demand*

Theoverall level of demand for the products we make and distribute is affected by,among other things, construction activity, manufacturing activity, employment,and consumer spending. Accordingly, we believe that our financial resultsdepend in large part on general macroeconomic conditions in North America, aswell as on regional economic conditions in the geographic markets in which weoperate. While no single product line drives our overall financial performance,individual product lines are influenced by conditions in their respectiveindustries. For example:

·             Demand for buildingmaterials, including wood products, depends on new residential and lightcommercial construction and residential repair-and-remodeling activity, whichare impacted by demographic trends, interest rate levels, weather, and generaleconomic conditions. In recent years, demand for wood products has been highdue to strong new housing starts, the increasing size of new homes, a robustrepair-and-remodeling market, and a recovering light commercial constructionmarket. However, during the second half of 2006, there has been a significantincrease in the number of homes for sale relative to the monthly salesactivity. This has led to a drop in new home construction activity, asevidenced by the U.S. Commerce Department statistics for housing starts in 2006at approximately 1.8 million units relative to 2.07 million units in 2005. Moredramatically, during the period from July through December of 2006, starts weredown over 22% from the same period of 2005, resulting in significant pricedeclines for many commodity products. For example, relative to 2005, our WoodProducts segment sales prices for plywood declined 13% in 2006. In addition,noncommodity product volumes have been impacted. For example, the sales volumeof I-joists by our Wood Products segment during the second half of 2006 wasdown 21% from the same period of 2005.

·             Historically, demandfor uncoated free sheet correlated positively with general economic activity.However, demand for some communications paper grades such as cut-size paper,which we produce, has decreased as the use of electronic transmission anddocument storage alternatives has become more widespread and more efficient. Atthe same time, the proliferation of electronic bar code reader devices hashelped drive growth in demand for label and release papers, which we alsoproduce.

·             A large share of thedemand for corrugated containers, and therefore containerboard, is driven bymanufacturing, specifically the manufacture of nondurable goods. In addition,inventory stocking or liquidation of these goods has an impact, as do currencyexchange rates that affect the cost-competitiveness of foreign manufacturers.Demand continues to be negatively impacted by the offshoring of durable andnondurable goods manufacturing, as those products are then packaged abroadrather than in North America. U.S. exports of containerboard have also beenimpacted by the large increase of containerboard capacity, especially in Chinaand Europe, over the past three to four years.

·             Demand for newsprintdepends upon prevailing levels of newspaper advertising and circulation. Demandfor newsprint in North America declined approximately 14% between 2002 and2006, according to RISI, due in part to the growth of online media as well assubstitution with uncoated groundwood grades.

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*Supply*

Industrysupply of commodity wood products and paper is affected by the number ofoperational or idled facilities, the building of new capacity, and the shuttingdown of existing capacity. Capacity also tends to increase gradually over timewithout significant capital expenditures, as manufacturers improve productionefficiencies. Generally, more capacity is added or employed when supply istight and margins are relatively high, and capacity is idled or eliminated whensupply significantly exceeds demand and margins are poor. Because of relativelylower capital investments, lower shutdown and start-up costs, and the abilityin most facilities to reduce production economically by curtailing shifts, woodproducts manufacturing producers tend to react more quickly to oversupplysituations by removing shifts or curtailing facilities than pulp and papermanufacturers. For example, during the third and fourth quarters of 2006, asstructural panel prices fell dramatically, a number of our competitors reducedshifts or shut down facilities entirely in response to dramatically reducedmargins. We also reduced some operations and announced the permanent closure ofour veneer mill in Independence, Oregon.

While new capacityadditions are constrained by the high capital investment and long lead timesrequired to plan, obtain regulatory approvals for, and build a new mill, afavorable pricing environment, may prompt manufacturers to initiate expansionprojects. Currently, a number of OSB producers (a substitute for plywood, whichwe produce) are starting up or building new capacity. These projects wereannounced during the period of high residential construction activity that waswitnessed in 2004, 2005, and early 2006. This increase in supply, coupled withdramatically lower demand as construction has slowed, has had a negative impacton the price of all structural panel products, including plywood. However, somemajor OSB producers have announced indefinite shutdowns of existing facilitiesin the face of declining prices. In addition, a number of OSB producers haveannounced the intention to produce a strand lumber product that would beintended to be a substitute for EWP in some applications.

While paper producers are typically slower to shut down capacity, in 2005,faced with declining demand, rising costs (especially energy costs), ongoingdissatisfaction with financial performance, and in some cases, a declining U.S.dollar, several North American paper producers announced mill closures thatdecreased or will decrease supply. From 2002 to 2006, North Americanuncoated free sheet, containerboard, and newsprint capacities declined 6%, 3%,and 19%, respectively, according to RISI.

Industry supply ofcommodity wood products and paper is also influenced by the level of importsand overseas production capacity, which has grown in recent years. While theweakness of the U.S. dollar has mitigated the level of imports in recent years,a strengthening in the U.S. dollar would potentially lead to increased importsof commodity wood products and paper from overseas, thereby offsetting domesticcapacity rationalization and putting downward pressure on prices. Recentincreases in U.S. paper prices have begun to attract some imports, as overseasprices have not risen as quickly.

*OperatingCosts*

Ourmajor costs of production are labor, wood fiber, energy, and chemicals. Therelative importance of these costs varies by segment. Given the significance ofraw material and energy costs to our total operating expenses and our limitedability to control these costs, compared with other operating costs, volatilityin these costs can materially affect our margins. In addition, the timing anddegree of price cycles of raw materials and energy differ with respect to eachtype of raw material and energy we use.

*Labor.*  Ourlabor costs tend to increase steadily due to inflation in healthcare and wagecosts. Labor costs are not as volatile as our energy and wood fiber costs. See “Item 1.  Business—Employees” of this Form 10-Kfor more information.

*Woodfiber.*  Our primary raw material is wood fiber,accounting for the following percentages of materials, labor, and otheroperating expenses, including fiber costs, for our Wood Products, Paper, andPackaging & Newsprint segments:

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|                            | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** |
| ** **                 | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                 | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| Wood Products              |       | 40                                        | %          | 41                    | %          | 38 | % | 40 | % |
| Paper                      |       | 28                                        | %          | 27                    | %          | 28 | % | 25 | % |
| Packaging &  Newsprint |       | 14                                        | %          | 14                    | %          | 14 | % | 13 | % |

 

Our primary sourcesof logs and wood fiber are timber and byproducts of timber, such as wood chips,wood shavings, and sawdust. In February 2005, Timber Holdings sold all of itstimberlands to Forest Capital Partners, L.L.C., an unrelated party (TimberlandsSale). Since the Timberlands Sale, we have acquired substantially all of ourfiber from outside sources, including pursuant to supply agreements with thebuyer of the timberlands operations. In our Wood Products segment, we convertlogs into lumber and veneer, and in turn, we convert veneer into EWP andplywood. Logs are a lower percentage of the total cost of materials, labor, andother operating expenses in producing engineered wood than commodity productssuch as lumber and plywood. While log costs are still a significant componentof costs, as we continue to produce more engineered wood relative to commodityproducts, direct log costs decline as a percent of the total cost of materials,labor, and other operating expenses. We also convert residual wood fiber from ouroperations, as well as from third parties, into particleboard. In our Paper andPackaging & Newsprint segments, we convert logs and wood chips intopulp, which we sell or use at our paper mills to produce paper. On an aggregatebasis, we are able to produce all of our pulp needs, generally purchasing andselling similar amounts on the open market.

Logs and woodfiber are commodities, and prices for logs and wood fiber have historicallybeen cyclical due to changing levels of demand. Log and fiber supply may belimited by public policy or government regulation as well as fire, insectinfestation, disease, ice storms, windstorms, hurricanes, flooding, otherweather conditions, and other natural and man-made causes. Residual chip supplymay be limited due to reduction in primary manufacturing at sawmills andplywood plants. In recent years, declines in log and fiber supply, drivenprimarily by changes in public policy and government regulation, have beensevere enough to cause the closure of numerous facilities in some of theregions in which we operate. During 2006, we temporarily reduced pulpproduction at our St. Helens, Oregon, pulp and paper mill due to theinability to source wood fiber on a cost-effective basis. This resulted inapproximately 20,000 tons of lost pulp production at St. Helens. Anysustained undersupply and resulting increase in wood fiber prices coulddecrease our production volumes and/or increase our operating costs. Prices forour products might not reflect increases or decreases in log and wood fiberprices, and as a result, our operating margins could fluctuate. Market pricesfor a variety of fiber sources, including logs and chips for our Northwestoperations and logs for our Minnesota and Louisiana operations, were higher inthe first half of 2006 than in the first half of 2005. While log costs camedown in Minnesota and Louisiana during the second half of 2006, they are stillhigh by historical standards. In the Pacific Northwest, residual chip costscontinue to be high, and availability continues to be challenging. Becauseresidual fiber in the Pacific Northwest comes predominately from sawmills andplywood plants, curtailments in these mills as a result of decreased demand forthese products related to the housing slowdown will continue to impact theavailability of chips for our Northwest pulp and paper operations.

*Other rawmaterials and energy purchasing and pricing.*We purchaseother raw materials and energy used to manufacture our products in both theopen market and through long-term contracts. These contracts are generally withregional suppliers who agree to supply all of our needs for a certain rawmaterial or energy at one of our facilities. These contracts normally containminimum purchase requirements and are for terms of various lengths. They alsocontain price adjustment mechanisms that take into account changes in marketprices. Therefore, although our long-term contracts provide us with supplies ofraw materials and energy that are more stable than open-market purchases, inmany cases, they may not alleviate fluctuations in market prices.

Our costs will rise if prices for our raw materials or energyrise, and our margins are impacted by how much and how quickly we can pass suchprice increases through to our customers. Specifically, some of our keychemicals, including pulping and bleaching chemicals consumed in our Paper andPackaging & Newsprint mills and glues and resins consumed in our WoodProducts operations, are heavily influenced by energy costs. A number of our majorsuppliers have obtained price increases tied to 

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their increased energy costs. Our ability to pass through priceincreases depends on several factors, which vary by product line.

*Energy.*Energyprices, particularly for electricity, natural gas, and fuel oil, have beenvolatile in recent years and currently exceed historical averages. Energy costsrepresented the following percentages of materials, labor, and other operatingexpenses, including fiber costs, for our Wood Products, Paper, and Packaging &Newsprint segments:

|                            | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** |
| ** **                 | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                 | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| Wood Products              |       | 4                                         | %          | 3                     | %          | 4 | % | 3 | % |
| Paper                      |       | 15                                        | %          | 16                    | %          | 17 | % | 13 | % |
| Packaging &  Newsprint |       | 15                                        | %          | 14                    | %          | 14 | % | 12 | % |

 

In 2006, wereduced consumption of purchased fossil fuel in our paper mills byapproximately 5.6% per unit of production, compared with 2005. This reductionwas achieved with a variety of consumption reduction and fuel-switchingactivities, including the use of more purchased biomass fuel to replacepurchased fossil fuels. We have limited flexibility to switch between fuelsources in the short term; accordingly, we have significant exposure to naturalgas and fuel oil price changes. To reduce our exposure to price increases, wehave entered into a variety of contracts to limit our susceptibility to changesin energy costs. As of December 31, 2006, we have mitigated our exposureto higher energy prices by hedging a portion of our expected natural gas usagefor the period of January 1, 2007, through February 2007. At December 31,2006, the fair market value of our energy swaps was a negative$9.7 million, which we recorded in “Accrued liabilities, Other” on ourConsolidated Balance Sheet. During 2006, our energy costs were approximately$20** **million higher than they wouldhave been had we not hedged our exposure to changing prices. In addition, wealso entered into derivative instruments related to approximately 10% of ourexpected purchases from July 2007 through October 2007.

*Chemicals.*Important chemicals we use in the production of our productsinclude precipitated calcium carbonate, sodium chlorate, sodium hydroxide,dyes, resins, and adhesives. Purchases of chemicals represented the followingpercentages of materials, labor, and other operating expenses, including fibercosts, for our Wood Products, Paper, and Packaging & Newsprintsegments:

|                            | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** |
| ** **                 | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                 | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| Wood Products              |       | 6                                         | %          | 6                     | %          | 5 | % | 5 | % |
| Paper                      |       | 14                                        | %          | 13                    | %          | 13 | % | 12 | % |
| Packaging &  Newsprint |       | 5                                         | %          | 4                     | %          | 3 | % | 3 | % |

 

We have experienced higher chemical costs during 2006, comparedwith 2005, due in part to increases in energy and transportation costssustained by our chemical suppliers that they have partially passed through tous.

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***Results of Operations***

The following tables setforth the results of operations in dollars and as a percentage of sales for theyears ended December 31, 2006 and 2005, the period of October 29(inception) through December 31, 2004, and the predecessor period ofJanuary 1 through October 28, 2004.
| ** **                                      | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|-------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29  (inception)  through** | ** ** | **January 1  through** | ** ** |
| ** **                                      | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                                      | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
|                                            |       | **(millions)**                            |       |
| **Sales**                                       |       |                                      |       |                  |       |   |   |   |   |
| Trade                                           |       | $                                         | 5,204.0    |                  | $          | 5,345.1 |   | $ | 780.0 |   | $ | 4,417.4 |   |
| Related parties                                 |       | 575.9                                     |       | 562.3                 |       | 92.7 |   | 444.6 |   |
|                                            |       | 5,779.9                                   |       | 5,907.4               |       | 872.7 |   | 4,862.0 |   |
|                                            |       |                                      |       |                  |       |   |   |   |   |
| **Costs  and expenses**                         |       |                                      |       |                  |       |   |   |   |   |
| Materials,  labor, and other operating expenses |       | 5,063.1                                   |       | 5,155.1               |       | 733.5 |   | 4,122.1 |   |
| Fiber costs from  related parties               |       | —                                    |       | 17.6                  |       | 24.5 |   | 95.5 |   |
| Depreciation,  amortization, and depletion      |       | 155.3                                     |       | 128.8                 |       | 20.0 |   | 193.8 |   |
| Selling and  distribution expenses              |       | 283.6                                     |       | 264.1                 |       | 40.1 |   | 211.3 |   |
| General and  administrative expenses            |       | 88.4                                      |       | 74.7                  |       | 10.6 |   | 79.3 |   |
| Other (income)  expense, net                    |       | 6.1                                       |       | (5.6                  | )          | — |   | 25.3 |   |
|                                            |       | 5,596.5                                   |       | 5,634.7               |       | 828.7 |   | 4,727.3 |   |
| Income from  operations                         | ** ** | **$**                                     | **183.4**  | ** **            | **$**      | **272.7** | ** ** | **$** | **44.0** | ** ** | **$** | **134.7** | ** ** |

 
|                                                                                 |       | **(percentage of sales)** |   |
|--------------------------------------------------------------------------------------|------------|---------------------------|--------|
| **Sales**                                                                            |       |                      |   |   |   |   |   |   |   |
| Trade                                                                                |       | 90.0                      | %      | 90.5 | % | 89.4 | % | 90.9 | % |
| Related parties                                                                      |       | 10.0                      |   | 9.5 |   | 10.6 |   | 9.1 |   |
|                                                                                 |       | 100.0                     | %      | 100.0 | % | 100.0 | % | 100.0 | % |
|                                                                                 |       |                      |   |   |   |   |   |   |   |
| **Costs  and expenses**                                                              |       |                      |   |   |   |   |   |   |   |
| Materials,  labor, and other operating expenses and fiber costs from related parties |       | 87.6                      | %      | 87.5 | % | 86.9 | % | 86.8 | % |
| Depreciation,  amortization, and depletion                                           |       | 2.7                       |   | 2.2 |   | 2.3 |   | 4.0 |   |
| Selling and  distribution expenses                                                   |       | 4.9                       |   | 4.5 |   | 4.6 |   | 4.3 |   |
| General and  administrative expenses                                                 |       | 1.5                       |   | 1.3 |   | 1.2 |   | 1.6 |   |
| Other (income)  expense, net                                                         |       | 0.1                       |   | (0.1 | ) | — |   | 0.5 |   |
|                                                                                 |       | 96.8                      | %      | 95.4 | % | 95.0 | % | 97.2 | % |
| Income from  operations                                                              | ** ** | **3.2**                   | **%**  | **4.6** | **%** | **5.0** | **%** | **2.8** | **%** |

 

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***Sales Volumes and Prices***

Set forth below are our segment sales volumes and averagenet selling prices for our principal products for the years endedDecember 31, 2006 and 2005, the period of October 29 (inception)through December 31, 2004, and the predecessor period of January 1through October 28, 2004.
| ** **                                       | ** ** | **Boise**                                                               | ** ** | **Predecessor**                                              | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                       | ** ** | **Year Ended December 31**                               | ** ** | **October 29  (inception)  through  December 31,** | ** ** | **January 1  through  October 28,** | ** ** |
| ** **                                       | ** ** | **2006**                                                                | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **(millions)**                                                          | ** ** |
| **Building Materials Distribution**              | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales dollars                                    |       | $                                                                       | 2,950      |                                                         | $          | 3,052 |   | $ | 402 |   | $ | 2,442 |   |
|                                             |       |                                                                    |       |                                                         |       |   |   |   |   |
|                                             |       | **(percentage  of Building Materials Distribution sales)**              |       |
| Product Line Sales                               |       |                                                                    |       |                                                         |       |   |   |   |   |
| Commodity                                        |       | 45                                                                      | %          | 52                                                           | %          | 60 | % | 55 | % |
| Engineered wood  products                        |       | 16                                                                      |       | 16                                                           |       | 13 |   | 15 |   |
| General line items                               |       | 39                                                                      |       | 32                                                           |       | 27 |   | 30 |   |
| ** **                                       | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Sales Volumes**                                |       | **(millions)**                                                          |       |
| **Wood Products**                                | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer lumber  (LVL) (cubic feet)      |       | 12                                                                      |       | 12                                                           |       | 2 |   | 10 |   |
| I-joists  (equivalent lineal feet)               |       | 219                                                                     |       | 243                                                          |       | 31 |   | 192 |   |
| Plywood (sq. ft.) (3/8”  basis)             |       | 1,268                                                                   |       | 1,328                                                        |       | 243 |   | 1,228 |   |
| Lumber (board feet)                              |       | 277                                                                     |       | 327                                                          |       | 60 |   | 303 |   |
| Particleboard (sq. ft.)  (3/4” basis)       |       | 157                                                                     |       | 165                                                          |       | 22 |   | 134 |   |
|                                             |       |                                                                    |       |                                                         |       |   |   |   |   |
| ** **                                       | ** ** | **(thousands of short tons, except  corrugated containers and sheets)** | ** ** |
| **Paper**                                        | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Uncoated free sheet                              |       | 1,497                                                                   |       | 1,516                                                        |       | 246 |   | 1,249 |   |
| Containerboard (medium)                          |       | 132                                                                     |       | 128                                                          |       | 23 |   | 110 |   |
| Market pulp                                      |       | 112                                                                     |       | 142                                                          |       | 27 |   | 138 |   |
| ** **                                       | ** ** | **1,741**                                                               | ** ** | **1,786**                                                    | ** ** | **296** | ** ** | **1,497** | ** ** |
| ** **                                       | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Packaging & Newsprint**               | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Containerboard  (linerboard) (a)                 |       | 266                                                                     |       | 452                                                          |       | 81 |   | 382 |   |
| Newsprint                                        |       | 411                                                                     |       | 408                                                          |       | 81 |   | 349 |   |
| Corrugated containers  and sheets (mmsf)         |       | 6,599                                                                   |       | 4,770                                                        |       | 787 |   | 3,876 |   |
| ** **                                       | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **(dollars per unit)**                                                  | ** ** |
| **Average Net Selling Prices**                   | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Wood Products**                                | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer lumber  (LVL) (100 cubic feet)  |       | $                                                                       | 1,896      |                                                         | $          | 1,941 |   | $ | 1,853 |   | $ | 1,640 |   |
| I-joists (1,000  equivalent lineal feet)         |       | 1,110                                                                   |       | 1,095                                                        |       | 1,032 |   | 978 |   |
| Plywood (1,000 sq. ft.)  (3/8” basis)       |       | 256                                                                     |       | 293                                                          |       | 261 |   | 334 |   |
| Lumber (1,000 board  feet)                       |       | 478                                                                     |       | 491                                                          |       | 511 |   | 552 |   |
| Particleboard (1,000  sq. ft.) (3/4” basis) |       | 339                                                                     |       | 263                                                          |       | 295 |   | 305 |   |
| ** **                                       | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **(dollars per short ton, except  corrugated containers and sheets)**   | ** ** |
| **Paper**                                        | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Uncoated free sheet                              |       | $                                                                       | 802        |                                                         | $          | 742 |   | $ | 768 |   | $ | 718 |   |
| Containerboard (medium)                          |       | 392                                                                     |       | 330                                                          |       | 452 |   | 388 |   |
| Market pulp                                      |       | 440                                                                     |       | 396                                                          |       | 394 |   | 400 |   |
| ** **                                       | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Packaging & Newsprint**               | ** ** | ** **                                                              | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Containerboard  (linerboard) (a)                 |       | $                                                                       | 355        |                                                         | $          | 349 |   | $ | 392 |   | $ | 354 |   |
| Newsprint                                        |       | 533                                                                     |       | 491                                                          |       | 445 |   | 434 |   |
| Corrugated containers  and sheets ($/msf)        |       | 50                                                                      |       | 50                                                           |       | 49 |   | 47 |   |

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(a)                                  Includes the impact of adopting EITF 04-13, *Accounting for Purchases and Sales of Inventory With the SameCounterparty*, effective January 1, 2006, which required us toreport our inventory buy/sell transactions on a net basis. In accordance withthe provisions of EITF 04-13, prior-period financial information hasnot been reclassified to conform with the current period’s presentation. SeeNote 1, Summary of Significant Accounting Policies, of the Notes to theConsolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K for more information.

 

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***OperatingResults***

The consolidatedfinancial statements present the financial results of Boise for the years endedDecember 31, 2006 and 2005, and for the period of October 29(inception) through December 31, 2004, and the financial results of BoiseForest Products Operations for the period of January 1 throughOctober 28, 2004. We refer to the period of October 29 (inception)through December 31, 2004, which represents the portion of 2004 followingthe closing of the Forest Products Acquisition, as the last two months of 2004and the period of January 1 through October 28, 2004, as the firstten months of 2004. When we refer to our 2004 results, we are referring to thecombined results of Boise for the period of October 29 (inception) throughDecember 31, 2004, and Boise Forest Products Operations for the period of January 1through October 28, 2004.

***2006Compared With 2005***

# *Sales*

Total sales decreased $127.5 million, or 2%, to$5.8 billion in 2006 from $5.9 billion in 2005. Relative tothe year ended December 31, 2005, sales decreased in Building MaterialsDistribution and Wood Products and increased in Paper and Packaging &Newsprint. The decrease in sales in Building Materials Distribution and WoodProducts was driven primarily by lower commodity prices during the year andlower sales volumes during the second half of 2006 as a result of the sharpfalloff in housing starts. The increase in sales in Paper was driven primarilyby higher prices, as firm demand and little or no increase in capacity led totighter supply/demand dynamics, which allowed producers to raise prices. The increasein Packaging & Newsprint sales was driven primarily by the addition ofCentral Texas Corrugated (CTC) and higher prices, as relatively firm marketsand little or no increase in capacity led to tighter supply/demand dynamics,which allowed producers to raise prices.

*Building MaterialsDistribution.*  Sales decreased$102.0 million, or 3%, to $2,950.3 million in 2006 from$3,052.3 million in 2005. Sales volumes in Building Materials Distributionincreased 0.7% from the prior year. The increased sales volumes occurred in thefirst half of the year, while during the second half of the year, volumes weredown, and third- and fourth-quarter sales volumes decreased 5.4% and 7.1%,compared with the same periods in 2005. In 2006, our sales prices were approximately4% lower than in 2005, driven primarily by lower commodity prices.

*Wood Products*.Sales decreased $138.5 million, or 11%, to $1,155.9 million in 2006 from$1,294.4 million in 2005. Sales price and volume decreases bothcontributed to reduced sales for our Wood Products segment. The largest impactwas from the decrease in the sales price of plywood, which decreased 13%,compared with the same period in 2005. Average prices for lumber and laminatedveneer lumber (LVL) decreased 3% and 2%, respectively, compared with the sameperiod in 2005. We believe that most of these decreases in price and volume arethe result of the decline in demand brought about by the decrease in housingstarts during the second half of the year. Plywood prices are also being impactedby an increase in the supply of oriented strand board (OSB), as competitorscontinue to bring new capacity on line and ramp up the production of these newfacilities. These changes in demand and supply in panels are being offset, inpart, by the shutdown or production curtailments in both plywood and OSBplants. In addition to reduced prices, sales were also negatively impacted bylower volumes. Our sales volumes for I-joists, lumber, and plywood were down10%, 15%, and 5%, respectively. Sales volumes are down due to reduced overallmarket demand, which drove us to reduce production of these products byreducing the number of operating shifts.

*Paper. *Sales increased$76.9 million, or 5%, to $1,494.7 million in 2006 from$1,417.8 million in 2005. The increase in sales was primarily due to theincrease in the price of commodity uncoated free sheet papers, which was 10%higher, compared with the same period a year ago. In addition, prices forspecialty and premium papers, corrugating medium, and market pulp increased 2%,19%, and 11%, respectively. In 2006, we took 4,000 tons of market-relateddowntime related to uncoated free sheet production, compared with17,000 tons in 2005. In third quarter 2005, we lost approximately3,500 tons of uncoated free sheet production due to Hurricanes Dennis andKatrina. Overall sales volumes decreased 2%. Contributing to the drop in salesvolume was a 21% decrease in the sales volume of market pulp, as we reducedproduction at our St. Helens pulp and paper mill due to difficultysourcing an adequate volume of wood chips at acceptable prices. During 2006, asa result of the shortage of chips in the Northwest, we reduced pulp productionat our St. Helens mill approximately 20,000 tons. In addition, 

 

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sales volumes in uncoated free sheet papers decreased 1%. During fourthquarter 2006, we chose to build inventory to cover planned production downtimein early 2007 at our Wallula mill to implement the capital project to produceboth pressure sensitive paper and commodity uncoated free sheet. The decreasein uncoated free sheet sales volumes occurred largely in the fourth quarter, asdemand declined seasonally. Corrugating medium sales volumes were modestlyhigher in 2006, compared with 2005.

*Packaging &Newsprint. *Sales increased$34.9 million, or 5%, to $766.5 million in 2006 from$731.6 million in 2005. The increase was driven primarily byincreased corrugated sheet sales from CTC, coupled with increased sales pricesfor both linerboard and newsprint, which were up 2% and 9%, respectively. Theseincreases were partially offset by lower linerboard sales volumes due, in part,to the adoption of EITF 04-13 and lower sales of linerboard, as wemoved more of our linerboard through our own converting plants. Excluding theimpact of EITF 04-13, linerboard sales volumes decreased 1%,compared with 2005. Had the consensus been in effect in 2005, it would havereduced sales $69.6 million. In 2006, we took 9,000 tons of market-relateddowntime, compared with 13,000 tons in 2005. In both periods, themarket-related downtime was primarily in newsprint. In third quarter 2005, welost approximately 9,500 tons of linerboard production and 8,200 tonsof newsprint production due to Hurricane Rita.

*Costs and Expenses*

Materials, labor, and other operatingexpenses, including fiber costs from related parties, decreased$109.6 million, or 2%, to $5.1 billion in 2006 from $5.2 billionin 2005. The decrease was due primarily to lower commodity prices for materialpurchased by our Building Materials Distribution segment for resale and lowerWood Products sales volumes. These decreases were offset, in part, by highersales volumes in our Building Materials Distribution segment and higher rawmaterial costs in our Paper and Packaging & Newsprint segments. Fiberand energy costs were higher year over year in our Paper andPackaging & Newsprint segments. In addition, chemical costs in ourPaper and Packaging & Newsprint segments were higher, as suppliersincreased prices to reflect increases in their energy costs. Chemical costs inour uncoated free sheet business were also higher due to the move to higherbrightness for commodity cut-size papers. In addition, we experienced highercompensation and benefit costs in all of our manufacturing businesses, reflectinggeneral inflation in wages and benefits. As a percentage of sales, materials,labor, and other operating expenses increased slightly to 87.6% in 2006 from 87.5% in2005.

Depreciation, amortization, and depletionexpenses increased $26.5 million, or 21%, to $155.3 million in 2006from $128.8 million in 2005. As a percentage of sales, these costsincreased to 2.7% in 2006 from 2.2% in 2005. The increase was primarily theresult of our reviewing the estimated useful lives of some of our depreciableassets and determining that some of our assets would be used for a shorterperiod of time than the depreciable lives previously assigned to them. As aresult, we revised our depreciation estimates to reflect the remaining expecteduse of the assets. This change in estimate increased depreciation,amortization, and depletion expenses by approximately $12 million in 2006,and we expect the changes to increase depreciation, amortization, and depletionexpenses by approximately the same amount in 2007.

Selling and distribution expenses increased$19.5 million, or 7%, to $283.6 million in 2006 from$264.1 million in 2005. As a percentage of sales, selling and distributionexpenses increased to 4.9% in 2006 from 4.5% in 2005. The increaseprimarily relates to increased costs in our Building Materials Distributionsegment, where we added personnel for expanding and growing locations. We alsoincurred higher distribution costs in our Building Materials Distributionsegment. In addition, in 2006, our Paper segment recorded a $2.3 millionwrite-off of bad debt related to the bankruptcy of a customer.

General and administrative expenses increased$13.7 million, or 18%, to $88.4 million in 2006 from$74.7 million in 2005. General and administrative expenses as a percentageof sales increased 0.2% in 2006, from 1.3% in 2005 to 1.5% in 2006. Relativeto 2005, general and administrative expenses increased primarily due to higheroutside professional fees, benefit costs, training expenditures, and leasecosts.

Other (income) expense, net, was$6.1 million of expense in 2006, compared with $5.6 million of incomein 2005. In 2006, other (income)expense, net, included $3.7 million of income for changes in our retireehealthcare programs, offset by $4.5 million of expense for special projects,$3.7 million of expense related to the loss on sale of assets, whichincludes $1.7 million of expense for the loss on the sale of our 

 

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headquarters building, as well as other miscellaneous income and expenseitems. Other (income) expense, net, in 2005 primarily included$9.9 million of income for changes in our retiree healthcare programs,offset in part by $3.6 million of expense for the write-off of costsincurred in connection with the canceled initial public offering.

***Income(Loss) From Operations***

Income from operations decreased $89.3 million, or 33%, from$272.7 million in 2005 to $183.4 million for 2006. The decrease wasprimarily the result of lower income in the Wood Products and BuildingMaterials Distribution segments, offset in part by improved performance in thePaper and Packaging & Newsprint segments.

*BuildingMaterials Distribution. *Segmentincome decreased $24.6 million, or 25%, to $75.3 million for 2006,from $99.9 million for 2005. The decrease was driven primarily bylower margins on commodity products as sales prices decreased in 2006 relativeto 2005, coupled with higher operating and distribution costs. In addition,compensation and benefits costs increased, reflecting general wage and benefitinflation and increased personnel for expanding and growing locations.

*WoodProducts.*Segment income decreased $82.2 million, or69%, to $37.2 million for 2006, compared with $119.4 million for2005. The decrease was driven largely by lower prices for plywood, coupledwith higher wood costs and higher per-unit conversion costs.

*Paper. *Segment income increased$4.5 million, or 8%, to $63.1 million for 2006, compared with$58.6 million for 2005. This increase was due primarily to higher prices.Partially offsetting the higher prices were increases in raw material andmanufacturing costs, including fiber, chemicals, compensation and benefits, andenergy. Chemical cost increases were primarily the result of increases inprices from our suppliers and, to a lesser extent, the conversion to higher brightnessin uncoated free sheet grades. In addition, we experienced a reduction inmarket pulp sales, as we curtailed operations at our St. Helens, Oregon, pulpmill in response to high wood costs.

*Packaging &Newsprint.* Segmentincome increased $21.5 million, or 90%, to $45.3 million for 2006,compared with $23.8 million for 2005. The increase was primarily theresult of higher linerboard and newsprint prices. The addition of CTC alsocontributed to improved segment income. These improvements were offset, inpart, by increased depreciation, compensation and benefits, fiber, energy, andchemical costs. The year ended December 31, 2005, included downtime taken as aresult of Hurricane Rita.

*Other*

*Change in fair value ofinterest rate swaps. *Forthe year ended December 31, 2005, we recorded $9.9 million of incomein “Change in fair value of interest rate swaps” in our Consolidated Statementof Income for the change in the fair value of interest rate swaps related toour amended and restated credit facilities. In connection with the amendmentand restatement and the anticipated repayment of the Tranche B term loan,the interest rate swaps associated with this debt were no longer consideredhedges of the variable interest payments on that loan. As a result, duringfirst quarter 2005, we recorded the fair value of the interest rate swaps, or$15.2 million of income, in “Change in fair value of interest rate swaps”in our Consolidated Statement of Income. In second quarter, we redesignated the$550 million of interest rate swaps as hedges of the cash flow from theLondon Interbank Offered Rate (LIBOR)-based variable interest payments onamounts borrowed under our senior secured credit facilities (the Facilities)and recognized $5.3 million of noncash expense in “Change in fair value ofinterest rate swaps” in our Consolidated Statement of Loss. The net$9.9 million of value that was recorded in “Other assets” on ourConsolidated Balance Sheet will result in higher interest expense over theremaining life of the interest rate swaps.

*Interest expense. *For the year endedDecember 31, 2006, interest expense was $112.4 million, compared with$166.3 million in the same period a year ago. In 2005, interest expenseincluded a $43.0 million charge for the write-off of deferred financingcosts resulting from the repayment of the Tranche B term loan. Excludingthe impact of the write-off of deferred financing costs, the decrease ininterest expense related to a decrease in long-term debt. At December 31,2006, our long-term debt was $1.2 billion, compared with $1.6 billiona year ago. The decrease in long-term debt is primarily attributable torepaying the note payable to Timber Corp., paying down the Tranche D termloan, and borrowings 

 

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secured by receivables.For more information, see “Financing Activities” under Liquidity and CapitalResources in this Management’s Discussion and Analysis of Financial Conditionand Results of Operations.

*Incometax provision. *Income taxexpense was $3.6 million in 2006, compared with $2.1 million ofincome tax benefits recorded in 2005. The 2006 income tax expense relatesprimarily to expense recognized by our taxable subsidiaries. In 2005, weconverted to a C corporation from a limited liability company. In December2005, we rescinded our conversion to C corporation status. During theperiod we were a corporation, we recorded approximately $4.8 million ofdeferred tax liabilities related to our cash flow hedges, with the offset to “Othercomprehensive income” on our Consolidated Balance Sheet. In connection withconverting back to a limited liability company, we reversed the income taxexpense and deferred taxes recorded while we were a corporate entity. Thereversal of the deferred tax liabilities related to our cash flow hedgesresulted in a $4.8 million income tax benefit for the year endedDecember 31, 2005, that was partially offset by income tax expenserecognized by our taxable subsidiaries. We are recognizing the$4.8 million recorded in “Other comprehensive income” as income tax expenseas the hedges expire.

***2005Compared With 2004***

*Sales*

Total sales increased $172.7 million, or 3%, to$5.9 billion in 2005 from $5.7 billion in 2004. With the exception ofWood Products, sales in all of our segments increased during 2005, comparedwith 2004. Building Materials Distribution sales rose 7% primarily due togrowth in sales volumes. Wood Products sales decreased 5% due to lower plywoodand lumber prices and volumes, offset in part by increased engineered woodproducts sales. Paper sales increased 3% primarily due to higher averageuncoated free sheet prices. Packaging & Newsprint sales increased 5%primarily due to increased corrugated container sales volume and improvedcorrugated container and newsprint prices, offset in part by lower newsprintvolumes, lower linerboard prices, and lower linerboard sales volumes, as wemoved more of our linerboard production through our own corrugated containerplants.

*Building MaterialsDistribution.*  Salesincreased $208.2 million, or 7%, to $3,052.3 million in 2005 from$2,844.1 million in 2004. Sales increased due to organic growth in legacyfacilities coupled with continued ramp-up of new facilities and expansions inexisting facilities. We also continued to improve our product mix as a resultof increased volumes of engineered wood products and general line items, whichtend to have higher product margins. Market demand was strong during the year,as 2005 housing starts surpassed 2004 levels.

*Wood Products.* Sales decreased $65.6 million, or 5%, to$1,294.4 million in 2005 from $1,360.0 million in 2004. Whileengineered wood products sales were up 22% from 2004, our plywood prices weredown approximately 9% and our plywood volumes declined 10%, as we moved moreveneer through our engineered wood products plants. Compared with 2004, lumberprices fell 10%, and lumber volumes declined 10%. Although down from 2004levels, lumber and plywood prices in 2005 were generally strong when comparedwith historical periods.

*Paper.*  Sales increased $47.2 million, or 3%, to$1,417.8 million in 2005 from $1,370.6 million in 2004. The salesincrease was driven primarily by increased uncoated free sheet prices. Despitean overall market demand decline, our uncoated free sheet sales volumeincreased, reflecting a 2% increase in sales of our specialty and premiumpapers and a 1% increase in sales of our commodity papers. Prices for uncoatedfree sheet increased 2%, reflecting a 3% increase in commodity paper priceswhile specialty and premium paper prices remained flat. In 2005, we took17,000 tons of market-related downtime, compared with 50,000 tons in2004. In third quarter 2005, we lost approximately 3,500 tons of uncoatedfree sheet production due to Hurricanes Dennis and Katrina.

*Packaging &Newsprint. *Salesincreased $37.1 million, or 5%, to $731.6 million in 2005 from$694.5 million in 2004. Corrugated container sales prices and volumesincreased 4% and 2%, respectively, driven by strengthening supply/demandfundamentals, while newsprint prices and volumes****wereup 13% and down 5%, respectively. Newsprint price increases reflect improvedsupply/demand dynamics for the grade, as competitors shut down production orconverted production to other grades. Linerboard sales prices and volumesdecreased 3% and 2%, respectively. Linerboard price decreases reflect lowerend-user demand. In 2005, we took 13,000 tons of market-related downtime,compared with 

 

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23,000 tons in 2004. In both periods,the market-related downtime was primarily in newsprint. In third quarter 2005,we lost approximately 9,500 tons of linerboard production and8,200 tons of newsprint production due to Hurricane Rita.

*Costs and Expenses*

Materials, labor, and other operatingexpenses, including fiber costs, increased $197.1 million, or 4%, to$5.2 billion in 2005 from $5.0 billion in 2004. As a percentage ofsales, these costs increased to 87.5% in 2005 from 86.8% in 2004. The increasewas primarily attributable to increased energy, chemical, and fiber costs. WoodProducts incurred higher delivered-log, energy, and resin costs, compared with2004. Paper and Packaging & Newsprint experienced lower fixed costs,including labor, which partially offset increased variable costs, includingenergy, chemicals, and fiber. Relative to 2004, as a percentage ofsales, materials, labor, and other operating expenses in the Building MaterialsDistribution segment were relatively flat.

Depreciation, amortization, and depletion expenses decreased$85.0 million, or 40%, to $128.8 million for the year endedDecember 31, 2005, compared with $213.8 million for the year endedDecember 31, 2004. The reduction in depreciation and amortization isprimarily the result of the revaluation of assets associated with the purchaseof the assets from our predecessor.

Selling and distribution expenses increased $12.7 million, or 5%, to$264.1 million in 2005 from $251.4 million in 2004. As a percentageof sales, selling and distribution expenses increased slightly to 4.5% in 2005from 4.4% in 2004.

General and administrative expensesdecreased $15.2 million, or 17%, to $74.7 million in 2005 from$89.9 million in 2004. General and administrative expenses as a percentageof sales decreased 0.3% in 2005, from 1.6% in 2004 to 1.3% in 2005. Thesedecreases reflect lower pension and incentive compensation costs, as describedin more detail below.

The costs and expenses discussed above reflect the positive impact of thereduced benefit costs we realized as a result of the Forest ProductsAcquisition, due to OfficeMax retaining the benefit obligation for all of itsformer employees except for the OfficeMax employees hired by us. For the yearended December 31, 2005, our pension and other postretirement benefitexpense decreased $40.8 million, or 59%, to $28.7 million from$69.5 million in 2004.

Other (income) expense, net, was$5.6 million of income in 2005, compared with $25.3 million ofexpense in 2004. Other (income) expense, net, in 2005 primarily included$9.9 million of income for changes in our retiree healthcare programs,offset in part by $3.6 million of expense for the write-off of costsincurred in connection with the canceled initial public offering. Other(income) expense, net, in 2004 included $12.7 million of expense relatedprimarily to a one-time retention bonus OfficeMax granted to our employees,$7.1 million of expenses related to the sale of our predecessor’s plywoodand lumber operations in Yakima, Washington, and a $3.0 million loss onsale of assets, offset by other miscellaneous income and expense items.

*Income (Loss) From Operations*

Income (loss) from operations increased $94.0 million, or 53%, toincome of $272.7 million in 2005, compared with $178.7 million in2004. Relative to 2004, segment income increased in Building MaterialsDistribution, Paper, and Packaging & Newsprint, while it decreased in WoodProducts.

*Building Materials Distribution.*  Segment results improved $11.0 million,or 12%, to $99.9 million of income in 2005 from $88.9 million ofincome in 2004. The improved financial performance was driven by increasedvolumes, as we continued to grow the business and improved product mix byincreasing the percentage of sales from engineered wood products and generalline items.

*Wood Products.* Segment income decreased $99.1 million to$119.4 million of income in 2005, compared with $218.5 million ofincome in 2004. In 2004, our predecessor recorded a $46.5 million pretaxgain for the sale of its 47% interest in Voyageur Panel to Ainsworth Lumber Co.Ltd. Before the gain recorded for the sale of the interest in Voyageur Panel,segment income decreased $52.6 million, or 31%, primarily due to lowerplywood and lumber prices and volumes, coupled****withhigher wood and resin costs. The reduction in plywood volumes was largely theresult of shifting more of our veneer production from 

 

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plywood to engineered wood products. The decreases in income were offset,in part, by increased engineered wood products sales, reflecting continuedstrength in the housing market.

*Paper.*  Segment results improved $75.0 millionto $58.6 million of income in 2005 from a $16.4 million loss in 2004.The increase in segment income, relative to the same period in 2004, is due toimproved pricing, product mix, and reduced fixed costs, including labor anddepreciation and amortization, partially offset by increases in variable costs,including energy, chemicals, and fiber. While uncoated free sheet marketsstarted the year strong, prices softened during the second half of the year,reflecting unfavorable supply/demand balances.

*Packaging &Newsprint. *Segmentresults improved**$17.7 million,or 289%, to $23.8 million of income in 2005, compared with$6.1 million in 2004. In 2005, the increase in segment income, relative tothe same period in 2004, was due to improved sales volumes and prices in ourbox plants driven by improved supply/demand balances in the industry. Resultswere also positively influenced by improved pricing in newsprint and reducedfixed costs. These impacts more than offset lower linerboard prices and salesvolumes, lower newsprint volumes, and significantly higher energy and chemicalcosts.

*Other*

*Change in fair value of interest rate swaps.*  For the year ended December 31, 2005, werecorded $9.9 million of income in “Change in fair value of interest rateswaps” in our Consolidated Statements of Income for the change in the fairvalue of interest rate swaps related to our amended and restated creditfacilities (see Liquidity and Capital Resources discussion below). Inconnection with the anticipated repayment of the Tranche B term loan, theinterest rate swaps associated with this debt were no longer considered hedgesof the variable interest payments on that loan. As a result, during firstquarter 2005, we recorded the fair value of the interest rate swaps, or$15.2 million of income, in “Change in fair value of interest rate swaps”in our Consolidated Statement of Income. In second quarter, we redesignated the$550 million of interest rate swaps as hedges of the cash flow from theLIBOR-based variable interest payments on amounts borrowed under our senior securedcredit facilities (the Facilities) and recognized $5.3 million of noncashexpense in “Change in fair value of interest rate swaps” in our ConsolidatedStatement of Loss. The net $9.9 million of value recorded in “Otherassets” on our Consolidated Balance Sheet will result in higher interestexpense over the remaining life of the interest rate swaps.

*Interest expense.*  For the year ended December 31, 2005,interest expense was $166.3 million, compared with $94.3 million inthe same period a year ago. The expense recorded for the year ended December31, 2005, includes a $43.0 million charge for the write-off of deferredfinancing costs resulting from the repayment of the Tranche B term loan.Also included in 2005 is $18.9 million of interest expense related to anote payable to Timber Corp. In the predecessor periods presented, OfficeMaxallocated interest costs to Boise Forest Products Operations based on itsaverage asset balances.

***TwoMonths Ended December 31, 2004***

*Sales*

Total sales duringthe last two months of 2004 were $872.7 million. Sales in our BuildingMaterials Distribution, Wood Products, Paper, and Packaging &Newsprint segments were $401.7 million, $200.1 million,$230.1 million, and $128.9 million, respectively, during that period.Our Building Materials Distribution and Wood Products segments benefited fromfavorable prices for EWP, offset by generally lower prices for plywood andlumber, compared with prices for these products in the first ten months of2004. Our Paper segment realized a 7% price increase for uncoated free sheet,compared with prices for the first ten months of 2004. Containerboard andnewsprint prices in our Packaging & Newsprint segment increased 11%and 3%, respectively, compared with prices for the first ten months of 2004.

*Costs andExpenses*

The aggregate amount of materials, labor, and otheroperating expenses, including fiber costs, was $758.0 million for the last two months of 2004. As a percentageof sales, these expenses and costs were flat, compared with the first tenmonths of 2004.

 

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Selling anddistribution expenses were $40.1 million in the last two months of 2004.As a percentage of sales, selling and distribution expenses increased slightlyfrom 4.3% for the first ten months of 2004 to 4.6% for the last two months of2004, due primarily to higher transportation costs.

General andadministrative expenses were $10.6 million for the last two months of2004. General and administrative expenses as a percentage of sales decreasedfrom 1.6% for the first ten months of 2004 to 1.2% for the last two months of2004. This decrease was due in part to our lower benefit costs as a result ofthe Forest Products Acquisition.

*Incomefrom Operations*

Incomefrom operations for the last two months of 2004 was $44.0 million. Eachoperating segment reported positive results for that period, with BuildingMaterials Distribution segment income of $10.1 million, Wood Productssegment income of $15.6 million, Paper segment income of$19.0 million, and Packaging & Newsprint segment income of$7.3 million. As a percentage of sales, income from operations increasedto 5% for the last two months of 2004 from 3% for the first ten months of 2004.This improvement reflects a decrease in depreciation, amortization, anddepletion expenses as a percentage of sales from 4% for the first ten months of2004 to 2% for the last two months of 2004, due to a lower depreciable assetbase as a result of the Forest Products Acquisition. Income from operations forthe last two months of 2004 reflects a $20.2 million noncash charge due toan inventory valuation adjustment recorded as a result of the Forest ProductsAcquisition.

***Recent Trends and Operational Outlook***

Recent trends andthe outlook for our businesses are mixed. While housing has experienced adownturn recently, paper and packaging markets have been on an upswing.

An increased number of new and existing homes for sale led to a significantdrop in new residential construction activity during the second half of 2006,compared with both the same period of 2005 and the first half of 2006. The U.S.Department of Commerce reported housing starts at a seasonally adjusted annualrate of 1.64 million units in December 2006, compared with2.0 million units in December 2005 and 1.95 million units in May2006. This reduction in new residential construction activity resulted indecreased demand for the wood and building products that we manufacture andsell. This reduction in demand was met with lower pricing for commodityproducts such as structural panels and structural lumber. These pricereductions have caused some producers to reduce production through curtailmentof operations or, in some cases, indefinite closure of facilities.

The highinventories of new and existing homes for sale has persisted into early 2007.These persistently high inventories of homes for sale coupled with relativelyhigh vacancy rates for rental housing are leading many economists to forecastcontinued weakness in residential home construction in 2007. If these forecastsare accurate, we will continue to experience pressure on our Building MaterialsDistribution and Wood Products segments in the form of lower sales volumes andpotentially lower prices.

Historically, logcosts have adjusted in our Wood Products segment to mitigate the impact oflower product prices. We started to see some relief in log costs beginning inlate 2006, which has continued into early 2007.

Early in 2006, uncoated free sheet paper prices increased. During the laterpart of the fourth quarter, supply and demand appeared to be coming intobalance as demand weakened. The supply demand balance in these grades in early2007 appears to be relatively stable.

During 2006, North American demand for packaging papers continued to bestrong, relative to supply, despite the negative impact of imports and theincreases in offshore packaging capacity. This trend is continuing in early2007 with relatively stable markets.

During late 2006, newsprint pricing softened as demand declined. This trendappears to be continuing into early 2007 and could result in further pricedecreases if capacity is not adjusted to meet demand.

The area around our DeRidder, Louisiana, pulp and paper mill hasexperienced unusually heavy and extended rainfall during the last severalmonths. This has reduced access to timberlands which has resulted in higherfiber costs to our DeRidder mill in recent months. This will likely have anegative impact on our results in the first quarter in our Packaging &Newsprint segment.

 

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As a result of solid wood mill closures,residual chip supply markets in the Pacific Northwest have been very tight. Theoutlook for residual fiber supply in the Pacific Northwest continues to bedifficult. This is having a significant impact on our St. Helens, Oregon, pulpand paper mill. Continued weakness in the housing sector may prompt furtherclosures of wood products facilities in the region driving residual fibersupply down further and costs up higher. As a result, we may choose to changeour operating configuration at that facility including potentially closing someor all of the facility if we cannot operate it profitably. We will continue tomonitor the mill’s progress and evaluate its ongoing financial performance.

During second quarter2007, we plan to take the pulp mill and uncoated free sheet machine at ourWallula, Washington, mill, down for approximately 30 days to complete theconversion of the uncoated free sheet machine to enable it to produce bothlabel and release grades as well as its current mix of commodity paper grades.At the same time, we will complete long-term maintenance on our pulp mill andpower and recovery areas of the mill. The shut down is expected to result inapproximately 19,000 tons of lost paper production during second quarter2007.

***IndustryMergers and Acquisitions***

During 2006, two of our major competitors in the uncoated free sheet paperbusiness, Domtar and Weyerhaeuser, announced their intent to combine theiruncoated free sheet paper businesses. This combination, if it is ultimatelyrealized, would result in a larger and potentially much stronger competitorthan the two companies operating their paper businesses independently. It isuncertain whether the combination will be realized and what the effects will beon our business.

In January of 2007, Abitibi-Consolidated, who sells the newsprint weproduce at our DeRidder mill under a long-term contract, announced their intentto merge with Bowater, another major newsprint producer. It is uncertain whetherthe merger will be realized and what the effects will be on our business.

***Acquisitions***

On February 1, 2006, we purchased theassets of Central Texas Corrugated (CTC) in Waco, Texas, for an aggregatepurchase price of $43.8 million, including fees and expenses, but beforeworking capital adjustments. In 2006, we paid approximately $42.6 millionof cash for the acquisition, which is net of a $2.0 million holdback thatis payable in five years. At December 31, 2006, “Other long-termliabilities” on our Consolidated Balance Sheet included a $1.4 milliondiscounted holdback (including accrued accretion expense). CTC manufacturescorrugated sheets that it sells primarily to regional container plants inTexas, Louisiana, Arkansas, and Mexico. CTC is located close to our mill inDeRidder, Louisiana, which produces linerboard used in CTC’s manufacturingprocesses. During 2006, we produced approximately 554,000 short tons oflinerboard in our Packaging & Newsprint segment and our Paper segmentproduced approximately 132,000 tons of corrugating medium. Our corrugatedcontainers and sheet plants consumed approximately 505,000 tons ofcontainerboard or the equivalent of 74% of our containerboard production.

Weaccounted for the acquisition using the purchase method of accounting. As aresult, the purchase price was allocated to the tangible and intangible assetsacquired and liabilities assumed based on their respective fair values as ofthe date of the acquisition. For more information, see Note 4, Purchase ofCentral Texas Corrugated’s Assets, of the Notes to the Consolidated FinancialStatements in “Item 8. Consolidated Financial Statements” of this Form 10-K.

***Divestitures***

Wemay engage in divestiture discussions with other companies and makedivestitures from time to time. We review our operations and dispose of assetsthat fail to meet our criteria for return on investment or cease to warrantretention for other reasons. In 2006, we recorded $43.5 million ofproceeds from sales of assets in “Cash provided by (used for) investment” inour Consolidated Statement of Cash Flow. Approximately $38.2 million ofthe proceeds related to the sale of two of our building materials distributionfacilities and our headquarters building, which we discuss in more detailbelow. The balance of the proceeds relate to other miscellaneous asset sales.

In August 2006, we sold and leased back (over 15-yearlease terms, plus renewal options) our Lakeville, Minnesota, and Rochelle,Illinois, building materials distribution facilities. We collected $11.0million of sale proceeds, net of related fees and expenses, which we used topay down our Tranche D 

 

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term loan. In connection with the sale, we recorded a$1.5 million deferred gain in “Other long-term liabilities” on ourConsolidated Balance Sheet, which we are recognizing as a reduction of leaseexpense over the life of the lease. The leases are accounted for as operatingleases.

In 2006, we sold our headquarters building in Boise,Idaho, for $27.2 million, net of related fees and expenses, and recorded a$1.7 million loss. In connection with the sale, we leased backapproximately 65% of the building over a staggered lease term of ten to12 years. The lease is accounted for as an operating lease.

In 2005, we recorded $18.5 million of proceeds from sales of assets,of which approximately $10.4 million related to the sale of a portion ofour fiber farms.

In May 2004, our predecessor sold its 47%interest in Voyageur Panel, which owned an oriented strand board plant inBarwick, Ontario, Canada, to Ainsworth Lumber Co. Ltd. for$91.2 million in cash. Our predecessor recorded a $46.5 millionpretax gain in the Wood Products segment. This item increased net income aftertax by $28.4 million during 2004.

Our predecessorhistorically accounted for Voyageur Panel under the equity method. Accordingly,our predecessor’s results do not include Voyageur Panel sales. For the periodof October 1 through October 28, 2004, the Wood Products segmentresults included $6.3 million of equity in earnings.

In February 2004,our predecessor sold its plywood and lumber facilities in Yakima, Washington.In connection with the sale, our predecessor recorded $7.1 million ofcosts and a $7.4 million reduction in its estimated LIFO reserve.

***Liquidity and CapitalResources***

We believethat funds generated from operations and available borrowing capacity will beadequate to fund debt service requirements, capital expenditures, and workingcapital requirements for the next 12 months. Our ability to continue to fundthese items may be affected by general economic, financial, competitive,legislative, and regulatory factors.

We believe thatour current financial position and financing plans will provide flexibility infinancing activities and permit us to respond to changing conditions in creditmarkets. We cannot assure, however, that our business will generate sufficientcash flow from operations or that future borrowings will be available for useunder our revolving credit facility in an amount sufficient to enable us to payour indebtedness or to fund our other liquidity needs.

***Operating Activities***

We operate in a cyclical industry, and our operating cash flows varyaccordingly. Our principal operating cash expenditures are for purchasedinventories, compensation, fiber, energy, and interest. In 2006, our operatingactivities provided $253.7 million of cash, compared with$306.7 million provided in 2005. Relative to 2005, the decrease in cashprovided by operations relates primarily to the following:

·                  *Lower netincome reported in 2006.*  As discussedunder “Results of Operations” above, the 2006 decrease in income was primarilythe result of lower segment income in our Wood Products and Building MaterialsDistribution segments, which was driven primarily by lower commodity prices duringthe year and lower sales volumes during the second half of 2006 as a result ofthe sharp falloff in housing starts.

·                  *Changesin working capital*.  Unfavorablechanges in working capital used $6.4 million of cash from operations.Working capital is subject to cyclical operating needs, the timing of thecollection of receivables, the payment of payables and expenses, and to alesser extent, seasonal fluctuations in our operations. In 2006, theincrease in working capital was primarily attributable to a decrease inaccounts payable and accrued liabilities partially offset by a decrease inreceivables, reflecting lower trade payables and receivables for BuildingMaterials Distribution due to lower sales levels and lower commodity prices formaterials purchased. The lower levels of trade payables and receivables forBuilding Materials Distribution were partially offset by higher levels ofpayables and receivables for Packaging & Newsprint due to higher saleslevels and higher raw material costs.

 

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·                  *More cashcontributions to our pension and other postretirement benefit plans*.  In 2006, we used $20.7 million of cashto make pension contributions, and other postretirement benefit payments,compared with $11.1 million in 2005.

In 2005, our operating activities provided $306.7 million of cash.Items included in net income provided $328.3 million of cash. Otheroperating cash expenditures used $17.1 million, primarily forcontributions of $11.1 million to our pension and other postretirement benefitplans. Unfavorable changes in working capital used $4.5 million of cashfrom operations. In 2005, the increase in working capital and other items wasprimarily attributable to higher receivables and, to a lesser extent, increasedinventories, which were almost completely offset by increased accounts payableand accrued liabilities.

For the period ofOctober 29 (inception) through December 31, 2004, our operatingactivities provided $230.5 million of cash. This cash generation was dueprimarily to favorable changes in working capital items. The collection ofreceivables provided $122.0 million of cash, and increases in accountspayable and accrued liabilities provided $85.6 million of cash. Increasesin inventories used $21.4 million of cash.

For the period of January 1 through October 28, 2004, operatingactivities used $47.8 million of cash. Items included in net incomeprovided $275.9 million of cash. Unfavorable changes in working capital itemsused $261.9 million of cash. The unfavorable changes in working capitalitems resulted from a $320.9 million increase in receivables, dueprimarily to the changes in the receivable sales program discussed below and a$15.4 million increase in inventory, offset by a $74.4 millionincrease in accounts payable and accrued liabilities. Other operating cashexpenditures used $61.8 million, primarily for pension and otherpostretirement benefit payments.

During thepredecessor period presented, Boise Forest Products Operations participated inOfficeMax’s receivable sales program. Under that program, OfficeMax soldfractional ownership interests in a defined pool of trade accounts receivable.In anticipation of the Forest Products Acquisition, we ceased to participate inOfficeMax’s receivable sales program. Accordingly, at October 28, 2004, nosold accounts receivable were excluded from receivables on our ConsolidatedBalance Sheet, compared with $148.8 million of receivables excluded atDecember 31, 2003. The decrease of $148.8 million in sold accountsreceivable at October 28, 2004, compared with the amount of sold accountsreceivable at December 31, 2003, used cash from operations for the periodended October 28, 2004. The portion of fractional ownership interestretained was included in the predecessor’s Consolidated Balance Sheet.

***InvestmentActivities***

Cash investing activities used $150.7 million in 2006, compared with $9.4 millionprovided during the same period in 2005. During the period of October 29through December 31, 2004, and the period of January 1 throughOctober 28, 2004, investing activities used $2.4 billion and$37.1 million of cash, respectively.

In 2006, investing activities included$153.5 million of capital expenditures for the purchase of property andequipment. Investing activities also included approximately $42.6 millionof cash paid for the purchase of CTC’s assets in Waco, Texas. Theseexpenditures were partially offset by $43.5 million of proceeds from salesof assets. This included $27.2 million of proceeds from the sale of ourheadquarters building in Boise, Idaho; $11.0 million of proceeds from thesale of our Lakeville, Minnesota, and Rochelle, Illinois, building materialsdistribution facilities; and $5.3 million of proceeds from othermiscellaneous asset sales. In connection with the sale of our headquarters building,we leased back approximately 65% of the building over a staggered lease term often to 12 years, and we leased back our building materials distributionfacilities over a 15-year lease term plus renewal options.

In 2005, investingactivities included $157.5 million for collection of a related-party notereceived from Timber Corp. and $18.5 million of proceeds received fromsales of assets. Approximately $10.4 million of the proceeds related tothe sale of a portion of our fiber farms. These proceeds were substantiallyoffset by $170.3 million used for the purchase of property and equipment.

For the period ofOctober 29 through December 31, 2004, our cash investing activitiesused $2.4 billion of cash, including $2.2 billion for the acquisitionof OfficeMax’s forest products and paper assets and $157.5 million for ourloan to Timber Corp.

 

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For the period ofJanuary 1 through October 28, 2004, our cash investing activitiesused $37.1 million of cash, including $140.2 million for property,plant, and equipment purchases, partially offset by $103.2 million ofproceeds from the sale of our predecessor’s Yakima, Washington, plywood andlumber facilities in February 2004 and the sale of its interest inVoyageur Panel in May 2004.

In all periods, capital expendituresfor property and equipment consisted primarily of expansion, businessimprovement and quality/efficiency projects, replacement projects, and ongoingenvironmental compliance.

Details of 2006 capitalinvestment by segment are included in the table below:
| ** **                               | ** ** | **Year Ended December 31, 2006** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **Acquisition/  Expansion**                          | ** ** | **Quality/  Efficiency (a)** | ** ** | **Replacement,  Environmental,  and Other** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **(millions)**                                       | ** ** |
| Building  Materials Distribution         |       | $                                                    | 6.6        |   | $ | — |   | $ | 3.9 |   | $ | 10.5 |   |
| Wood Products                            |       | 9.9                                                  |       | 8.6 |   | 12.2 |   | 30.7 |   |
| Paper (b)                                |       | 39.0                                                 |       | 14.5 |   | 32.0 |   | 85.5 |   |
| Packaging &  Newsprint (c) |       | 44.9                                                 |       | 5.6 |   | 15.6 |   | 66.1 |   |
| Corporate and  Other                     |       | 0.7                                                  |       | 0.5 |   | 2.1 |   | 3.3 |   |
|                                     | ** ** | **$**                                                | **101.1**  | ** ** | **$** | **29.2** | ** ** | **$** | **65.8** | ** ** | **$** | **196.1** | ** ** |

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(a)                                  Quality and efficiency projects includequality improvements, modernization, energy, and cost-saving projects.

(b)                                 In April 2006, we announced that we willexpand our production of pressure sensitive papers by reconfiguring an existingpaper machine at our pulp and paper mill in Wallula, Washington, to produceboth pressure sensitive paper and commodity uncoated free sheet. We estimateapproximately $70 million of capital spending for the project. As ofDecember 31, 2006, spending on this project totaled $34 million, which isincluded under “Acquisition/Expansion” in the table above. We expect to spendthe remainder in 2007.

(c)                                  Includes $42.6 million of cash paid forthe purchase of CTC’s assets in Waco, Texas.

We expect capital investments in 2007 to totalapproximately $185 million, excluding acquisitions. This level of capitalexpenditures could increase or decrease as a result of a number of factors,including our financial results and future economic conditions. Our capitalspending in 2007 will be for expansion (such as the Wallula, Washington,project described in note (b) above), business improvement andquality/efficiency projects, replacement projects, and ongoing environmentalcompliance. During 2006, we spent $9 million on environmental compliance.We expect to spend approximately $10 million in 2007 for this purpose.

***FinancingActivities***

Cash used for financing activities was $145.9 million in 2006,compared with $391.3 million in 2005. During the period of October 29through December 31, 2004, and the period of January 1 throughOctober 28, 2004, cash provided by financing was $2.3 billion and$84.9 million, respectively.

In 2006, we made $151.9 million of net debt repayments to thirdparties, which included $96.9 million of prepayments on our Tranche Dterm loan and a $55.0 million decrease in our borrowings under ouraccounts receivable securitization program. The debt was paid with$38.2 million of proceeds from asset sales, $25.6 million of proceedsfrom unwinding and resetting the fixed interest rate we pay on our interestrate swap agreements, and other cash flows. In addition, in November 2006, werepaid the note payable to Timber Corp. (a subsidiary of Timber Holdings), andimmediately thereafter, Timber Holdings merged with and into us. As part of themerger, FPH and OfficeMax (owners of Timber Holdings) used $280.4 millionof the loan repayment proceeds to make an additional investment in us, which werecorded as “Capital contributions from members” in our 2006 ConsolidatedStatement of Cash Flows. After the purchase, OfficeMax continued to own 100% ofour Series A equity units, and FPH and OfficeMax continued to hold 80.1%and 19.9%, respectively, of our Series B equity units. In 2006, we used$19.3 million of cash to pay our equity investors amounts to fund theirtax obligation related to their investment in us.

 

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In 2005, financing activities included $1.5 billion of debtrepayments, $920.0 million of debt issued to third parties, a$250.3 million related-party note payable to Timber Corp., and$23.1 million of cash paid to our equity investors to fund their tax obligationsrelated to their investment in us. The $1.5 billion of debt repaymentsconsisted of $1.3 billion of debt prepayments related to ourTranche B term loan, which was paid down primarily with the proceeds fromour new $840.0 million Tranche D term loan; $157.5 millionrelated to the collection of a loan to Timber Corp., and approximately$250.3 million received in connection with a related-party note payable toTimber Corp., as well as cash flow from operations. In October 2005, we prepaid$200.0 million toward our Tranche D term loan with the net proceedsfrom the initial sale of receivables under our receivables securitizationprogram. We also made $4.2 million of scheduled principal payments duringthe year. The $920.0 million of additions to long-term debt included the$840.0 million Tranche D term loan discussed above and $80.0 millionof net borrowings outstanding under our accounts receivable securitizationprogram. See discussion under “Borrowings Secured by Receivables” below formore information.

Cash provided by financing activities for the period of October 29(inception) through December 31, 2004, included $2.0 billion ofindebtedness incurred as a result of the Forest Products Acquisition and$338.9 million of cash from the issuance of equity units, offset partiallyby $40.0 million of debt repayments. Cash provided by financing activitiesfor the period of January 1 through October 28, 2004, included$67.1 million of cash received through net equity transactions with OfficeMaxand $17.8 million of debt issuances to OfficeMax.

The followingdiscussion describes our debt and equity transactions in more detail.

***DebtTransactions***

At December 31, 2006and 2005, our short- and long-term debt and the interest rates on that debtwere as follows:
| ** **                                      | ** ** | **December 31, 2006** | ** **  | **December 31, 2005**    | ** ** |
|-------------------------------------------------|------------|---------------------------------|-------------|------------------------------------|------------|
| ** **                                      | ** ** | **Amount**                      | ** **  | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** | **Amount** | ** ** | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** |
| ** **                                      | ** ** | **(millions)**                  | ** **  | ** **                         | ** ** | ** ** | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revolving credit  facility, due 2010            |       | $                               | —      |                               | N/A        |   | N/A |   | $ | — |   | N/A |   | N/A |   |
| Tranche D  term loan, due 2011             |       | 538.9                           |        | 7.1                                | %          | 6.8 | % | 635.8 |   | 5.8 | % | 4.9 | % |
| Senior unsecured  floating-rate notes, due 2012 |       | 250.0                           |        | 8.2                                | %          | 7.6 | % | 250.0 |   | 7.0 | % | 6.6 | % |
| 7.125% senior  subordinated notes, due 2014     |       | 400.0                           |        | 7.1                                | %          | N/A |   | 400.0 |   | 7.1 | % | N/A |   |
| Borrowings  secured by receivables              |       | 25.0                            |        | 5.6                                | %          | N/A |   | 80.0 |   | 4.3 | % | N/A |   |
|                                            |       | 1,213.9                         |        | 7.3                                | %          | 7.1 | % | 1,365.8 |   | 6.3 | % | 5.8 | % |
| Note payable to  related party, net, due 2009   |       | —                          |        | N/A                                |       | N/A |   | 270.9 |   | 8.0 | % | N/A |   |
| Long-term debt                                  |       | 1,213.9                         |        |                               |       |   |   | 1,636.7 |   |   |   |   |   |
| Short-term  borrowings                          |       | 3.2                             |        | 6.0                                | %          | N/A |   | — |   | N/A |   | N/A |   |
| Total debt                                      | ** ** | **$**                           | **1,217.1** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,636.7** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

*Senior Secured Credit Facilities*

Boise Cascade, L.L.C. (Boise LLC) andaffiliates have a $475.0 million senior secured revolving credit facility(due in 2010) and an $840.0 million Tranche D term loan (duein 2011). These borrowings represent our senior secured credit facilities (theFacilities).

Our revolving credit facility agreement permits us toborrow up to $475.0 million for general corporate purposes. AtDecember 31, 2006, we had no borrowings outstanding under our revolvingcredit facility; however, $42.8 million of letters of credit wereconsidered a draw on the revolver, reducing our borrowing capacity to$432.2 million. Borrowings under our revolving credit facility are basedon the prime rate, the federal funds effective rate, or the LondonInterbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustmentbased on the ratio of our total indebtedness to our last four quarters ofconsolidated earnings before interest, taxes, depreciation, and amortization(EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to1.25% or the federal funds effective rate plus 1.00% to 1.75% or (ii) LIBORplus 1.50% to 2.25%. For the years ended December 31, 2006 and 

 

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2005, the average interest rates for our borrowingsunder the revolver were 6.0% and 5.1%. Letters of credit are subject to a 0.25%fronting fee payable to the issuing bank and a fee payable to the lenders equalto the product of the interest rate spread applicable to LIBOR borrowingsunder our revolving credit facility and the daily average amount available fordrawing under the outstanding letters of credit. The minimum and maximumborrowings under the revolver were zero and $30.0 million during the yearended December 31, 2006, and zero and $126.5 million for the sameperiod in 2005. The weighted average amounts of borrowings outstanding underthe revolver during the years ended December 31, 2006 and 2005, were$0.8 million and $11.8 million. The revolving credit facilityprovides for a commitment fee of 0.50% per annum payable to the lenders on theaverage daily unused portion of the revolving credit facility. We also have aswingline option under the revolver, which allows us to borrow at negotiatedrates up to an aggregate of $40.0 million from individual banks that areparties to the agreement. Swingline borrowings are considered borrowings underthe revolving credit facility agreement.

AtDecember 31, 2006 and 2005, we had $538.9 million and$635.8 million outstanding under the Tranche D term loan, and ourborrowing rates were 7.1% and 5.8%. Borrowings under the Tranche D termloan are based on (i) the higher of the prime rate plus 0.75% or the federalfunds effective rate plus 1.25% or (ii) LIBOR plus 1.75%. As a result of a$200.0 million prepayment in October 2005, we are not required to makescheduled principal payments on the Tranche D term loan until 2011, atwhich time the principal balance is due. However, during the year endedDecember 31, 2006, we prepaid $96.9 million on our Tranche Dterm loan with $38.2 million of proceeds from asset sales,$25.6 million of proceeds from unwinding and resetting the fixed interestrate we pay under our interest rate swap agreements, and other cash flows.

Borrowings under theFacilities are subject to financial covenants and restrictions, including aminimum interest expense coverage ratio, maximum leverage ratio, andlimitations on capital expenditures. At December 31, 2006 and 2005, wewere in compliance with these covenants.

*SeniorNotes*

In October 2004, weissued $250.0 million of senior unsecured floating-rate notes due in 2012and $400.0 million of 7.125% senior subordinated notes due in 2014. Netproceeds from the notes were used to fund a portion of the purchase price forthe Forest Products Acquisition. In July 2005, we completed an exchangeoffer whereby all of our senior unsecured floating-rate notes and seniorsubordinated notes were exchanged for publicly traded, registered securitieswith identical terms (other than terms relating to registration rights) to thenotes issued in October 2004. We may redeem all or part of the notes at anytime at redemption prices defined in the indenture. If we sell specific assetsor experience specific kinds of changes in control, we must offer to purchasethe notes. The senior unsecured floating-rate notes bear interest at a floatingrate equal to LIBOR plus 2.9%. At December 31, 2006 and 2005, ourborrowing rates for the $250.0 million senior unsecured floating-ratenotes were 8.2% and 7.0%.

*Borrowings Secured by Receivables*

In October 2005, our wholly owned subsidiary,Boise LLC, and several of its subsidiaries, including Birch Creek Investments,L.L.C. (Birch Creek), entered into an accounts receivable securitizationprogram with Bank of America National Association and Calyon New York Branch(the Investors). Under this three-year program, Boise LLC sells its interest ina defined pool of accounts receivable generated by its domestic operations on arevolving basis to Birch Creek, a consolidated, wholly owned, special-purposesubsidiary. In turn, Birch Creek sells the receivables to the affiliates of theInvestors. Because Boise LLC has the right to repurchase the sold receivables,sales of receivables under the program are accounted for as a securedborrowing. At December 31, 2006 and 2005, we had $25.0 million and$80.0 million outstanding under our accounts receivable securitizationprogram. The receivables outstanding and the corresponding debt are included as“Receivables” and “Long-term debt,” respectively, on our Consolidated BalanceSheets. We record the financing costs associated with the program in “Interestexpense” in our Consolidated Statements of Income. The cost of funds under thisprogram varies based on changes in interest rates. At December 31, 2006and 2005, the interest rates for borrowings secured by receivables were 5.6%and 4.3%.

Under the accounts receivable securitization program, the maximum borrowingamount is subject to change based on the level of eligible receivables andrestrictions on concentrations of receivables and, at December 31, 2006,could not exceed $243.9 million. The accounts receivable securitizationprogram contains the same financial covenants as our senior secured creditfacilities.

 

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*NotePayable to Related Party, Net*

At December 31,2005, we had a $270.9 million note payable to Timber Corp. recorded as “Notepayable to related party, net” on the Consolidated Balance Sheet. In November2006, we repaid the note payable to Timber Corp., and immediately thereafter,Timber Holdings merged with and into us. See “Merger With Boise Land &Timber Holdings Corp.” in this Management’s Discussion and Analysis ofFinancial Condition and Results of Operations. At December 31,2005, the “Note payable to related party, net” included $18.9 million ofaccrued interest expense. For the years ended December 31, 2006 and 2005,and the period of October 29 (inception) through December 31, 2004,interest expense in our Consolidated Statements of Income included$14.1 million, $18.9 million, and zero of related-party interestexpense. Relative to 2005, the decline in related-party interest expenseprimarily related to our amending and restating the borrowing rate under thenote from 8% to 5% effective April 1, 2006, as well as fewer months ofinterest owed as a result of paying the note in full in November 2006.

*Other*

We have enteredinto interest rate swaps to hedge the majority of the cash flow risk from thevariable interest payments on our variable-rate debt. These swaps gave useffective interest rates on all of our long-term variable-rate debt of 7.0% and5.3% at December 31, 2006 and 2005, respectively. For additionalinformation on our interest rate swaps, see “Disclosure of Financial MarketRisks” in this Management’s Discussion and Analysis of Financial Condition andResults of Operations.

We paid approximately$85.9 million of fees and expenses associated with our senior securedcredit facilities, our senior unsecured floating-rate notes, and our seniorsubordinated notes, which we entered into in October 2004. The fees are beingamortized over the terms of the loans, which range from six to ten years. AtDecember 31, 2006 and 2005, we had $31.5 million and $37.8 millionof costs recorded in “Deferred financing costs” on our Consolidated BalanceSheets. In connection with the repayment of the Tranche B term loan insecond quarter 2005, we recorded a $43.0 million charge for the write-offof the deferred financing costs in “Interest expense” in our ConsolidatedStatement of Income.

AtDecember 31, 2006 and 2005, our average effective interest rates,including the effect of our interest rate swaps, on all of our long-termnonrelated party debt were 7.1% and 5.8%.

For theyears ended December 31, 2006 and 2005, and the periods of October 29through December 31, 2004, and January 1 through October 28,2004, cash payments for interest, net of interest capitalized, were$95.1 million, $95.5 million, $11.3 million, and $64.8 million,respectively.

Foradditional information on our interest rate swaps, see “Disclosure of FinancialMarket Risks” in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations.

# *Predecessor Period*

Inthe predecessor period presented, our predecessor participated in OfficeMax’scentralized cash management system. Cash advances necessary to fund BoiseForest Products Operations’ major improvements to, and replacements of,property, as well as acquisitions and expansion, to the extent not providedthrough internally generated funds, were provided by OfficeMax’s cash or fundedwith debt. In the predecessor period presented, interest costs were allocatedto our predecessor based on its average asset balances. The interest expenseattributable to the debt allocated from OfficeMax is included in ourConsolidated Statement of Income. For the period of January 1 throughOctober 28, 2004, our predecessor’s average interest rate was 6.7%. Webelieve the allocation of interest is a reasonable reflection of Boise ForestProducts Operations’ interest cost.

During thepredecessor period, our principal source of liquidity in excess of thatprovided by cash flow generated from operations was borrowings from OfficeMax.Since our predecessor’s financing activities have been represented historicallyby borrowings from OfficeMax, Boise Forest Products Operations financingactivities are not comparable with those of our current operations.

 

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***EquityTransactions***

On October 29, 2004 (inception), OfficeMax andour majority owner, Forest Products Holdings (FPH), made an aggregate cashequity investment in us of $338.9 million. The equity investment consistedof $242.4 million invested by FPH in exchange for 440 millionSeries B equity units and $96.5 million invested by OfficeMax inexchange for 109 million and 66 million Series B equity unitsand Series A equity units, respectively. As discussed under “FinancingActivities” above, in 2006, FPH and OfficeMax used $280.4 million of therelated-party loan repayment proceeds to make an additional equity investmentin us, which is included as “Capital contributions from members” in our 2006Consolidated Statement of Cash Flows. See Note 16, Redeemable EquityUnits, and Note 17, Capital, of the Notes to Consolidated FinancialStatements in “Item 8.  ConsolidatedFinancial Statements” of this Form 10-K for a discussion of the change inequity units and their holders since the date of the Forest ProductsAcquisition and a discussion of the rights and privileges of the equity units.

***Contractual Obligations***

In the tablebelow, we set forth our enforceable and legally binding obligations as ofDecember 31, 2006. Some of the amounts included in the table are based onmanagement’s estimates and assumptions about these obligations, including theirduration, the possibility of renewal, anticipated actions by third parties, andother factors. Because these estimates and assumptions are necessarilysubjective, our actual payments may vary from those reflected in the table.Purchase orders made in the ordinary course of business are excluded from thetable below. Any amounts for which we are liable under purchase orders arereflected on the Consolidated Balance Sheets as accounts payable and accruedliabilities.

 
| ** **                                                            | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                  | ** ** | **2008-2009** | ** ** | **2010-2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| ** **                                                            | ** ** | ** **                                | ** ** | ** ** | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-term debt (a)                                                    |       | $                                         | —     |   | $ | 25.0 |   | $ | 538.9 |   | $ | 650.0 |   | $ | 1,213.9 |   |
| Interest (b)                                                          |       | 86.6                                      |       | 171.7 |   | 162.8 |   | 104.9 |   | 526.0 |   |
| Operating leases (c)                                                  |       | 18.6                                      |       | 32.0 |   | 25.4 |   | 48.6 |   | 124.6 |   |
| Purchase obligations                                                  |       |                                      |       |   |   |   |   |   |   |   |   |
|    Raw materials and finished goods inventory (d) |       | 175.3                                     |       | 219.4 |   | 188.2 |   | 259.3 |   | 842.2 |   |
|    Utilities (e)                                       |       | 32.6                                      |       | 7.1 |   | 0.6 |   | 0.7 |   | 41.0 |   |
|    Capital spending                                    |       | 9.6                                       |       | 4.3 |   | — |   | — |   | 13.9 |   |
|    Other                                               |       | 3.9                                       |       | 3.1 |   | 0.3 |   | — |   | 7.3 |   |
| Other long-term liabilities reflected on our Balance Sheet (f)   |       |                                      |       |   |   |   |   |   |   |   |   |
|    Compensation and benefits                           |       | 0.9                                       |       | 15.2 |   | 45.1 |   | 51.4 |   | 112.6 |   |
|    Other                                               |       | 7.1                                       |       | 7.3 |   | 5.8 |   | 22.7 |   | 42.9 |   |
|                                                                  | ** ** | **$**                                     | **334.6**  | ** ** | **$** | **485.1** | ** ** | **$** | **967.1** | ** ** | **$** | **1,137.6** | ** ** | **$** | **2,924.4** | ** ** |

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(a)             Theseborrowings are further explained in “Financing Activities” under Liquidity andCapital Resources in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations. The table assumes our long-term debt isheld to maturity. 

(b)            Amountsrepresent estimated interest payments using the effective interest rates as ofDecember 31, 2006, and assume our long-term debt is held to maturity.

(c)             Weenter into operating leases in the normal course of business. We lease ourproperty and equipment under operating leases. Some lease agreements provide uswith the option to renew the lease or purchase the leased property. Ouroperating lease obligations would change if we exercised these renewal optionsand/or we entered into additional operating lease agreements. For moreinformation, see Note 7, Leases, of the Notes to Consolidated FinancialStatements in “Item 8.  ConsolidatedFinancial Statements” of this Form 10-K. 

(d)            Includedamong our raw materials purchase obligations are contracts to purchaseapproximately $839.8 million of wood fiber. This includes the obligationsrelated to the long-term log and fiber supply agreements entered into inconnection with the Timberlands Sale. Under most of these log and fiber supplyagreements, we have the right to cancel or reduce our commitments in the eventof a mill curtailment or shutdown. The prices under most of these agreementsare set quarterly or semiannually based on regional market prices, and theestimate is based on contract terms or first quarter 2007 pricing. Our log andfiber 

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obligationsare subject to change based on, among other things, the effect of governmentallaws and regulations, our manufacturing operations not operating in the normalcourse of business, log and fiber availability, and the status of environmentalappeals. Except for deposits required pursuant to wood supply contracts, theseobligations are not recorded in our consolidated financial statements untilcontract payment terms take effect.

(e)             Weenter into utility contracts for the purchase of electricity and natural gas.We also purchase these services under utility tariffs. The contractual andtariff arrangements include multiple-year commitments and minimum annualpurchase requirements. Our payment obligations were based upon prices in effecton December 31, 2006, or upon contract language, if available. Because weconsume the energy in the manufacture of our products, these obligationsrepresent the face value of the contracts, not resale value. 

(f)               Includescurrent portion. 

In addition to the contractual obligations quantified in the table above,we have other obligations for goods and services and raw materials entered intoin the normal course of business. We expect to make tax distributions to ourequity holders equal to the greater of either our regular taxable income or ouralternative minimum taxable income. The regular taxable income is distributedat 38.9%. The alternative minimum taxable income is distributed at 20% forOfficeMax and 28% for all of our other equity holders. Also, pursuant toan Additional Consideration Agreement between OfficeMax and us, we may berequired to make substantial cash payments to, or receive substantial cashpayments from, OfficeMax. Under the Additional Consideration Agreement, thepurchase price paid for the forest products and paper assets may be adjustedupward or downward based on paper prices during the six years following theForest Products Acquisition, subject to annual and aggregate caps. Neitherparty will be obligated to make a payment under the Additional ConsiderationAgreement in excess of $45 million in any one year. Payments are alsosubject to an aggregate cap of $125 million that declines to$115 million in the fifth year and $105 million in the sixth year.After each anniversary of the Forest Products Acquisition, we review paperprices with the provisions of the Additional Consideration Agreement todetermine whether any amounts are owed or receivable under the agreement. Forthe first and second anniversary periods, which ended October 29, 2005 and2006, neither Boise nor OfficeMax owed additional consideration for thepurchase price. For more information about the AdditionalConsideration Agreement, see “Item 13. Certain Relationships and Related Transactions, and DirectorIndependence” of this Form 10-K.

The Series Aequity units issued to OfficeMax in connection with the Forest ProductsAcquisition accrue dividends daily at a rate of 8% per annum on OfficeMax’scapital contribution (net of any distributions previously received) plus anyaccumulated dividends. Accrued and unpaid dividends accumulate on theSeries A equity units on June 30 and December 31 of each year.At December 31, 2006 and 2005, $7.2 million and $3.5 million,respectively, of dividends were accrued on our Consolidated Balance Sheets asan increase in the value of the Series A equity units.

***Off-Balance-Sheet Activities***

AtDecember 31, 2006 and 2005, we had no off-balance-sheet arrangements withunconsolidated entities.

***Guarantees***

Note 19, Commitments and Guarantees, of the Notesto Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in thisForm 10-K describes the nature of our guarantees, including theapproximate terms of the guarantees, how the guarantees arose, the events orcircumstances that would require us to perform under the guarantees, and themaximum potential undiscounted amounts of future payments we could be requiredto make.

***Inflationary and Seasonal Influences***

Other than theeffects of higher energy costs, which we describe in this Form 10-K,we believe inflation has not had a material effect on our financial conditionor results of operations. However, there 

 

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can be no assurance thatwe will not be affected by inflation in the future. Seasonal changes in levelsof building activity affect our building products businesses. We typically havehigher sales and working capital in the second and third quarters because ofwarmer weather. To a lesser degree, our paper businesses also experience someseasonality in their businesses, based primarily on buying patterns associatedwith particular products. For example, the demand for our corrugated containerplants is influenced by agricultural demand in the Northwest. In addition,seasonally cold weather increases costs, especially energy consumption, at allof our manufacturing facilities.

***Disclosures of Financial Market Risks***

We areexposed to risks such as changes in interest rates, energy prices, and foreigncurrency exchange rates. We employ a variety of practices to manage theserisks, including operating and financing activities and, where deemedappropriate, the use of derivative instruments. Derivative instruments are usedonly for risk management purposes and not for speculation or trading.Derivatives are such that a specific debt instrument, contract, or anticipatedpurchase determines the amount, maturity, and other specifics of the hedge. Ifa derivative contract is entered into, we either determine that it is aneconomic hedge or we designate the derivative as a cash flow or fair valuehedge. We formally document all relationships between hedging instruments andthe hedged items, as well as our risk management objectives and strategies forundertaking various hedged transactions. For those derivatives designated ascash flow or fair value hedges, we formally assess, both at the derivatives’inception and on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in the hedgeditems. The ineffective portion of hedging transactions is recognized in income(loss).

Inaccordance with Statement of Financial Accounting Standards (SFAS)No. 133, *Accounting for DerivativeInstruments and Hedging Activities*, as amended, we record allderivative instruments as assets or liabilities on our Consolidated BalanceSheets at fair value. The fair value of these instruments is determined bythird parties. Changes in the fair value of derivatives are recorded in either “Netincome (loss)” or “Other comprehensive income,” as appropriate. The gain orloss on derivatives designated as cash flow hedges is included in “Othercomprehensive income” in the period in which changes in fair value occur and isreclassified to income (loss) in the period in which the hedged item affectsincome (loss), and any ineffectiveness is recognized currently in ourConsolidated Statements of Income (Loss). The gain or loss on derivativesdesignated as fair value hedges and the offsetting gain or loss on the hedgeditem attributable to the hedged risk are included in income (loss) in theperiod in which changes in fair value occur. The gain or loss on derivativesthat have not been designated as hedging instruments is included in income(loss) in the period in which changes in fair value occur.

*InterestRate Risk*

Our debt is predominantly variable-rate. We manageinterest rate risk on our variable-rate debt by entering into interest rateswaps. At December 31, 2006, the estimated current market value of ourfixed-rate debt, based on then-current interest rates for similar obligationswith like maturities, was approximately $12.2 million less than the amountreported on our Consolidated Balance Sheet.

In November 2004, we entered into interest rateswaps with a total notional amount of $800 million to hedge the cash flowexposure to interest rate fluctuations associated with a portion of ourvariable-rate debt. In connection with the refinancing of our Tranche Bterm loan in April 2005, we reclassified $9.9 million of amounts recordedin “Accumulated other comprehensive income” to our Consolidated Statement ofIncome as “Change in fair value of interest rate swaps.”

In April 2006, we terminated two interest rate swapsand reset the fixed interest rate we pay on the remaining swaps. In connectionwith the terminations of and rate resets, we received $25.6 million. Weare reclassifying the $25.6 million of “Accumulated other comprehensiveincome” as a reduction of interest expense over the periods in which thepreviously hedged interest payments affect earnings.

At December 31, 2006, we had six interest rate swapsto hedge our exposure to interest rate fluctuations associated with a portionof our variable-rate debt. The swaps effectively hedge $500 million of ourvariable-rate debt exposure through 2009 and $250 million of exposureduring 2010. At December 31, 2006, assuming no changes in interest rates,we expect to reclassify $9.2 million of amounts recorded in “Accumulatedother comprehensive income” as a decrease in interest expense in 2007. AtDecember 31, 2006, there was no ineffectiveness related to these hedges.

 

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*Energy Risk*

We enter intonatural gas swaps, options, or a combination of these instruments to hedge thevariable cash flow risk of natural gas purchases at index prices. As ofDecember 31, 2006, we had entered into derivative instruments related toapproximately 90% of our forecasted natural gas purchases through February 2007and 10% of our expected purchases from July 2007 through October 2007. Assumingnatural gas prices follow the futures curve in effect at December 31, 2006,we expect to reclassify $9.7 million of the amounts recorded in “Accumulatedother comprehensive income” as an increase in “Materials, labor, and otheroperating expenses” in 2007. There was no ineffectiveness related to thesehedges.

*ForeignCurrency Risk*

At December 31, 2006, we had no material fair value offoreign currency hedges.

*Predecessor Period*

As described in “FinancingActivities” under Liquidity and Capital Resources in this Management’sDiscussion and Analysis of Financial Condition and Results of Operations, inthe predecessor period presented, OfficeMax allocated debt and interest coststo Boise Forest Products Operations based on its average asset balances.OfficeMax occasionally used derivative financial instruments, such as interestrate swaps, rate hedge agreements, and forward exchange contracts, to hedgeunderlying debt obligations or anticipated transactions. The effects of thesefinancial instruments are not included in the predecessor financial statementother than through OfficeMax’s allocations to our predecessor.

 

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***Financial Instruments***

The table belowprovides information as of December 31, 2006, about our financialinstruments that are sensitive to changes in interest rates, energy prices, orforeign currency exchange rates. For debt obligations, the table presentsprincipal cash flows and related weighted average interest rates by expectedmaturity dates. For obligations with variable interest rates and energy marketrisk sensitivity, the table sets forth payout amounts based on current ratesand does not attempt to project future rates. For foreign currency forwardexchange agreements, the table presents notional amounts in the foreigncurrency and weighted average contractual exchange rate by contractual maturitydate. Other instruments subject to market risk, such as obligations for pensionplans and other postretirement benefits, are not reflected in the table.

*** ***
| ** **                                                               | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **December 31** | ** ** |
|--------------------------------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                               | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                                               | ** ** | **2007**       | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **There  -after** | ** ** | **Total**            | ** ** | **Fair  Value** | ** ** | **Total** | ** ** | **Fair  Value** | ** ** |
| ** **                                                               | ** ** | **(millions)** | ** ** |
| **Debt**                                                                 | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Short-term  borrowings                                                   |       | $              | 3.2        |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | 3.2 |   | $ | 3.2 |   | $ | — |   | $ | — |   |
| Average interest rate                                                    |       | 6.0            | %          | —     |       | —     |       | —     |       | —     |       | —            |       | 6.0                  | %          | — |   | — |   | — |   |
| Long-term debt                                                           |       |           |       |       |       |       |       |       |       |       |       |              |       |                 |       |   |   |   |   |   |   |
| Fixed-rate debt payments (a)                                             |       |           |       |       |       |       |       |       |       |       |       |              |       |                 |       |   |   |   |   |   |   |
| Senior subordinated notes                                           |       | $              | —     |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | 400.0 |   | $ | 400.0 |   | $ | 387.8 |   | $ | 400.0 |   | $ | 372.6 |   |
| Average interest rates                                                   |       | —         |       | —     |       | —     |       | —     |       | —     |       | 7.1               | %          | 7.1                  | %          | — |   | 7.1 | % | — |   |
| Note payable to related party                                            |       | $              | —     |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 270.9 |   | $ | 258.6 |   |
| Average interest rates                                                   |       | —         |       | —     |       | —     |       | —     |       | —     |       | —            |       | —               |       | — |   | 8.0 | % | — |   |
| Variable-rate debt payments (a)                                          |       | $              | —     |       | $          | 25.0       |       | $          | —     |       | $          | —            |       | $                    | 538.9      |   | $ | 250.0 |   | $ | 813.9 |   | $ | 813.9 |   | $ | 965.8 |   | $ | 965.8 |   |
| Average interest rates (b)                                               |       | —         |       | 5.6        | %          | —     |       | —     |       | 7.1        | %          | 8.2               | %          | 7.4                  | %          | — |   | 6.0 | % | — |   |
| ** **                                                               | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest  rate swaps**                                                 | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Notional principal amount of interest rate exchange  agreements maturing |       |           |       |       |       |       |       |       |       |       |       |              |       |                 |       |   |   |   |   |   |   |
| Variable to fixed (c)                                               |       | $              | —     |       | $          | 250.0      |       | $          | 250.0      |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | 500.0 |   | $ | 3.5 |   | $ | 800.0 |   | $ | 26.2 |   |
| Average pay rate                                                         |       | —         |       | 4.75       | %          | 4.75       | %          | —     |       | —     |       | —            |       | 4.75                 | %          | — |   | 3.5 | % | — |   |
| Average receive rate                                                     |       | —         |       | 5.36       | %          | 5.37       | %          | —     |       | —     |       | —            |       | 5.36                 | %          | — |   | 4.4 | % | — |   |
| ** **                                                               |       |           |       |       |       |       |       |       |       |       |       |              |       |                 |       |   |   |   |   |   |   |
| **Natural  gas contracts**                                               |       |           |       |       |       |       |       |       |       |       |       |              |       |                 |       |   |   |   |   |   |   |
| Swaps                                                                    |       | $              | (9.7       | )          | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | (9.7 | ) | $ | (9.7 | ) | $ | (0.1 | ) | $ | (0.1 | ) |
| Written call  options                                                    |       | $              | 0.5        |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | 0.5 |   | $ | 0.5 |   | $ | — |   | $ | — |   |
| ** **                                                               | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Forward  exchange contracts**                                          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Receive euro/pay  U.S. dollars)                                         | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Notional currency  amount (in euros)                                     |       | 1.2            |       | —     |       | —     |       | —     |       | —     |       | —            |       | 1.2                  |       | — |   | — |   | — |   |
| Average  contractual exchange rate (U.S. dollar to euro)                 |       | $              | 1.32       |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | 1.32 |   | $ | — |   | $ | — |   | $ | — |   |
| Receive euro/pay U.S.   dollars (in U.S. dollars)                   |       | $              | 1.6        |       | $          | —     |       | $          | —     |       | $          | —            |       | $                    | —     |   | $ | — |   | $ | 1.6 |   | $ | 0.1 |   | $ | — |   | $ | — |   |

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(a)                                  Theseobligations are further explained in “FinancingActivities” under Liquidity and Capital Resources in this Management’sDiscussion and Analysis of Financial Condition and Results of Operations. Thetable assumes our long-term debt is held to maturity.

(b)                                 Does not include the effect of swaps.

(c)                                  At December 31,2006, we had six interest rate swaps to hedgeour exposure to interest rate fluctuations associated with a portion of ourvariable-rate debt. The swaps effectively hedge $500 million of ourvariable-rate debt exposure through December 2009 and $250 million of exposureduring 2010. The two interest rate swaps with an aggregate notional amount of$250 million that become effective in December 2008 and expire in December 2010are excluded from the table above. At December 31, 2006, the fair marketvalue of the instruments excluded from the table was a negative$0.2 million.

***Income Taxes***

At December 31, 2006and 2005, the majority of our businesses and assets were held and operated bylimited liability companies, which are not subject to entity-level federal orstate income taxation. The income taxes in respect to these operations arepayable by our equity holders in accordance with their respective ownershippercentages. We make cash distributions to permit the members of Boise andaffiliates to pay these taxes. For the years ended December 31, 2006 and2005, and the period of October 29 through December 31, 2004, we made$19.3 million, $23.1 million, and no cash distributions,respectively, to permit our equity holders to pay these taxes. Both our seniorcredit facilities and the indenture governing our notes permit thesedistributions.

 

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During the years ended December 31, 2006 and 2005, and theperiod of October 29 (inception) through December 31, 2004, oureffective tax rates for our separate subsidiaries that are taxed ascorporations were 37.3%, 42.0%, and 40.9%. The primary reason for thedifference in tax rates is the effect of state income taxes and the mix ofdomestic and foreign sources of income.

In May 2005, we converted to a C corporation from a limitedliability company. In December 2005, we rescinded our conversion toC corporation status. As a result of rescinding our C corporationstatus, we received $6.1 million of federal and state income tax refundsin 2006. In 2006 and 2005, we paid $4.4 million and $1.2 million oftaxes, net of other refunds received. For the period of October 29through December 31, 2004, these subsidiaries paid income taxes, net ofrefunds received, of $80,000. At December 31, 2006 and 2005, we had a$376,000 and $388,000 deferred tax liability related to these subsidiariesrecorded on our Consolidated Balance Sheets.

At December 31, 2006 and 2005, ourtax basis was $271.3 million and $153.5 million lower than thereported amount of net assets recorded on our Consolidated Balance Sheet,primarily due to accelerated depreciation recorded for tax purposes.

Boise Building Solutions Manufacturing Holdings Corp., a wholly owned,fully consolidated operating entity, has an investment in foreign subsidiaries.At December 31, 2006 and 2005, the foreign subsidiaries had$22.3 million and $18.8 million, respectively, of deferred taxassets. The deferred tax assets resulted primarily from net operating lossesand were fully offset by a valuation allowance.

*Predecessor Period*

In the predecessor period presented, Boise ForestProducts Operations results were included in the consolidated income taxreturns of OfficeMax. However, in the predecessor consolidated financialstatement, income taxes were provided based on a calculation of the income taxexpense that would have been incurred if our predecessor had operated as aseparate taxpayer. Income taxes have been provided for all items included inthe Consolidated Statement of Income, regardless of when such items werereported for tax purposes or when the taxes were actually paid or refunded.Current tax liabilities and receivables were transferred to OfficeMax and areincluded in “Net equity transactions with OfficeMax.” During the period ofJanuary 1 through October 28, 2004, the net current tax liability was$38.0 million.

***Environmental***

Ourbusinesses are subject to a wide range of general and industry-specificenvironmental laws and regulations. In particular, we are affected by laws andregulations covering air emissions, wastewater discharges, solid and hazardouswaste management, and site remediation. Compliance with these laws andregulations is a significant factor in the operation of our businesses. Webelieve that we have created a corporate culture of strong compliance by takinga conservative approach to environmental issues in order to assure that we areoperating well within the bounds of regulatory requirements. However, we cannotassure you that we will at all times be in full compliance with environmentalrequirements, and we cannot assure you that we will not incur fines andpenalties in the future. In 2006, we paid $22,157 in environmental fines andpenalties across all of our segments.

We incursubstantial capital and operating expenditures to comply with federal, state,and local environmental laws and regulations. Failure to comply with these lawsand regulations could result in civil or criminal fines or penalties or inenforcement actions. Our failure to comply could also result in governmental orjudicial orders that stop or interrupt our operations or require us to takecorrective measures, install additional pollution control equipment, or takeother remedial actions. During 2006, we spent approximately $9 million oncapital expenditures to comply with environmental requirements. We anticipatecapital expenditures of approximately $10 million in 2007 to comply withenvironmental requirements, and we expect to spend similar or greater amountson environmental capital expenditures in the years ahead.

As an owner andoperator of real estate, we may be liable under environmental laws for thecleanup of past and present spills and releases of hazardous or toxicsubstances on or from our properties and operations. We can be found liableunder these laws if we knew of, or were responsible for, the presence of suchsubstances. In some cases, this liability may exceed the value of the propertyitself.

 

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OfficeMax retainsresponsibility for environmental liabilities that occurred with respect tobusinesses, facilities, and other assets not purchased by us in the ForestProducts Acquisition. In addition, OfficeMax generally indemnifies us forhazardous substance releases and other environmental violations that occurredprior to the Forest Products Acquisition or arose out of pre-Forest ProductsAcquisition operations at the businesses, facilities, and other assetspurchased by us. However, OfficeMax may not have sufficient funds to fullysatisfy its indemnification obligations when required, and in some cases, wemay not be contractually entitled to indemnification by OfficeMax.

***Critical AccountingEstimates***

Criticalaccounting estimates are those that are most important to the portrayal of ourfinancial condition and results. These estimates require management’s mostdifficult, subjective, or complex judgments, often as a result of the need toestimate matters that are inherently uncertain. We review the development,selection, and disclosure of our critical accounting estimates with the AuditCommittee of our board of directors. Our current critical accounting estimatesare as follows:

***Long-Lived Asset Impairment***

Weaccount for the impairment of long-lived assets in all of our segments inaccordance with SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*. An impairment of along-lived asset exists when the carrying value of an asset exceeds its fairvalue and when the carrying value is not recoverable through futureundiscounted cash flows from operations. We review the carrying value oflong-lived assets for impairment when events or changes in circumstancesindicate that the carrying amount of assets may not be recoverable.

Long-lived assetimpairment is a critical accounting estimate, as it is susceptible to changefrom period to period. To estimate whether the carrying value of an asset orasset group is impaired, we estimate the undiscounted cash flows that could begenerated under a range of possible outcomes. To measure future cash flows, weare required to make assumptions about future production volumes, futureproduct pricing, and future expenses to be incurred. In addition, estimates offuture cash flows may change based on the availability of logs and fiber,environmental requirements, capital spending, and other strategic managementdecisions. We estimate the fair value of an asset or asset group based onquoted market prices (the amount for which the asset(s) could be bought or soldin a current transaction with a third party) when available. When quoted marketprices are not available, we use a discounted cash flow model to estimate fairvalue. We acquired most of our long-lived assets in October 2004 as part of theForest Products Acquisition. As a result, most of our long-lived assets arevalued at relatively current amounts.

In 2006, our St. Helens pulp and paper mill hadpositive income and earnings before interest, taxes, depreciation, andamortization (EBITDA). However, market forces put pressure on our St. Helensmill. In 2006, St. Helens’ fiber costs nearly doubled, and fiberavailability was restricted. We temporarily reduced pulp production at the milldue to the inability to source wood fiber on a cost-effective basis. Thisresulted in approximately 20,000 tons of lost pulp production atSt. Helens. The St. Helens mill also faced higher-than-average energyprices. The energy price increases outpaced our energy-reduction efforts. As aresult, a team from across the paper business performed a detailed businessreview of the mill and, in December, presented their findings to companyleaders. The team presented plans to increase the mill’s overall profitabilityand cash flows. Management will continue to monitor the mill’s progress andevaluate its ongoing financial performance.

As a result of the factors described above, we testedSt. Helens’ assets for recoverability. We estimated the mill’s futureundiscounted cash flows consistent with the test of recoverability discussedabove. The results of the test for recoverability indicated that currently, theestimated future undiscounted cash flows exceed the carrying amount of thelong-lived assets, and therefore, no impairment exists. We will monitor themill’s progress and continue to test for recoverability, as appropriate.

We currently believe we have adequate support for thecarrying value of all of our assets based on anticipated cash flows that willresult from our estimates of future demand, pricing, and production costsassuming certain levels of capital expenditures. However, should the marketsfor our products deteriorate significantly or should we decide to investcapital in alternative projects and should other cash flow assumptions change,it is possible that we will be required to record noncash impairment charges 

 

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that could have a material impact on our results ofoperations. Due to the numerous variables associated with our judgments andassumptions relating to the valuation of assets and the effects of changes onthese valuations, both the precision and reliability of our estimates aresubject to uncertainty. As additional information becomes known, we may changeour estimates.

***PurchasePrice Allocation***

Weaccount for business combinations under the purchase method of accounting inaccordance with SFAS No. 141, *Business Combinations.*Asa result, we allocate the purchase price to the tangible and intangible assetsand allocate assets acquired and liabilities assumed based on their respectivefair values as of the date of acquisition. The determination of the fair valuesof the assets acquired and liabilities assumed, as well as associated assetuseful lives, requires management to make estimates. Estimated fair values arederived through consideration and application of standard valuation approachesand techniques.

OnOctober 29, 2004, we acquired most of our assets as part of the ForestProducts Acquisition. We estimated the value of property, plant, and equipmentassets based on the application of a cost, market, or income approach. Underthe cost approach, replacement cost new was estimated and then adjusted fordepreciation due to physical, functional, and economic obsolescence. The marketapproach-derived value was based on an analysis of comparable asset saleinformation. The income approach-derived value was based on the forecasted cashflow potential of the asset. We estimated the fair value of trade names,trademarks, noncompete agreements, and technology based on the application ofthe income approach. The critical assumptions involved with valuing tradenames, trademarks, noncompete agreements, and technology were the expectedrevenue and cash flow levels anticipated over the assets’ expected lives andthe risk profiles of the assets. The fair value of customer relationships wasbased on the application of the cost approach. The critical assumptionsinvolved with valuing customer relationships was associated with estimating thecosts required to replicate these assets to their current condition. OnFebruary 1, 2006, we purchased the assets of CTC in Waco, Texas. Althoughthe acquisition was significantly smaller in size, we estimated the value ofassets consistent with the methodology described for the Forest ProductsAcquisition above.

Liabilitiessubjective in nature primarily include estimates of costs to restructure theoperations of the acquired company. In accordance with the provision ofEmerging Issues Task Force (EITF) 95-3, *Recognition of Liabilitiesin Connection With a Purchase Business Combination*, restructuringactivities increase goodwill. In accordance with SFAS No. 141, we had oneyear from the purchase date to finalize or receive information to determinechanges in estimates of the fair value of assets acquired and liabilitiesassumed. Also, we had one year from the purchase date to adjust the initialpurchase price allocations for changes in estimates of the fair value of assetsacquired and liabilities assumed. See Note 11, Goodwill and IntangibleAssets, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K for the purchase price adjustments recorded in 2005 and 2006.

The purchase price related to the Forest ProductsAcquisition may be adjusted upward or downward based on paper sales pricesduring the six years following the Forest Products Acquisition pursuant to theAdditional Consideration Agreement. Over that period, we could pay OfficeMax amaximum aggregate amount of $125.0 million, or OfficeMax could pay us amaximum aggregate amount of $125.0 million, in each case net of paymentsreceived. The purchase price allocation does not include the effect, if any, ofcontingent additional consideration. After each anniversary of the ForestProducts Acquisition, we review paper prices with the provisions of theAdditional Consideration Agreement to determine whether any amounts are owed orreceivable under the agreement. For the first and second anniversary periods,which ended October 29, 2005 and 2006, neither Boise nor OfficeMax owedadditional consideration for the purchase price. For moreinformation about the Additional Consideration Agreement, see “Item 13.  Certain Relationships and RelatedTransactions, and Director Independence” of this Form 10-K.

Due to thenumerous variables associated with our judgments and assumptions relating tothe valuation of the assets acquired and liabilities assumed, both theprecision and reliability of the resulting estimates are subject touncertainty.

 

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***Goodwilland Intangible Asset Impairment***

Weaccount for acquisitions under the purchase method of accounting, typicallyresulting in goodwill. Goodwill represents the excess of purchase price andrelated costs over the value assigned to the net tangible and intangible assetsof businesses acquired. We account for goodwill in accordance with theprovisions of SFAS No. 142, *Goodwill and OtherIntangible Assets*, which requires us to assess our acquired goodwilland intangible assets with indefinite lives for impairment at least annually inthe absence of an indicator of possible impairment and immediately upon anindicator of possible impairment. We assess goodwill and intangible assets withindefinite lives in the fourth quarter of each year using a fair-value-basedapproach. We also evaluate the remaining useful lives of our finite-livedpurchased intangible assets to determine whether any adjustments to the usefullives are necessary. The intangible assets with indefinite lives consist ofsome of our trade names and trademarks, while finite-lived intangible assetsconsist of customer relationships, noncompete agreements, technology, and othertrade names.

AtDecember 31, 2006, we had $21.8 million of goodwill on ourConsolidated Balance Sheet recorded as $5.6 million, $6.6 million,$1.3 million, and $8.3 million in our Building MaterialsDistribution, Wood Products, Paper, and Packaging & Newsprintsegments, respectively. At December 31, 2006, the net carrying amountrecorded on our Consolidated Balance Sheet for intangible assets withindefinite lives, which represent some of our trade names and trademarks, was$22.7 million, and the net carrying amount for finite-lived purchasedintangible assets, comprised of customer relationships, noncompete agreements,technology, and other trade names, was $14.8 million.

During fourthquarter 2006, we performed our annual impairment assessment of goodwill andindefinite-lived intangible assets for all our segments in accordance with theprovisions of SFAS No. 142. We concluded that no impairment existed. Wealso evaluated the remaining useful lives of our finite-lived purchasedintangible assets and determined no adjustments to the useful lives werenecessary.

In testing forpotential impairment, we measured the estimated fair value of our reportingunits based upon discounted future operating cash flows using a discount ratereflecting our estimated average cost of funds. Differences in assumptions usedin projecting future operating cash flows and cost of funds could have asignificant impact on the determination of the fair value of our reportingunits.

In estimatingfuture cash flows for our segments, we used our internal budgets. Our budgetswere based on recent sales data for existing products, planned timing ofcapital projects, and customer commitments related to new and existingproducts. These budgets also included assumptions of future production volumesand pricing of commodity products. Due to the inherent volatility of commodityproduct pricing, our pricing assumptions were based on the average pricing overthe commodity cycle. These prices were estimated from information gathered fromindustry research firms, research reports published by investment analysts, andother published forecasts. If our estimates of projected future cash flows fromincome from operations were too high by 10%, there would be no impact on the reported value ofgoodwill on our Consolidated Balance Sheet.

We assessed thefinite-lived purchased intangible assets noting no impairment indicators werepresent to suggest that the amortization period needed to be adjusted.

Due to thenumerous variables associated with our judgments and assumptions relating tothe valuation of the reporting units and the effects of changes incircumstances on these valuations, both the precision and reliability of theresulting estimates are subject to uncertainty. As additional informationbecomes known, we may change our estimates.

***Valuationof Redeemable Equity Units***

*Management Equity Agreement*

In April 2006 and December 2004, key managers of Boise purchased, pursuantto the terms of a Management Equity Agreement (Equity Plan), 0.3 millionand 18.6 million equity units in FPH at $2.00 and $1.00 per unit,respectively, which was approximately equal to the estimated fair value on thedate of purchase. Those who purchased FPH’s Series B equity units in April2006 and December 2004 received grants of 5.3 million and35.6 million, respectively, of FPH’s Series C equity units (profitinterests) that 

 

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represent the right to participate in profits after capital is returned tothe holders of FPH’s Series B equity units. FPH’s Series C equityunits participate in equity value appreciation above a specified level. In addition, in 2006, FPH issued2.6 million 2006 Series C equity units to two other key managers andour four nonaffiliated directors for no consideration. We account for awardsgranted under the Equity Plan in our consolidated financial statements inaccordance with SFAS No. 123(R).

FPH’s Series B and Series C equity units held by management areredeemable at FPH’s option upon termination of the management investor’semployment and at the option of the holder in the event of death or disabilityor the sale of a division resulting in the termination of his or heremployment. Our Credit Agreement limits the amount of redemptions to$3 million in any year. Except in the event of death or disability, webelieve that the redemption of these units is within our control due to theinterlocking boards of FPH and Boise and because FPH was organized solely forthe purpose of establishing Boise to acquire the forest products and paperassets of OfficeMax. Repurchases under the Equity Plan have been funded bymirror-image redemptions of B units/shares and C units/shares held byFPH in its subsidiaries. Because the redemption of FPH’s Series B andSeries C equity units and the expected parallel redemptions of ourSeries B and Series C equity units are a contingent event outside theemployee’s control and the repurchase of immature units (units for which theinvestor has not been subject to the risks and rewards of ownership for atleast six months after vesting occurs) is****not currentlydeemed probable of occurring, we account for the units using equity planaccounting in accordance with FASB Staff Position (FSP)No. FAS 123(R)-4, *Classification of Options andSimilar Instruments Issued as Employee Compensation That Allow for CashSettlement Upon the Occurrence of a Contingent Event*. However,because FPH units are subject to mandatory redemption in an event that isoutside of our control (death or disability), we are required to classify theseunits outside of permanent equity on our Consolidated Balance Sheets atgrant-date fair value. Accordingly, at December 31, 2006, we had$23.9 million recorded in “Redeemable equity units” on our ConsolidatedBalance Sheet. At December 31, 2005, prior to the merger discussed in “MergerWith Boise Land & Timber Holdings Corp.” in this Management’s Discussionand Analysis of Financial Condition and Results of Operations in thisForm 10-K, we recorded 55% of management’s investment in us, or$12.4 million, in “Redeemable equity units” on our Consolidated BalanceSheet, and Timber Holdings recorded 45% of the investment, or$7.8 million, in “Redeemable common stock” in their consolidated financialstatements. Under equity plan accounting, the carrying value of management’sinvestment will not be adjusted to redemption value unless payment ofredeemable amounts becomes probable. At the date it becomes probable, we adjustthe carrying value to redemption value by marking the value of the equity unitsto market, which could result in additional compensation expense.

*Vesting*

Generally, the appreciation in the valueof FPH’s Series B equity units issued under the Equity Plan and 50% of itsSeries C equity units vest 20% each year on December 31, 2005 through2009. The other 50% of the Series C equity units generally vest at the endof 2009 if specific criteria tied to internal rates of return are met. Uponeither the sale of the company as defined in the Equity Plan or an initial publicoffering, vesting is accelerated for all management investors. Other events mayaccelerate vesting for specifically affected management investors, but none ofthese events are within the control of the investor. The vesting schedules areshortened for those investors who were at least 60 years old as of thegrant date, so that the units fully vest by December 31 of the year inwhich the investor reaches age 65 and at least two vesting periods havebeen met. Vesting does not trigger a right or obligation on the part of FPH orus to repurchase equity units held by management investors.

*Series B Equity Units*

Weused a form of income approach, known as discounted cash flow analysis, and amarket approach, which used an event analysis and a trend analysis, to estimatethe grant date fair value of the Series B equity units.

The outcomes ofthe discounted cash flow analysis, the event analysis, and the trend analysiswere given equal consideration. The analyses demonstrated that the fair valueof the units issued by FPH was equal to or less than the amount each employeewas required to pay. As a result, we did not recognize compensation expense onthe dates the Series B equity units were granted.

 

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*Series C Equity Units*

The fair value of the Series C equityunits as of the grant date was estimated by analyzing our possible futureevents, the paths to liquidity for the holders of the Series C equityunits, and how these paths may affect the valuation of the Series C equityunits. These possible future events included a sale of the company, an initialpublic offering, and remaining a private company. We estimated probabilities ofthese events occurring based on our strategies at each of the grant dates. Adecision tree analysis that incorporated these event outcomes and thelikelihood of their occurrences was created. Payoffs to the holders of theSeries C equity units were constructed at each event outcome on thedecision tree. Based on this framework, a simulation analysis was run to arriveat the fair values of the Series C equity units.

SFAS No. 123(R) requires different valuation calculations for equitygrants that have a service condition and equity grants that have a marketcondition. The 50% of the Series C equity units that vest over time are “servicecondition” awards. Under the requirements of SFAS No. 123(R), the fairvalue of these awards is measured assuming that all conditions have been met,or as if they were fully vested on the grant date. Compensation expense isrecognized over the vesting period and adjusted if the service condition is notmet. We determined the average fair value on the date of grant of theSeries C equity units granted in 2006 and 2004 that vest over time to beapproximately $0.11 and $0.46 per unit, respectively.

The 50% of Series C equity units that vest based on internal rates ofreturn are “market condition” grants under the requirements ofSFAS No. 123(R). Thestandard requires that the valuation of market condition awards considers thelikelihood that the market condition will be satisfied rather than assumingthat the award is vested on the award date. Because the internal rate of returnrepresents a more difficult threshold to meet before payout, with greateruncertainty that the market condition will be satisfied, these awards have alower fair value than those that vest based solely on the passage of time.However, compensation expense is required to be recognized under SFASNo. 123(R) for an award regardless of when, if ever, the market conditionis satisfied. We determined the average fair value on the date of grant of theSeries C equity units granted in 2006 and 2004 that generally vest basedon internal rates of return to be approximately $0.08 and $0.24 per unit,respectively.

AtDecember 31, 2006, we had $5.8 million of unrecognized compensationcost related to the nonvested Series C redeemable equity units grantedunder the Equity Plan. The cost is expected to be recognized generally over aweighted-average period of 2.5 years.

The determination of the fair value of the equity units is complex andrequires the use of numerous estimates. These estimates include, but are notlimited to, assumptions we made regarding our cost of capital, futureperformance, and the probability of remaining a private company. Had we used differentassumptions in our analysis, it could have had a significant impact on ourconsolidated financial statements.

***Pensions***

We account for pension expense in accordance with SFASNo. 87, *Employers’ Accounting for Pensions.* This statement requires us to calculate pension expense andliabilities using actuarial assumptions, including discount rates, expectedreturn on plan assets, expected rate of compensation increases, retirementrates, mortality rates, expected contributions, and other factors. We based theassumptions used to calculate pension expense on the following factors:

*DiscountRate Assumption.*  Thediscount rate assumption was determined using a spot rate yield curveconstructed to replicate Aa-graded corporate bonds. The plan’s projectedcash flows were duration-matched to this yield curve to develop an appropriatediscount rate.

*AssetReturn Assumption*.  Webased our expected rate of return on plan assets on the average rate ofearnings expected on invested funds. The 2006 expected rate of return on planassets was 7.25%, which was based on a target allocation of approximately 53%U.S. equity securities (which were expected to earn approximately 8.0% in thelong term), 15% international equity securities (which were expected to earnapproximately 8.25% in the long term), and 32% fixed-income securities (whichwere expected to earn approximately 5.60% in the long term).

 

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*Rate ofCompensation Increases. *Thisassumption reflects our long-term actual experience, the near-term outlook, andassumed inflation.

*Retirement andMortality Rates*.  These rates are developed to reflect actualand projected plan experience.

*ExpectedContributions.*  Planobligations and expenses are based on existing retirement plan provisions. Noassumption is made for future changes to benefit provisions beyond those towhich we are presently committed, for example, changes we might commit to infuture labor contracts. In 2007, there is no required minimum contribution toour qualified pension plans. However, we may make voluntary contributions.

In December 2006, we adopted SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans — AnAmendment of FASB Statements No. 87, 88, 106, and 132(R)*, whichrequired us to recognize the funded status of our pension and otherpostretirement benefit plans on our 2006 Consolidated Balance Sheet. It alsorequired us to recognize the actuarial and experience gains and losses and theprior service costs and credits as a component of other comprehensive income,net of tax, in our Consolidated Statement of Capital. In connection withadopting SFAS No. 158, we reduced our liabilities $38.1 million andincreased capital by about the same amount. The decrease in total liabilitiesresulted from recording $43.9 million of actuarial gains, partially offsetby prior service costs. The $43.9 million actuarial gain resulted from ourplan experiencing a better than expected rate of return on plan assets, anincrease in the discount rate assumption used to measure pension benefitobligations from 5.60% to 5.90% at December 31, 2006, and $20 millionof voluntary contributions to our qualified pension plans in 2006. Actualresults that differ from assumptions are accumulated and amortized over futureperiods, and, therefore, generally affect recognized expense in future periods.While we believe that the assumptions used to measure our pension obligationsare reasonable, differences in actual experience or changes in assumptions maymaterially affect our pension obligations and future expense.

We believe thatthe accounting estimate related to pensions is a critical accounting estimatefor all of our segments because it is highly susceptible to change from periodto period. As discussed above, the future effects of pension plans on ourfinancial position and results of operations will depend on economicconditions, employee demographics, mortality rates, retirement rates,investment performance, and funding decisions, among other factors. Thefollowing table presents selected assumptions used and expected to be used inthe measurement of pension expense in the following periods: 
| ** **                              | ** ** | **Year Ending  December 31,** | ** ** | **Year Ended December 31 ** | ** ** |
|-----------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| ** **                              | ** ** | **(millions, except for percentages)**  | ** ** |
| Pension expense                         |       | $                                       | 24.3       |                                            | $          | 26.9 |   | $ | 26.8 |   |
| Discount rate                           |       | 5.90                                    | %          | 5.60                                            | %          | 5.75 | % |
| Expected rate of  return on plan assets |       | 7.25                                    | %          | 7.25                                            | %          | 7.25 | % |
| Rate of  compensation increases         |       | 4.25                                    | %          | 4.25                                            | %          | 4.25 | % |
|                                         |            |                                         |            |                                                 |            |  |  |  |  |  |

 

A 0.25% change ineither direction to the discount rate, the expected rate of return on planassets, or the rate of compensation increases, would have had the followingeffect on 2007 and 2006 pension expense. These sensitivities are specific to2007 and 2006. The sensitivities may not be additive, so the impact of changingmultiple factors simultaneously cannot be calculated by combining theindividual sensitivities shown.

 

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| ** **                              | ** ** | ** **              | ** ** | **Increase (Decrease)  in Pension Expense** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|------------------------------------------------------------|------------|
| ** **                              | ** ** | **Base   Expense** | ** ** | **0.25 %   Increase**                            | ** ** | **0.25%   Decrease** | ** ** |
| ** **                              | ** ** | ** **              | ** ** | **(millions)**                                             | ** ** | ** ** | ** ** |
| **2006  Expense**                       | ** ** | ** **              | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Discount rate                           |       | $                       | 26.9       |                                                       | $          | (0.9 | ) | $ | 0.9 |   |
| Expected rate of  return on plan assets |       | 26.9                    |       | (1.2                                                       | )          | 1.2 |   |
| Rate of  compensation increases         |       | 26.9                    |       | 0.4                                                        |       | (0.4 | ) |
|                                    |       |                    |       |                                                       |       |   |   |
| **2007  Expense**                       | ** ** | ** **              | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Discount rate                           |       | $                       | 24.3       |                                                       | $          | (0.8 | ) | $ | 0.8 |   |
| Expected rate of  return on plan assets |       | 24.3                    |       | (1.3                                                       | )          | 1.3 |   |
| Rate of compensation  increases         |       | 24.3                    |       | 0.5                                                        |       | (0.5 | ) |

 

***New and Recently AdoptedAccounting Standards***

*New Accounting Standards*

In September 2006, the Financial Accounting Standards Board (FASB)issued SFAS No. 157,*Fair ValueMeasurements*. This statement defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. This statement applies under other accounting pronouncements thatrequire or permit fair value measurements, the FASB having previously concludedin those accounting pronouncements that fair value is the relevant measurementattribute. Accordingly, this statement does not require any new fair valuemeasurements. We will adopt this standard January 1, 2008. We do notexpect it to have a material impact on our financial position, results ofoperations, or cash flows.

*Recently Adopted Accounting Standards*

In September 2006, the FASB issued FSP No. AUG AIR-1, *Accounting for Planned Major Maintenance Activities*.This FSP prohibits companies from accruing a liability for the future costs ofperiodic major overhauls and maintenance of plant and equipment in annual andinterim financial reporting periods. In all periods presented, we chargedplanned shutdown maintenance costs in our Paper and Packaging & Newsprintsegments to income (loss) ratably over the year. This statement prohibits thatpractice and requires us to use one of three alternative methods of accountingfor planned major maintenance activities, including direct expense, built-inoverhaul, or the deferral method. We adopted this FSP January 1, 2007, andrecast our 2006 interim financial information using the direct expense method.The FSP increases the volatility of earnings in the period a planned shutdownoccurs, but it has no impact on our annual results of operations.

In September 2006, the Securities and Exchange Commission (SEC) staffissued Staff Accounting Bulletin (SAB) Topic 1N, *Financial Statements — Considering the Effects of Prior YearMisstatements When Quantifying Misstatements in Current Year FinancialStatements* (SAB 108). SAB 108 addresses how the effects ofprior-year uncorrected misstatements should be considered when quantifyingmisstatements in current-year financial statements. SAB 108 requiresregistrants to quantify misstatements using both the balance sheet and incomestatement approaches and to evaluate whether either approach results inquantifying an error that is material in light of relevant quantitative andqualitative factors. We adopted SAB 108 in December 2006, and it did nothave a material impact on our financial position or results of operations.

In July 2006, the FASB issued FASBInterpretation (FIN) No. 48, *Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109*.FIN No. 48 clarifies the criteria for recognizing tax benefits under FASBStatement No. 109, *Accounting forIncome Taxes*. It also requires additional financial statementdisclosures about uncertain tax positions. FIN No. 48 was effective beginningJanuary 2007. Because the majority of our businesses and assets are held andoperated by limited liability companies and the income taxes of theseoperations are payable by our equity holders, it did not have a material impacton our financial position or results of operations. However, events could arisein the future that would cause the adoption of this interpretation to have amaterial impact on our financial statements. In addition, if our tax statuswere to change in the future, we would have to reevaluate the impact of FINNo. 48 on our financial position and results of operations at that time.

 

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In September 2005,the FASB’s EITF reached a consensus on EITF 04-13, *Accountingfor Purchases and Sales of Inventory With the Same Counterparty*. Theconsensus identifies circumstances under which two or more transactionsinvolving inventory with the same counterparty should be viewed as a singlenonmonetary transaction within the scope of Accounting Principles Board (APB)Opinion No. 29, *Accounting for NonmonetaryTransactions*. We adopted this standard effective January 2006, andit required us to report our inventory buy/sell transactions in ourPackaging & Newsprint and Paper segments on a net basis in ourConsolidated Statements of Income. Previously, in accordance with EITF 99-19,*Reporting Revenue Gross as a Principal Versus Netas an Agent,* and SABNo. 104, *Revenue Recognition*, we recordedsales and purchases related to our inventory buy/sell arrangements on a grossbasis. This consensus had no impact on net income. Had this consensuspreviously been in effect, it would have reduced sales $76.1 million,$15.6 million, and $63.6 million for the year ended December 31,2005, and the periods of October 29 through December 31, 2004, andJanuary 1 through October 28, 2004, and would have reduced “Materials,labor, and other operating expenses” by about the same amount. In accordancewith the provisions of EITF 04-13, prior-period financial information hasnot been recast to conform with the current period’s presentation.

In March 2005, the FASB issued FINNo. 47, *Accounting for Conditional Asset RetirementObligations — an interpretation of FASB Statement No. 143*.FIN No. 47 clarifies that the term “conditional asset retirementobligation,” as used in SFAS No. 143, *Accounting for AssetRetirement Obligations*, refers to a legal obligation to perform anasset retirement activity in which the timing and/or method of settlement isconditional on a future event that may or may not be within the control of theentity. FIN No. 47 also clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation. We adopted FIN No. 47 in December 2005, and it did nothave a material impact on our financial position or results of operations. Formore information, see Note 12, Asset Retirement Obligations, of the Notesto the Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K.

See Note 16,Redeemable Equity Units, of the Notes to the ConsolidatedFinancial Statements in “Item 8. Consolidated Financial Statements” of this Form 10-K for adiscussion of FSP No. FAS 123(R)-4, *Classificationof Options and Similar Instruments Issued as Employee Compensation That Allowfor Cash Settlement Upon the Occurrence of a Contingent Event,*andNote 15, Retirement and Benefit Plans, for a discussion of SFAS No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans, an amendment of SFAS No. 87, 88, 106, and 132(R).*

***Non-GAAP FinancialMeasures***

EBITDArepresents income (loss) before interest (interest expense, interest income,and change in fair value of interest rate swaps), income tax provision(benefit), and depreciation, amortization, and depletion. EBITDA is the primarymeasure used by our chief operating decision makers to evaluate segmentoperating performance and to decide how to allocate resources to segments. Webelieve EBITDA is useful to investors because it provides a means to evaluatethe operating performance of our segments and our company on an ongoing basisusing criteria that are used by our internal decision makers and because it isfrequently used by investors and other interested parties in the evaluation ofcompanies with substantial financial leverage. We believe EBITDA is ameaningful measure because it presents a transparent view of our recurringoperating performance and allows management to readily view operating trends,perform analytical comparisons, and identify strategies to improve operatingperformance. For example, we believe that the inclusion of items such as taxes,interest expense, and interest income distorts management’s ability to assessand view the core operating trends in our segments. EBITDA, however, is not ameasure of our liquidity or financial performance under generally acceptedaccounting principles (GAAP) and should not be considered as an alternative tonet income (loss), income (loss) from operations, or any other performancemeasure derived in accordance with GAAP or as an alternative to cash flow fromoperating activities as a measure of our liquidity. The use of EBITDA insteadof net income (loss) or segment income (loss) has limitations as an analyticaltool, including the inability to determine profitability; the exclusion ofinterest expense, interest income, change in the fair value of interest rateswaps, and associated significant cash requirements; and the exclusion ofdepreciation, amortization, and depletion, which represent significant andunavoidable operating costs, given the level of our indebtedness and thecapital expenditures needed to maintain our businesses. Management compensatesfor these limitations by relying on our GAAP results. Our measures of EBITDA 

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are not necessarily comparable to other similarly titled captions ofother companies due to potential inconsistencies in the methods of calculation.

                 For a reconciliation ofnet income (loss) to EBITDA, see “Item 6. Selected Financial Data” of this Form 10-K. The following is areconciliation of historical income (loss) from operations to EBITDA and theeffects of items included in EBITDA for the years ended December 31, 2006and 2005, and the periods of October 29 (inception) throughDecember 31, 2004, and January 1 through October 28, 2004:

 
| ** **                                | ** ** | **Boise**                             | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | ** December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
| ** **                                | ** ** | **Building**                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Corporate** | ** ** | ** ** | ** ** | **Building** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Corporate** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Materials**                         | ** ** | **Wood** | ** ** | ** ** | ** ** | **Packaging** | ** ** | **and** | ** ** | ** ** | ** ** | **Materials** | ** ** | **Wood** | ** ** | ** ** | ** ** | **Packaging** | ** ** | **and** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Distribution**                      | ** ** | **Products** | ** ** | **Paper** | ** ** | **& Newsprint** | ** ** | **Other** | ** ** | **Total** | ** ** | **Distribution** | ** ** | **Products** | ** ** | **Paper** | ** ** | **& Newsprint** | ** ** | **Other** | ** ** | **Total** | ** ** |
| ** **                                | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss)  from operations            |       | $                                     | 75.3       |   | $ | 37.2 |   | $ | 63.1 |   | $ | 45.3 |   | $ | (37.5 | ) | $ | 183.4 |   | $ | 99.9 |   | $ | 119.4 |   | $ | 58.6 |   | $ | 23.8 |   | $ | (29.0 | ) | $ | 272.7 |   |
| Foreign exchange  gain (loss)             |       | —                                |       | — |   | — |   | — |   | 0.4 |   | 0.4 |   | — |   | — |   | — |   | — |   | (0.3 | ) | (0.3 | ) |
| Segment income (loss)                     |       | 75.3                                  |       | 37.2 |   | 63.1 |   | 45.3 |   | (37.1 | ) | 183.8 |   | 99.9 |   | 119.4 |   | 58.6 |   | 23.8 |   | (29.4 | ) | 272.3 |   |
| Depreciation, amortization, and depletion |       | 9.2                                   |       | 27.6 |   | 62.3 |   | 50.8 |   | 5.4 |   | 155.3 |   | 9.1 |   | 23.0 |   | 54.0 |   | 37.2 |   | 5.5 |   | 128.8 |   |
| EBITDA                                    |       | **$**                                 | **84.6**   | ** ** | **$** | **64.9** | ** ** | **$** | **125.4** | ** ** | **$** | **96.1** | ** ** | **$** | **(31.9** | **)** | **$** | **339.1** | ** ** | **$** | **109.0** | ** ** | **$** | **142.4** | ** ** | **$** | **112.6** | ** ** | **$** | **61.0** | ** ** | **$** | **(23.8** | **)** | **$** | **401.2** |   |

 

EBITDA for the years ended December 31, 2006 and 2005, includes theeffects of the following items:

 
| ** **                                          | ** ** | **(millions)** | ** ** |
|-----------------------------------------------------|------------|----------------|------------|
| Offering and  project costs (a)                     |       | $              | —     |   | $ | (1.5 | ) | $ | — |   | $ | — |   | $ | (3.0 | ) | $ | (4.5 | ) | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | (3.6 | ) | $ | (3.6 | ) |
| Gain on changes  in retiree healthcare programs (b) |       | —         |       | — |   | — |   | — |   | 3.7 |   | 3.7 |   | — |   | — |   | — |   | — |   | 9.9 |   | 9.9 |   |
|                                                |       | **$**          | **—** | ** ** | **$** | **(1.5** | **)** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **0.7** | ** ** | **$** | **(0.8** | **)** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **6.3** | ** ** | **$** | **6.3** |   |

 
| ** **                                 | ** ** | ** **                                                                         | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** **               | ** ** | ** **    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | ** ** | ** ** | ** **               | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------|------------|--------------------------|------------|---------------|------------|------------|------------|------------------|------------|--------------|------------|------------|------------|--------------------------|------------|---------------|------------|------------|------------|
| ** **                                 | ** ** | **Boise**                                                                          | ** ** | **Precedessor**                                                 | ** ** |
| ** **                                 | ** ** | **October 29 (inception) through December 31, 2004** | ** ** | **January 1 through October 28, 2004** | ** ** |
| ** **                                 | ** ** | **Building**                                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** **               | ** ** | **Corporate** | ** ** | ** ** | ** ** | **Building**     | ** ** | ** **   | ** ** | ** ** | ** ** | ** **               | ** ** | **Corporate** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Materials**                                                                      | ** ** | **Wood**                                                        | ** ** | ** ** | ** ** | **Packaging**            | ** ** | **and**       | ** ** | ** ** | ** ** | **Materials**    | ** ** | **Wood**     | ** ** | ** ** | ** ** | **Packaging**            | ** ** | **and**       | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Distribution**                                                                   | ** ** | **Products**                                                    | ** ** | **Paper**  | ** ** | **& Newsprint** | ** ** | **Other**     | ** ** | **Total**  | ** ** | **Distribution** | ** ** | **Products** | ** ** | **Paper**  | ** ** | **& Newsprint** | ** ** | **Other**     | ** ** | **Total**  | ** ** |
| ** **                                 | ** ** | **(millions)**                                                                     | ** ** |
| Income (loss)  from operations             |       | $                                                                                  | 10.1       |                                                            | $          | 15.6       |       | $                        | 19.0       |          | $          | 7.3        |       | $                | (8.0       | )            | $          | 44.0       |       | $                        | 78.8       |          | $          | 150.2      |       | $ | (35.4 | ) | $ | (1.2 | ) | $ | (57.7 | ) | $ | 134.7 |   |
| Gain on sale of  equity affiliate (c)      |       | —                                                                             |       | —                                                          |       | —     |       | —                   |       | —        |       | —     |       | —           |       | 46.5         |       | —     |       | —                   |       | —        |       | 46.5       |       |
| Foreign exchange  gain                     |       | —                                                                             |       | —                                                          |       | —     |       | —                   |       | 1.2           |       | 1.2        |       | —           |       | —       |       | —     |       | —                   |       | 0.9           |       | 0.9        |       |
| Equity in net  income of affiliate         |       | —                                                                             |       | —                                                          |       | —     |       | —                   |       | —        |       | —     |       | —           |       | 6.3          |       | —     |       | —                   |       | —        |       | 6.3        |       |
| Segment income (loss)                      |       | 10.1                                                                               |       | 15.6                                                            |       | 19.0       |       | 7.3                      |       | (6.8          | )          | 45.2       |       | 78.8             |       | 203.0        |       | (35.4      | )          | (1.2                     | )          | (56.8         | )          | 188.4      |       |
| Depreciation,  amortization, and depletion |       | 1.5                                                                                |       | 3.3                                                             |       | 8.3        |       | 6.0                      |       | 0.9           |       | 20.0       |       | 6.1              |       | 23.5         |       | 118.5      |       | 34.7                     |       | 11.0          |       | 193.8      |       |
| EBITDA                                     |       | **$**                                                                              | **11.6**   | ** **                                                      | **$**      | **18.9**   | ** ** | **$**                    | **27.3**   | ** **    | **$**      | **13.3**   | ** ** | **$**            | **(5.9**   | **)**        | **$**      | **65.2**   | ** ** | **$**                    | **84.9**   | ** **    | **$**      | **226.5**  | ** ** | **$** | **83.1** | ** ** | **$** | **33.5** | ** ** | **$** | **(45.8** | **)** | **$** | **382.2** |   |

 

EBITDA for the periods of October 29 (inception)through December 31, 2004, and January 1 through October 28, 2004, includes theeffects of the following items:
| ** **                               | ** ** | **(millions)** | ** ** |
|------------------------------------------|------------|----------------|------------|
| Gain on sale of  equity of affiliate (c) |       | $              | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 46.5 |   | $ | — |   | $ | — |   | $ | — |   | $ | 46.5 |   |
| Equity in net  income of affiliate       |       | —         |       | — |   | — |   | — |   | — |   | — |   | — |   | 6.3 |   | — |   | — |   | — |   | 6.3 |   |
| Loss on sale of  mill (d)                |       | —         |       | — |   | — |   | — |   | — |   | — |   | — |   | (7.1 | ) | — |   | — |   | — |   | (7.1 | ) |
| Retention bonus  (e)                     |       | —         |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | (12.7 | ) | (12.7 | ) |
| Inventory purchase price adjustments (f) |       | (2.7           | )          | (5.8 | ) | (10.6 | ) | (1.1 | ) | — |   | (20.2 | ) | — |   | — |   | — |   | — |   | — |   | — |   |
|                                     |       | **$**          | **(2.7**   | **)** | **$** | **(5.8** | **)** | **$** | **(10.6** | **)** | **$** | **(1.1** | **)** | **$** | **—** | ** ** | **$** | **(20.2** | **)** | **$** | **—** | ** ** | **$** | **45.7** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **(12.7** | **)** | **$** | **33.0** |   |

 

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(a)                                  Representsexpenses for the write-off of costs incurred in connection with the canceledinitial public offering and other special projects.

(b)                                 2006and 2005 include gains of $3.7 million and $9.9 million,respectively, for changes to our retiree healthcare programs. For moreinformation, see Note 15, Retirement and Benefit Plans, of the Notes tothe Consolidated Financial Statements in “Item 8. Consolidated FinancialStatements” of this Form 10-K.

(c)                                  Representsa pretax gain recognized in connection with our predecessor’s sale inMay 2004 of its 47% interest in Voyageur Panel.

(d)                                 Reflectscosts incurred in connection with the February 2004 sale of our predecessor’sYakima, Washington, plywood and lumber operations.

(e)           Reflects expense primarily for aone-time retention bonus OfficeMax granted to our employees.

(f)                                    As a result of purchase price accounting, wewrote up the value of our inventory, which increased the costs and expensesrecognized by us upon the sale of the inventory by $20.2 million for theperiod of October 29 (inception) through December 31, 2004.

 
| ***ITEM  7A.*** | ***QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*** |
|-----------------|-------------------------------------------------------------------|

 

Informationconcerning quantitative and qualitative disclosures about market risk isincluded under the caption “Disclosures of Financial Market Risks” in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Form 10-K.

 

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**ITEM 8.            CONSOLIDATEDFINANCIAL STATEMENTS**

 

**Boise Cascade Holdings, L.L.C.****Consolidated Statements of Income**
| ** **                                      | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|-------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | ** **                                | ** ** | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **                                      | ** ** | ** **                                | ** ** | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                                      | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                                      | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(thousands)**                           | ** ** |
| **Sales**                                       |       |                                      |       |                  |       |   |   |   |   |
| Trade                                           |       | $                                         | 5,203,952  |                  | $          | 5,345,106 |   | $ | 779,953 |   | $ | 4,417,440 |   |
| Related parties                                 |       | 575,913                                   |       | 562,338               |       | 92,774 |   | 444,608 |   |
|                                            |       | 5,779,865                                 |       | 5,907,444             |       | 872,727 |   | 4,862,048 |   |
|                                            |       |                                      |       |                  |       |   |   |   |   |
| **Costs and expenses**                          |       |                                      |       |                  |       |   |   |   |   |
| Materials, labor, and  other operating expenses |       | 5,063,041                                 |       | 5,155,112             |       | 733,509 |   | 4,122,045 |   |
| Fiber costs from  related parties               |       | —                                    |       | 17,609                |       | 24,451 |   | 95,537 |   |
| Depreciation,  amortization, and depletion      |       | 155,311                                   |       | 128,826               |       | 20,037 |   | 193,816 |   |
| Selling and distribution  expenses              | * *   | 283,636                                   |       | 264,072               |       | 40,118 |   | 211,319 |   |
| General and  administrative expenses            |       | 88,364                                    |       | 74,732                |       | 10,608 |   | 79,317 |   |
| Other (income) expense,  net                    |       | 6,089                                     |       | (5,592                | )          | (23 | ) | 25,348 |   |
|                                            |       | 5,596,441                                 |       | 5,634,759             |       | 828,700 |   | 4,727,382 |   |
|                                            |       |                                      |       |                  |       |   |   |   |   |
| **Income from operations**                      |       | 183,424                                   |       | 272,685               |       | 44,027 |   | 134,666 |   |
|                                            |       |                                      |       |                  |       |   |   |   |   |
| Equity in net income of  affiliate              |       | —                                    |       | —                |       | — |   | 6,308 |   |
| Gain on sale of equity  affiliate               |       | —                                    |       | —                |       | — |   | 46,498 |   |
| Foreign exchange gain  (loss)                   |       | 401                                       |       | (340                  | )          | 1,181 |   | 912 |   |
| Change in fair value of  interest rate swaps    |       | —                                    |       | 9,886                 |       | — |   | — |   |
| Interest expense                                |       | (112,404                                  | )          | (166,344              | )          | (22,182 | ) | (72,124 | ) |
| Interest income                                 |       | 3,781                                     |       | 3,391                 |       | 2,005 |   | 557 |   |
|                                            |       | (108,222                                  | )          | (153,407              | )          | (18,996 | ) | (17,849 | ) |
| ** **                                      |       |                                      |       |                  |       |   |   |   |   |
| **Income before income taxes**                  |       | 75,202                                    |       | 119,278               |       | 25,031 |   | 116,817 |   |
| Income tax (provision)  benefit                 |       | (3,631                                    | )          | 2,089                 |       | (329 | ) | (47,351 | ) |
| **Net income**                                  | ** ** | **$**                                     | **71,571** | ** **            | **$**      | **121,367** | ** ** | **$** | **24,702** | ** ** | **$** | **69,466** | ** ** |
|                                            |       |                                      |       |                  |       |   |   |   |   |

See accompanying notes toconsolidated financial statements.

65

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**Boise Cascade Holdings, L.L.C.****Consolidated Balance Sheets**
| ** **                                       | ** ** | **December 31** | ** **    |
|--------------------------------------------------|------------|----------------------|---------------|
| ** **                                       | ** ** | **2006**             | ** **    | **2005** | ** ** |
| ** **                                       | ** ** | **(thousands)**      | ** **    |
| **ASSETS**                                       |       |                 |          |   |   |
| ** **                                       |       |                 |          |   |   |
| **Current**                                      |       |                 |          |   |   |
| Cash and cash  equivalents                       |       | $                    | 45,169        |   | $ | 88,171 |   |
| Receivables                                      |       |                 |          |   |   |
| Trade, less allowances of $1,734 and $1,947 |       | 327,138              |          | 338,821 |   |
| Related parties                                  |       | 37,986               |          | 43,010 |   |
| Other                                            |       | 19,027               |          | 20,980 |   |
| Inventories                                      |       | 640,826              |          | 633,783 |   |
| Other                                            |       | 13,027               |          | 10,694 |   |
|                                             |       | 1,083,173            |          | 1,135,459 |   |
|                                             |       |                 |          |   |   |
| **Property**                                     | * *   | * *             | * *      |   |   |
| Property and  equipment, net                     |       | 1,462,315            |          | 1,497,054 |   |
| Fiber farms and  deposits                        |       | 40,492               |          | 52,236 |   |
|                                             |       | 1,502,807            |          | 1,549,290 |   |
|                                             |       |                 |          |   |   |
| **Deferred  financing costs**                    |       | 31,474               |          | 37,778 |   |
| **Goodwill**                                     |       | 21,846               |          | 15,101 |   |
| **Intangible  assets**                           |       | 37,507               |          | 31,804 |   |
| **Other  assets**                                |       | 28,390               |          | 44,231 |   |
| **Total  assets**                                | ** ** | **$**                | **2,705,197** |   | **$** | **2,813,663** | ** ** |
| ** **                                       |       |                 |          |   |   |

Seeaccompanying notes to consolidated financial statements.

66

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**Boise Cascade Holdings, L.L.C.****Consolidated Balance Sheets (continued)**

 
| ** **                                                                                                                                                           | ** ** | **December 31** | ** **    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|---------------|
| ** **                                                                                                                                                           | ** ** | **2006**             | ** **    | **2005** | ** ** |
| ** **                                                                                                                                                           | ** ** | **(thousands)**      | ** **    |
| **LIABILITIES  AND CAPITAL**                                                                                                                                         |       |                 |          |   |   |
| **Current**                                                                                                                                                          |       |                 |          |   |   |
| Short-term  borrowings                                                                                                                                               |       | $                    | 3,200         |   | $ | — |   |
| Accounts payable                                                                                                                                                     |       | 341,201              |          | 383,207 |   |
| Accrued  liabilities                                                                                                                                                 |       |                 |          |   |   |
| Compensation and benefits                                                                                                                                            |       | 93,287               |          | 106,289 |   |
| Interest payable                                                                                                                                                     |       | 11,847               |          | 10,630 |   |
| Other                                                                                                                                                                |       | 54,600               |          | 46,244 |   |
|                                                                                                                                                                 |       | 504,135              |          | 546,370 |   |
|                                                                                                                                                                 |       |                 |          |   |   |
| **Debt**                                                                                                                                                             |       |                 |          |   |   |
| Long-term debt                                                                                                                                                       |       | 1,213,900            |          | 1,365,800 |   |
| Note payable to  related party, net                                                                                                                                  |       | —               |          | 270,854 |   |
|                                                                                                                                                                 |       | 1,213,900            |          | 1,636,654 |   |
| **Other**                                                                                                                                                            |       |                 |          |   |   |
| Compensation and  benefits                                                                                                                                           |       | 111,676              |          | 121,269 |   |
| Other long-term  liabilities                                                                                                                                         |       | 36,642               |          | 31,937 |   |
|                                                                                                                                                                 |       | 148,318              |          | 153,206 |   |
|                                                                                                                                                                 |       |                 |          |   |   |
|                                                                                                                                                                 |       |                 |          |   |   |
| **Redeemable  equity units**                                                                                                                                         |       |                 |          |   |   |
| Series B  equity units — 17,107,889 units and 17,296,624 units outstanding                                                                            |       | 17,477               |          | 9,508 |   |
| Series C  equity units — 39,576,540 units and 32,173,830 units outstanding                                                                       |       | 6,434                |          | 2,904 |   |
|                                                                                                                                                                 |       | 23,911               |          | 12,412 |   |
| ** **                                                                                                                                                           |       |                 |          |   |   |
| **Commitments  and contingent liabilities**                                                                                                                          |       |                 |          |   |   |
|                                                                                                                                                                 |       |                 |          |   |   |
| **Capital**                                                                                                                                                          |       |                 |          |   |   |
| Series A  equity units — no par value; 66,000,000 units authorized and outstanding                                                                    |       | 78,290               |          | 39,885 |   |
| Series B  equity units — no par value; 550,000,000 units and  549,000,000 units authorized; 530,356,601 units and 530,356,601  units outstanding |       | 724,988              |          | 417,601 |   |
| Series C  equity units — no par value; 44,000,000 units and 38,165,775  units authorized                                                              |       | 11,655               |          | 7,535 |   |
| **Total  capital**                                                                                                                                                   |       | 814,933              |          | 465,021 |   |
| ** **                                                                                                                                                           |       |                 |          |   |   |
| **Total  liabilities and capital**                                                                                                                                   | ** ** | **$**                | **2,705,197** | ** ** | **$** | **2,813,663** | ** ** |
| ** **                                                                                                                                                           |       |                 |          |   |   |

Seeaccompanying notes to consolidated financial statements.

 

67

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**Boise Cascade Holdings, L.L.C.Consolidated Statements of Cash Flows**
| ** **                                                                             | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                                                             | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **                                                                             | ** ** | ** **                                | ** ** | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **                                                                             | ** ** | ** **                                | ** ** | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                                                                             | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                                                                             | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                                                             | ** ** | **(thousands)**                           | ** ** |
| **Cash provided by (used for)  operations**                                            |       |                                      |       |                  |       |   |   |   |   |
| Net income                                                                             |       | $                                         | 71,571     |                  | $          | 121,367 |   | $ | 24,702 |   | $ | 69,466 |   |
| Items in net income not  using (providing) cash                                        |       |                                      |       |                  |       |   |   |   |   |
| Equity in net  income of affiliate                                                     |       | —                                    |       | —                |       | — |   | (6,308 | ) |
| Depreciation,  depletion, and amortization of deferred financing costs and other costs |       | 157,312                                   |       | 178,677               |       | 22,361 |   | 193,816 |   |
| Related-party  interest expense                                                        |       | 14,070                                    |       | 18,909                |       | — |   | — |   |
| Deferred income  taxes                                                                 |       | 968                                       |       | (4,788                | )          | — |   | — |   |
| Pension and  other postretirement benefit expense                                      |       | 27,447                                    |       | 28,681                |       | 2,907 |   | 66,623 |   |
| Gain on changes  in retiree healthcare programs                                        |       | (3,741                                    | )          | (9,900                | )          | — |   | — |   |
| Change in fair  value of interest rate swaps                                           |       | —                                    |       | (9,886                | )          | — |   | — |   |
| Management  equity units expense                                                       |       | 3,514                                     |       | 2,904                 |       | — |   | — |   |
| (Gain) loss on  sales of assets                                                        |       | 3,311                                     |       | —                |       | — |   | (46,745 | ) |
| Other                                                                                  |       | 2,990                                     |       | 2,365                 |       | (1,181 | ) | (912 | ) |
| Decrease (increase) in  working capital, net of acquisitions                           |       |                                      |       |                  |       |   |   |   |   |
| Receivables                                                                            |       | 23,558                                    |       | (61,415               | )          | 121,952 |   | (320,901 | ) |
| Inventories                                                                            |       | (4,813                                    | )          | (38,942               | )          | (21,403 | ) | (15,433 | ) |
| Accounts payable  and accrued liabilities                                              |       | (25,103                                   | )          | 95,897                |       | 85,568 |   | 74,437 |   |
| Pension and other  postretirement benefit payments                                     |       | (20,736                                   | )          | (11,073               | )          | (62 | ) | (66,623 | ) |
| Current and deferred  income taxes                                                     |       | 4,385                                     |       | (4,466                | )          | — |   | 9,342 |   |
| Other                                                                                  |       | (1,055                                    | )          | (1,591                | )          | (4,368 | ) | (4,548 | ) |
| Cash provided by  (used for) operations                                                |       | 253,678                                   |       | 306,739               |       | 230,476 |   | (47,786 | ) |
|                                                                                   |       |                                      |       |                  |       |   |   |   |   |
| **Cash provided by (used for)  investment**                                            |       |                                      |       |                  |       |   |   |   |   |
| Expenditures for  property and equipment                                               |       | (153,524                                  | )          | (170,282              | )          | (28,900 | ) | (140,217 | ) |
| Acquisitions of  businesses and facilities                                             |       | (42,609                                   | )          | —                |       | (2,196,452 | ) | — |   |
| Sales of assets                                                                        |       | 43,487                                    |       | 18,536                |       | — |   | 103,229 |   |
| Repayment of note  receivable from related party, net                                  |       | —                                    |       | 157,509               |       | — |   | — |   |
| Note receivable from  related party, net                                               |       | —                                    |       | —                |       | (157,509 | ) | — |   |
| Other                                                                                  |       | 1,908                                     |       | 3,654                 |       | (2,627 | ) | (141 | ) |
| Cash provided by  (used for) investment                                                |       | (150,738                                  | )          | 9,417                 |       | (2,385,488 | ) | (37,129 | ) |
|                                                                                   |       |                                      |       |                  |       |   |   |   |   |
| **Cash provided by (used for)  financing**                                             |       |                                      |       |                  |       |   |   |   |   |
| Issuances of long-term  debt                                                           |       | 373,300                                   |       | 920,000               |       | 2,020,000 |   | — |   |
| Payments of long-term  debt                                                            |       | (525,200                                  | )          | (1,534,200            | )          | (40,000 | ) | — |   |
| Note payable to related  party, net                                                    |       | (283,847                                  | )          | 250,272               |       | — |   | — |   |
| Tax distributions to  members                                                          |       | (19,269                                   | )          | (23,143               | )          | — |   | — |   |
| Proceeds from changes  to interest rate swaps                                          |       | 25,620                                    |       | —                |       | — |   | — |   |
| Capital contributions  from members                                                    |       | 280,366                                   |       | —                |       | — |   | — |   |
| Net issuance (repurchases)  of equity units                                            |       | (89                                       | )          | (746                  | )          | 338,877 |   | — |   |
| Net equity transactions  with OfficeMax                                                |       | —                                    |       | —                |       | — |   | 67,131 |   |
| Net debt issuances to  OfficeMax                                                       |       | —                                    |       | —                |       | — |   | 17,784 |   |
| Other                                                                                  |       | 3,177                                     |       | (3,513                | )          | (520 | ) | — |   |
| Cash provided by  (used for) financing                                                 |       | (145,942                                  | )          | (391,330              | )          | 2,318,357 |   | 84,915 |   |
|                                                                                   |       |                                      |       |                  |       |   |   |   |   |
| **Increase (decrease) in cash and  cash equivalents**                                  |       | (43,002                                   | )          | (75,174               | )          | 163,345 |   | — |   |
|                                                                                   |       |                                      |       |                  |       |   |   |   |   |
| **Balance at beginning of the  period**                                                |       | 88,171                                    |       | 163,345               |       | — |   | — |   |
| **Balance at end of the period**                                                       | ** ** | **$**                                     | **45,169** | ** **            | **$**      | **88,171** | ** ** | **$** | **163,345** | ** ** | **$** | **—** | ** ** |

 

See accompanying notes to consolidated financialstatements.

 

68

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**Boise Cascade Holdings, L.L.C.****Consolidated Statements of Capital**
| ***Predecessor***                             | ** ** | **Business  Unit  Equity** | ** ** | **Accumulated  Other  Comprehensive  Income (loss)** | ** ** | **Total Capital** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | ** **                 | ** ** | **(thousands)**                                           | ** ** | ** **             | ** ** |
| Balance at  December 31, 2003            |       | $                          | 727,832    |                                                      | $          | 862                    |       | $ | 728,694 |   |
| Comprehensive income:                         |       |                       |       |                                                      |       |                   |       |
| Net income (a)                                |       | 69,466                     |       | —                                                    |       | 69,466                 |       |
| Other  comprehensive loss, net of tax (a) (b) |       |                       |       |                                                      |       |                   |       |
| Cash flow hedges                              |       | —                     |       | (487                                                      | )          | (487                   | )          |
| Comprehensive income  (loss)                  |       | 69,466                     |       | (487                                                      | )          | 68,979                 |       |
| Net equity transactions  with OfficeMax       |       | 67,131                     |       | —                                                    |       | 67,131                 |       |
| Balance at October 28, 2004              |       | $                          | 864,429    |                                                      | $          | 375                    |       | $ | 864,804 |   |

 
| ** **                                                   | ** ** | **Series A   Equity Units** | ** ** | **Series B  Equity Units** | ** ** | **Series C   Equity Units** | ** **  | **Total**  | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------|-------------|------------|------------|
| ***Boise***                                                  | ** ** | **Units**                                  | ** ** | **Amount**                           | ** ** | **Units**                                  | ** **  | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Capital** | ** ** |
| ** **                                                   | ** ** | **(thousands)**                            | ** ** |
| Balance at October 29,  2004 (inception)                     |       | —                                     |       | $                                    | —     |                                       | —      |       | $          | — |   | — |   | $ | — |   | $ | — |   |
| Equity issued for  acquisition                               |       | 66,000                                     |       | 36,367                               |       | 530,357                                    |        | 292,256    |       | — |   | — |   | 328,623 |   |
| Net income (a)                                               |       | —                                     |       | —                               |       | —                                     |        | 24,702     |       | — |   | — |   | 24,702 |   |
| Other  comprehensive income, net of tax (a) (b)    |       |                                       |       |                                 |       |                                       |        |       |       |   |   |   |   |   |   |
| Cash flow hedges                                             |       | —                                     |       | —                               |       | —                                     |        | 6,261      |       | — |   | — |   | 6,261 |   |
| Paid-in-kind dividend                                        |       | —                                     |       | 501                                  |       | —                                     |        | (501       | )          | — |   | — |   | — |   |
| Balance at December  31, 2004                           |       | 66,000                                     |       | 36,868                               |       | 530,357                                    |        | 322,718    |       | — |   | — |   | 359,586 |   |
|                                                         |       |                                       |       |                                 |       |                                       |        |       |       |   |   |   |   |   |   |
| Net income (a)                                               |       | —                                     |       | —                               |       | —                                     |        | 121,367    |       | — |   | — |   | 121,367 |   |
| Other comprehensive  income, net of tax (a) (b)         |       |                                       |       |                                 |       |                                       |        |       |       |   |   |   |   |   |   |
| Cash flow hedges                                             |       | —                                     |       | —                               |       | —                                     |        | 7,269      |       | — |   | — |   | 7,269 |   |
| Minimum pension  liability adjustment                        |       | —                                     |       | —                               |       | —                                     |        | (58        | )          | — |   | — |   | (58 | ) |
| Paid-in-kind dividend                                        |       | —                                     |       | 3,017                                |       | —                                     |        | (3,017     | )          | — |   | — |   | — |   |
| Tax distributions to  members                                |       | —                                     |       | —                               |       | —                                     |        | (23,143    | )          | — |   | — |   | (23,143 | ) |
| Allocation of profit  interest to Series C equity units |       | —                                     |       | —                               |       | —                                     |        | (7,535     | )          | — |   | 7,535 |   | — |   |
| Balance at  December 31, 2005 (c) (d)                   |       | 66,000                                     |       | 39,885                               |       | 530,357                                    |        | 417,601    |       | — |   | 7,535 |   | 465,021 |   |
|                                                         |       |                                       |       |                                 |       |                                       |        |       |       |   |   |   |   |   |   |
| Net income (a)                                               |       | —                                     |       | —                               |       | —                                     |        | 71,571     |       | — |   | — |   | 71,571 |   |
| Other comprehensive  income, net of tax (a) (b)         |       |                                       |       |                                 |       |                                       |        |       |       |   |   |   |   |   |   |
| Cash flow hedges                                             |       | —                                     |       | —                               |       | —                                     |        | (10,327    | )          | — |   | — |   | (10,327 | ) |
| Minimum pension  liability adjustment                        |       | —                                     |       | —                               |       | —                                     |        | 58         |       | — |   | — |   | 58 |   |
| Unfunded  accumulated benefit obligation                     |       | —                                     |       | —                               |       | —                                     |        | 37,263     |       | — |   | — |   | 37,263 |   |
| Capital contributions  from members                          |       | —                                     |       | 34,773                               |       | —                                     |        | 237,709    |       | — |   | — |   | 272,482 |   |
| Paid-in-kind dividend                                        |       | —                                     |       | 3,632                                |       | —                                     |        | (3,632     | )          | — |   | — |   | — |   |
| Tax distributions to  members                                |       | —                                     |       | —                               |       | —                                     |        | (22,022    | )          | — |   | — |   | (22,022 | ) |
| Allocation of profit  interest to Series C equity units |       | —                                     |       | —                               |       | —                                     |        | (4,120     | )          | — |   | 4,120 |   | — |   |
| Other                                                        |       | —                                     |       | —                               |       | —                                     |        | 887        |       | — |   | — |   | 887 |   |
| **Balance at December 31, 2006 (c)**                         | ** ** | **66,000**                                 | ** ** | **$**                                | **78,290** | ** **                                 | **530,357** | ** ** | **$**      | **724,988** | ** ** | **—** | ** ** | **$** | **11,655** | ** ** | **$** | **814,933** | ** ** |

----

(a)                                  Total comprehensive income for the years ended December 31, 2006 and2005, and the periods of October 29 (inception) through December 31,2004, and January 1 through October 28, 2004, were $98.6 million,$128.6 million, $31.0 million, and $69.0 million, respectively.

(b)                                 Total other comprehensive income (loss) for the years endedDecember 31, 2006 and 2005, and the periods of October 29 (inception)through December 31, 2004, and January 1 through October 28, 2004, were$27.0 million, $7.2 million, $6.3 million, and$(0.5) million, respectively.

(c)                                  Accumulated other comprehensive income at December 31, 2006 and 2005,was $40.5 million and $13.5 million, respectively.

(d)                                 The Consolidated Statements of Capital do not reflect the effect of ourconverting to a C corporation on May 9, 2005. As a result of rescindingour C corporation status in December 2005, the ConsolidatedStatements of Capital roll forward our capital as if we had been a limitedliability company during all of 2005.

**See accompanying notes toconsolidated financial statements.**

 

69

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***Notes to Consolidated FinancialStatements***

***1.             Summary ofSignificant Accounting Policies***

*Basisof Presentation*

Asused in these consolidated financial statements, the terms “Boise” and “we”refer to Boise Cascade Holdings, L.L.C., and its consolidated subsidiaries andtheir predecessors in interest. Our operations began on October 29, 2004,when we acquired the forest products and paper assets of OfficeMax (the ForestProducts Acquisition). Before the Forest Products Acquisition, OfficeMax wasknown as Boise Cascade Corporation. We acquired the names “Boise” and “BoiseCascade” as part of the Forest Products Acquisition. Concurrently with theForest Products Acquisition, Boise Land & Timber Holdings Corp.(Timber Holdings), an entity that was majority-owned by our majority owner,Forest Products Holdings, L.L.C. (FPH), acquired OfficeMax’s timberlandoperations. In 2005, Timber Holdings sold its timberlands, and in November2006, Timber Holdings merged with and into us. For more information about themerger, see Note 3, Merger With Boise Land & Timber HoldingsCorp.

We are adiversified North American paper and forest products company. We areheadquartered in Boise, Idaho. The consolidated financial statements presentthe financial results of Boise for the years ended December 31, 2006 and2005, and the period of October 29 (inception) through December 31,2004, and the results of Boise Forest Products Operations for the period ofJanuary 1 through October 28, 2004. We operate our business in thefollowing five reportable segments: Building Materials Distribution, WoodProducts, Paper, Packaging & Newsprint, and Corporate and Other.Historically, OfficeMax conducted the businesses acquired by Boise in threesegments: Boise Building Solutions, Boise Paper Solutions, and Corporate andOther. We have recast the financial statements of our predecessor to conformwith our current segment presentation. OfficeMax’s forest products and paperoperations included timberland assets, which were allocated to OfficeMax’sBoise Building Solutions and Boise Paper Solutions. Since we did not acquirethe timberland operations from OfficeMax, they are not included in thepredecessor financial statements. See Note 18, Segment Information, foradditional information about our reportable segments.

The predecessorfinancial statement includes accounts specifically attributed to Boise ForestProducts Operations and a portion of OfficeMax’s shared corporate general andadministrative expenses. These shared services included, but were not limitedto, finance, accounting, legal, information technology, and human resourcefunctions. Some of OfficeMax’s corporate costs related solely to Boise ForestProducts Operations and were allocated in full to these operations. Sharedcorporate general and administrative expenses not specifically identifiable toBoise Forest Products Operations have been allocated based on sales, assets,and labor costs. The predecessor financial statement also includes anallocation of interest expense related to OfficeMax’s debt (see Note 13,Debt). The predecessor’s results have been included in OfficeMax’s consolidatedtax returns. Income taxes in the predecessor period of these consolidatedfinancial statements have been calculated as if Boise Forest ProductsOperations were a separate taxable entity (see Note 8, Income Taxes).Information on the allocations and related-party transactions is included inNote 5, Transactions With Related Parties.

*Consolidation and Use of Estimates*

The consolidatedfinancial statements include the accounts of Boise and its subsidiaries afterelimination of intercompany balances and transactions. The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results may vary from those estimates.

*Foreign Currency Translation*

Thefunctional currency for our operations outside the United States is the U.S.dollar. Nonmonetary assets and liabilities and related depreciation andamortization for these foreign operations are remeasured into U.S. dollarsusing historical exchange rates. Monetary assets and liabilities are remeasuredinto U.S. dollars using the exchange rates as of the Consolidated Balance Sheetdate. Revenue and expense items are remeasured into U.S. dollars using anaverage exchange rate for the

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period. Theforeign exchange gains (losses) reported in the Consolidated Statements ofIncome resulted from the remeasurements into the U.S. dollar.

*Revenue Recognition*

We recognize revenue when the following criteria aremet:  persuasive evidence of an agreementexists, delivery has occurred or services have been rendered, our price to thebuyer is fixed and determinable, and collectibility is reasonably assured.Delivery is not considered to have occurred until the customer takes title andassumes the risks and rewards of ownership. The timing of revenue recognitionis dependent on shipping terms. Revenue is recorded at the time of shipment forterms designated free on board (f.o.b) shipping point. For sales transactionsdesignated f.o.b destination, revenue is recorded when the product is deliveredto the customer’s delivery site. Fees for shipping and handling charged tocustomers for sales transactions are included in “Sales.” Costs related toshipping and handling are included in “Materials, labor, and other operatingexpenses.”

*Equity Compensation*

We account for ourManagement Equity Agreement (Equity Plan) under Statement of FinancialAccounting Standards (SFAS) No. 123(R), *Share-BasedPayment*. Awards under our Equity Plan vest over periods up to fiveyears. In 2006 and 2005, we recognized $3.5 million and$2.9 million of compensation expense. See Note 16, RedeemableEquity Units, for a discussion of the plan and the method we use to calculatecompensation expense.

During the period of January 1through October 28, 2004, stock compensation was granted to our employeesunder OfficeMax’s stock compensation plans. OfficeMax used the fair-value-basedmethod of accounting for stock-based employee compensation, using theprospective method of transition under the provisions of SFAS No. 148, *Accounting for Stock-Based Compens**ation*, for all employee awards granted on or afterJanuary 1, 2003. For the period of January 1 through October 28,2004, our predecessor recognized $14.6 million of pretax compensationexpense. For more information, see Note 17, Capital.

*Research and Development Costs*

We expense research and development costs as incurred.For the years ended December 31, 2006 and 2005, and the period ofOctober 29 through December 31, 2004, research and development expenseswere $0.9 million, $1.1 million, and $0.2 million, respectively.For the period of January 1 through October 28, 2004, research anddevelopment expenses were $1.9 million.

*Advertising Costs*

We expense the cost of advertising as incurred. For the yearsended December 31, 2006 and 2005, and the period of October 29through December 31, 2004, advertising expenses were $10.7 million,$9.2 million, and $1.2 million, respectively. For the period ofJanuary 1 through October 28, 2004, advertising expense was$7.9 million. These expenses were recorded in “Selling and distributionexpenses.”

*Cash and Cash Equivalents*

Cash equivalentsconsist of short-term investments that have a maturity of three months or lessat the date of purchase. Cash equivalents totaled $2.0 million and$23.6 million at December 31, 2006 and 2005, respectively.

*Trade AccountsReceivables and Allowance for Doubtful Accounts*

Trade accounts receivable are stated atthe amount we expect to collect. Trade accounts receivable do not bear interest.The allowance for doubtful accounts is our best estimate of the losses weexpect will result from the inability of our customers to make requiredpayments. We generally determine the allowance based on a combination of actualhistorical write-off experience, an aging of accounts receivable, and ananalysis of specific customer accounts. We periodically review our allowancefor doubtful accounts and adjustments to the valuation allowance are charged toincome. Trade accounts receivable balances that remain outstanding after wehave used reasonable collection efforts are written

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off through a charge to the valuationallowance and a credit to accounts receivable. We may at times insure orarrange for guarantees on our receivables.

*Financial Instruments*

Our financialinstruments are cash and cash equivalents, accounts receivable, accountspayable, and long-term debt. The recorded values of cash and cash equivalents,accounts receivable, and accounts payable approximate fair values based ontheir short-term nature. The recorded values of our long-term debt approximatesfair value, since our debt is predominately variable-rate.

Weare exposed to risks such as changes in interest rates, energy prices, andforeign currency exchange rates. We employ a variety of practices to managethese risks, including operating and financing activities and, where deemedappropriate, the use of derivative instruments. The fair values of derivativeinstruments are determined by third parties. Derivative instruments are usedonly for risk management purposes and not for speculation or trading.Derivatives are such that a specific debt instrument, contract, or anticipatedpurchase determines the amount, maturity, and other specifics of the hedge. Ifa derivative contract is entered into, we either determine that it is aneconomic hedge or we designate the derivative as a cash flow or fair valuehedge. We formally document all relationships between hedging instruments andthe hedged items, as well as our risk management objectives and strategies forundertaking various hedged transactions. For those derivatives designated ascash flow or fair value hedges, we formally assess, both at the derivatives’inception and on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in the hedgeditems. The ineffective portion of hedging transactions is recognized in currentincome (loss).

*Vendor and Customer Rebates and Allowances*

We receive rebates andallowances from our vendors under a number of different programs, includingvendor marketing programs. At December 31, 2006 and 2005, we had$4.3 million and $3.6 million, respectively, of vendor rebates andallowance recorded in “Receivables, Other” on the Consolidated Balance Sheets.These rebates and allowances are accounted for in accordance with EmergingIssues Task Force (EITF) 02-16, *Accounting by a Customer(Including a Reseller) for Certain Consideration Received From a Vendor*.Rebates and allowances received from our vendors are recognized as a reductionof “Materials, labor, and other operating expenses” when the product is sold,unless the rebates and allowances are linked to a specific incremental cost tosell a vendor’s product. Amounts received from vendors that are linked tospecific selling and distribution expenses are recognized as a reduction of “Sellingand distribution expenses” in the period the expense is incurred.

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates provided to our customers are accounted for inaccordance with EITF 01-09, *Accounting forConsideration Given by a Vendor to a Customer*. The rebates arerecorded as a decrease in sales. At December 31, 2006 and 2005, we had$23.9 million and $23.7 million, respectively, of rebates payable toour customers recorded in “Accrued liabilities, Other” on our ConsolidatedBalance Sheets.

*Inventory Valuation*

Inventories are valued at the lower of cost or market. Costis based on the average or first-in, first-out (FIFO) method of inventoryvaluation. Manufactured inventories include costs for materials, labor, andfactory overhead. Log inventories include the costs of harvesting the timber.

Inventories include thefollowing:
|                                     | ** ** | **December 31** | ** **  |
|-------------------------------------|------------|----------------------|-------------|
| ** **                          | ** ** | **2006**             | ** **  | **2005** | ** ** |
| ** **                          | ** ** | **(thousands)**      | ** **  |
| Finished goods  and work in process |       | $                    | 420,620     |   | $ | 414,035 |   |
| Logs                                |       | 54,326               |        | 62,839 |   |
| Other raw  materials and supplies   |       | 165,880              |        | 156,909 |   |
| ** **                          | ** ** | **$**                | **640,826** | ** ** | **$** | **633,783** | ** ** |

 

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*Property and Equipment*

Property and equipment are recorded at cost. Costincludes expenditures for major improvements and replacements and the amount ofinterest cost associated with significant capital additions. Capitalizedinterest was not material in any of the periods presented. In allperiods presented, we expensed routine repair and maintenance costs as incurredand charged planned major maintenance costs in our Paper andPackaging & Newsprint segments to income (loss) ratably over the year.Effective January 1, 2007, we began expensing all repair and maintenancecosts as incurred in accordance with Financial Accounting Standards Board(FASB) Staff Position (FSP) No. AUG AIR-1, *Accountingfor Planned Major Maintenance Activities.*See “Recently AdoptedAccounting Standards” below for more information. When property andequipment are retired, sold, or otherwise disposed of, the asset’s carryingamount and related accumulated depreciation are removed from the accounts andany gain or loss is included in income (loss). In all periods presented, weused the straight-line method of depreciation.

Afterreviewing the estimated useful lives of some of our depreciable assets, wedetermined that some of our assets would be used for a shorter period of timethan the depreciable lives previously assigned to them. As a result, we revisedthe depreciation estimates to reflect the remaining expected use of the assets.This change in estimate decreased net income approximately $12 million in2006, and we expect the changes to decrease net income approximately the sameamount in 2007.

Property andequipment consisted of the following asset classes and the following generalrange of estimated useful lives:
| ** **                     | ** ** | ** **                                | ** **    | ** **                | ** ** | **General Range of** | ** ** |
|--------------------------------|------------|-------------------------------------------|---------------|---------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **Year Ended December 31** | ** **    | **Estimated Useful** | ** ** |
| ** **                     | ** ** | **2006**                                  | ** **    | **2005**                  | ** ** | **Lives in Years**   | ** ** |
| ** **                     | ** ** | **(thousands)**                           | ** **    | ** **                | ** ** |
| Land and land  improvements    |       | $                                         | 72,539        |                      | $          | 79,420                         |       | 10-20 |   |
| Buildings and  improvements    |       | 231,423                                   |          | 226,232                   |       | 15-40                          |       |
| Machinery and  equipment       |       | 1,338,894                                 |          | 1,224,833                 |       | 2-20                           |       |
| Construction in  progress      |       | 100,370                                   |          | 106,459                   |       | N/A                            |       |
| ** **                     |       | 1,743,226                                 |          | 1,636,944                 |       |                           |       |
| Less accumulated  depreciation |       | (280,911                                  | )             | (139,890                  | )          | N/A                            |       |
|                           | ** ** | **$**                                     | **1,462,315** | ** **                | **$**      | **1,497,054**                  | ** ** | ** ** | ** ** |

 

*Fiber Farms and Deposits*

The consolidated financial statementsinclude our cottonwood fiber farm in our Paper segment and our eucalyptusplantation land in Brazil in our Wood Products segment. Our cottonwood fiber isa short-rotation fiber that has a growing cycle averaging six to eight years.The eucalyptus in Brazil has a growing cycle averaging 12 to14 years.

Costs for activities related to theestablishment of a new crop of trees, including planting, thinning,fertilization, pest control, herbicide application, irrigation, and land leasecosts, are capitalized, while costs for administration, insurance, and propertytaxes are expensed. The capitalized costs are accumulated by specificallyidentifiable farms or irrigation blocks. We charge capitalized costs, excludingland, to “Depreciation, amortization,and depletion” in the accompanying Consolidated Statements of Income atthe time the fiber is harvested based on periodically determined depletionrates.

Historically, we owned or controlled, directly or through our affiliates,approximately 2.3 million acres of timber. In February 2005, thesetimberlands were sold to Forest Capital Partners, LLC (Forest Capital), anunaffiliated party, for $1.65 billion in cash. We refer to this sale asthe Timberlands Sale. In connection with the Timberlands Sale, weentered into a number of long-term log and fiber supply agreements with ForestCapital. At December 31, 2006, our total obligation for log and fiberpurchases under contracts with third parties, including Forest Capital, wasapproximately $839.8 million. Except for deposits required pursuant towood supply contracts, these obligations are not recorded in our consolidatedfinancial statements until contract payment terms take effect. The obligationsare subject to change based on, among other things, the effect of governmentallaws and regulations, our manufacturing operations not operating in the normalcourse of business, log and fiber availability, and the status of environmentalappeals.

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*Long-Lived Asset Impairment*

We account for theimpairment of long-lived assets in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*.An impairment of long-lived assets exists when the carrying value of an assetexceeds its fair value and when the carrying value is not recoverable throughfuture undiscounted cash flows from operations. We review the carrying value oflong-lived assets for impairment when events or changes in circumstancesindicate that the carrying amount of assets may not be recoverable.

*Goodwill*

We account for goodwill and other intangible assets inaccordance with SFAS No. 142, *Goodwill and OtherIntangible Assets*. Goodwill represents the excess of purchase priceand related costs over the value assigned to the net tangible and intangibleassets of businesses acquired. We assess goodwill in the fourth quarter of eachyear using a fair-value-based approach. We completed our annual assessment inaccordance with SFAS No. 142 in fourth quarter 2006 and 2005 anddetermined that there was no impairment.

*Deferred Software Costs*

Wedefer internal-use software costs that benefit future years. These costs areamortized using the straight-line method over the expected life of thesoftware, typically three to five years. “Other assets” in theConsolidated Balance Sheets includes $4.7 million and $5.9 million ofdeferred software costs at December 31, 2006 and 2005, respectively. Forthe years ended December 31, 2006 and 2005, and the periods ofOctober 29 through December 31, 2004, and January 1 throughOctober 28, 2004, amortization of deferred software costs totaled$1.8 million, $2.7 million, $0.4 million, and $2.8 million,respectively.

*Asset Retirement Obligations*

We account for asset retirementobligations in accordance with SFAS No. 143, *Accountingfor Asset Retirement Obligations,*and FASB FIN No. 47*, Accounting for Conditional Asset Retirement Obligations — aninterpretation of FASB Statement No. 143*. This standardprimarily affects the way we account for landfill closure and closed-sitemonitoring costs. We accrue for asset retirement obligations in the period inwhich they are incurred if sufficient information is available to reasonablyestimate the fair value of the obligation. When we record the liability, wecapitalize the cost by increasing the carrying amount of the related long-livedasset. Over time, the liability is accreted to its settlement value, and thecapitalized cost is depreciated over the useful life of the related asset. Uponsettlement of the liability, we will recognize a gain or loss for anydifference between the settlement amount and the liability recorded. SeeNote 12, Asset Retirement Obligations, for additional information.

*New Accounting Standards*

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*. This statementdefines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. This statement applies underother accounting pronouncements that require or permit fair value measurements,the FASB having previously concluded in those accounting pronouncements thatfair value is the relevant measurement attribute. Accordingly, this statementdoes not require any new fair value measurements. We will adopt this standardJanuary 1, 2008. We do not expect it to have a material impact on ourfinancial position, results of operations, or cash flows.

*Recently Adopted Accounting Standards*

In September 2006, the FASB issued FSP No. AUG AIR-1, *Accounting for Planned Major Maintenance Activities*.This FSP prohibits companies from accruing a liability for the future costs ofperiodic major overhauls and maintenance of plant and equipment in annual andinterim financial reporting periods. In all periods presented, we chargedplanned shutdown maintenance costs in our Paper and Packaging &Newsprint segments to income (loss) ratably over the year. This statement prohibitsthat practice and requires us to use one of three alternative methods ofaccounting for planned major maintenance activities, including direct expense,built-in overhaul, or the deferral method. We adopted this FSP January 1,2007, and recast our 2006 interim financial information using the direct

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expense method. The FSP increases the volatility of earnings in the perioda planned shutdown occurs, but it has no impact on our annual results ofoperations.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB)Topic 1N, *Financial Statements — Consideringthe Effects of Prior Year Misstatements When Quantifying Misstatements inCurrent Year Financial Statements* (SAB 108). SAB 108 addresses howthe effects of prior-year uncorrected misstatements should be considered whenquantifying misstatements in current-year financial statements. SAB 108requires registrants to quantify misstatements using both the balance sheet andincome statement approaches and to evaluate whether either approach results inquantifying an error that is material in light of relevant quantitative andqualitative factors. We adopted SAB 108 in December 2006, and it did nothave a material impact on our financial position or results of operations.

In July 2006, the FASB issued FINNo. 48, *Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No. 109*. FINNo. 48 clarifies the criteria for recognizing tax benefits under FASBStatement No. 109, *Accounting forIncome Taxes*. It also requires additional financial statementdisclosures about uncertain tax positions. FIN No. 48 was effectivebeginning January 2007. Because the majority of our businesses and assets areheld and operated by limited liability companies, and the income taxes of theseoperations are payable by our equity holders, it did not have a material impacton our financial position or results of operations. However, events could arisein the future that would cause the adoption of this interpretation to have amaterial impact on our financial statements. In addition, if our tax statuswere to change in the future, we would have to reevaluate the impact of FINNo. 48 on our financial position and results of operations at that time.

In September 2005,the FASB’s EITF reached a consensus on EITF 04-13, *Accountingfor Purchases and Sales of Inventory With the Same Counterparty*. Theconsensus identifies circumstances under which two or more transactionsinvolving inventory with the same counterparty should be viewed as a singlenonmonetary transaction within the scope of Accounting Principles Board (APB)Opinion No. 29, *Accounting for NonmonetaryTransactions*. We adopted this standard effective January 2006, andit required us to report our inventory buy/sell transactions in ourPackaging & Newsprint and Paper segments on a net basis in ourConsolidated Statements of Income. Previously, in accordance with EITF 99-19,*Reporting Revenue Gross as a Principal Versus Netas an Agent,* and SABNo. 104, *Revenue Recognition*, we recordedsales and purchases related to our inventory buy/sell arrangements on a grossbasis. This consensus had no impact on net income. Had this consensuspreviously been in effect, it would have reduced sales $76.1 million,$15.6 million, and $63.6 million for the year ended December 31,2005, and the periods of October 29 through December 31, 2004, andJanuary 1 through October 28, 2004, and would have reduced “Materials,labor, and other operating expenses” by about the same amounts. In accordancewith the provisions of EITF 04-13, prior-period financial information hasnot been recast to conform with the current period’s presentation.

In March 2005, the FASB issued FINNo. 47, *Accounting for Conditional Asset RetirementObligations — an interpretation of FASB Statement No. 143*.FIN No. 47 clarifies that the term “conditional asset retirementobligation,” as used in SFAS No. 143, *Accounting for AssetRetirement Obligations*, refers to a legal obligation to perform anasset retirement activity in which the timing and/or method of settlement isconditional on a future event that may or may not be within the control of theentity. FIN No. 47 also clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation. We adopted FIN No. 47 in December 2005, and it did nothave a material impact on our financial position or results of operations. Formore information, see Note 12, Asset Retirement Obligations.

SeeNote 15, Retirement and Benefit Plans, for a discussion of SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans, an amendment of SFAS No. 87, 88, 106, and132(R),*and Note 16, Redeemable Equity Units, for a discussionof FSP No. FAS 123(R)-4, *Classification of Optionsand Similar Instruments Issued as Employee Compensation That Allow for CashSettlement Upon the Occurrence of a Contingent Event.*

***2.***             ***Purchase of OfficeMax’s Forest Products and Paper Assets***

On October 29, 2004(inception), we acquired OfficeMax’s forest products and paper assets, otherthan its timberland operations, for an aggregate purchase price of$2.2 billion, including approximately $140 million of related feesand expenses (the Forest Products Acquisition). The purchase

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price was determinedbased on negotiations between Madison Dearborn Partners (MDP), our equitysponsor who controls Forest Products Holdings, L.L.C. (FPH), and OfficeMax. Aspart of the Forest Products Acquisition, we entered into an AdditionalConsideration Agreement with OfficeMax, pursuant to which we agreed to adjustthe purchase price based on changes in paper prices over the six-year periodfollowing the Forest Products Acquisition. Under the Additional ConsiderationAgreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximumaggregate amount of $125.0 million, in each case net of payments received.After each anniversary of the Forest Products Acquisition, we review paperprices with the provisions of the Additional Consideration Agreement todetermine whether any amounts are owed or receivable under the agreement. Forthe first and second anniversary periods, which ended October 29, 2005 and2006, neither Boise nor OfficeMax owed additional consideration for thepurchase price. The purchase price recorded for the Forest ProductsAcquisition does not include the effect, if any, of contingent consideration.We accounted for the Forest Products Acquisition using the purchase method ofaccounting. We allocated the assets acquired and liabilities assumed based ontheir estimated fair values at the acquisition date. Estimated fair values werederived through consideration and application of standard valuation approachesand techniques. The excess of the purchase price over the fair value of assetsacquired and liabilities assumed was allocated to goodwill.

# *Restructuring Activities*

Inconnection with the Forest Products Acquisition, we evaluated the acquiredfacilities and organizational structure. In accordance with the provisions ofEITF 95-3, *Recognition of Liabilitiesin Connection With a Purchase Business Combination*, exit activitiesrelated to the Forest Products Acquisition increased goodwill. We had one yearfrom the acquisition date to finalize our restructuring plans and adjustgoodwill.

AtDecember 31, 2006, we had approximately $0.6 million of restructuringreserves related to severance costs recorded in “Accrued liabilities,Compensation and benefits.” The severance costs related to costs forapproximately 350 terminated employees. The remaining reserve relates to severancepayments that will be paid by the end of 2007. Of the $0.6 millionremaining restructuring reserve, $0.5 million is recorded in our Papersegment, and $0.1 million is in Corporate and Other. Restructuring reserveliability account activity related to these charges is as follows:
| ** **                                       | ** ** | **Severance**   | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **(thousands)** | ** ** |
| 2004  restructuring reserve                      |       | $               | 13,768     |       | $          | 501        |       | $ | 14,269 |   |
| Charges against  reserve                         |       | (1,012          | )          | (1         | )          | (1,013     | )          |
| Restructuring  reserve at December 31, 2004 |       | 12,756          |       | 500        |       | 13,256     |       |
|                                             |       |            |       |       |       |       |       |
| Additions to  restructuring reserve              |       | 6,913           |       | 221        |       | 7,134      |       |
| Charges against  reserve                         |       | (16,162         | )          | (593       | )          | (16,755    | )          |
| Restructuring  reserve at December 31, 2005 |       | 3,507           |       | 128        |       | 3,635      |       |
|                                             |       |            |       |       |       |       |       |
| Charges against  reserve                         |       | (2,894          | )          | (128       | )          | (3,022     | )          |
| Restructuring reserve at  December 31, 2006 | ** ** | **$**           | **613**    | ** ** | **$**      | **—** | ** ** | **$** | **613** | ** ** |

 

***3.             Merger With Boise Land & Timber Holdings Corp.***

At the time ofthe Forest Products Acquisition, Boise Land & Timber Holdings Corp. (TimberHoldings) acquired the timberlands of OfficeMax. At the time of the timberlandsacquisition, our majority owner, FPH, held an 80.1% majority interest in TimberHoldings, and OfficeMax (through its subsidiary) held the remaining 19.9%interest. In 2005, Timber Holdings sold its timberlands. In connection with thesale, its subsidiary, Boise Land & Timber Corp. (Timber Corp.), made a$264.8 million loan to us. The amount of this related-party loan wassubject to adjustment based on transactions between Timber Corp. and us. InNovember 2006, we repaid the $281.3 million balance of the loan fromTimber Corp. Immediately thereafter, Timber Holdings merged with and into us,which effectively transferred the loan repayment proceeds to us. In the merger,Timber Holdings transferred all of its ownership in Timber Corp. to FPH and asubsidiary of OfficeMax.

As a result of the merger transaction, FPH andOfficeMax were deemed to have used the loan repayment proceeds to make anadditional investment in the equity of our company. OfficeMax, the sole

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holder of our Series A equity units, used approximately$34.8 million to make an additional investment in our Series A equityunits. FPH and OfficeMax used an aggregate of $245.6 million to make anadditional investment in our Series B equity units. After the purchase,FPH and OfficeMax continued to hold 80.1% and 19.9%, respectively, of ourSeries B equity units and the number of equity units held remained thesame.

In addition, as part of the note repayment andthe merger transaction, we amended our senior secured credit agreement (CreditAgreement) so that Timber Corp. is no longer a party to and/or guarantor of thelending arrangements provided for in the Credit Agreement. The amendment had noeffect on the amount owed under the Credit Agreement, terms of payment,interest rate, availability of additional credit, or other material terms ofthe Credit Agreement.

***4.             Purchase of Central Texas Corrugated’s Assets***

On February 1, 2006, we purchased theassets of Central Texas Corrugated (CTC) in Waco, Texas, for an aggregatepurchase price of $43.8 million, including fees and expenses, but beforeworking capital adjustments. In 2006, we paid approximately $42.6 millionof cash for the acquisition, which is net of a $2.0 million holdback thatis payable in five years. At December 31, 2006, “Other long-termliabilities” on our Consolidated Balance Sheet included a $1.4 milliondiscounted holdback (including accrued accretion expense). CTC manufacturescorrugated sheets that it sells primarily to regional container plants inTexas, Louisiana, Arkansas, and Mexico. CTC is located close to our mill inDeRidder, Louisiana, which produces linerboard used in CTC’s manufacturingprocesses.

We accounted forthe acquisition using the purchase method of accounting. As a result, thepurchase price was allocated to the tangible and intangible assets acquired andliabilities assumed based on their respective fair values as of the date of theacquisition. The following table summarizes the estimated fair value of theassets acquired and liabilities assumed as of February 1, 2006. We had oneyear from the purchase date to finalize or receive information to determinechanges in estimates of the fair value of assets acquired and liabilitiesassumed. Adjustments recorded during the year ended December 31, 2006,were not material.
|                         | ** ** | **February 1, 2006** | ** ** |
|-------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **(thousands)**                | ** ** |
| Current assets          |       | $                              | 16,407     |   |
| Property and  equipment |       | 15,368                         |       |
| Goodwill                |       | 7,046                          |       |
| Intangible  assets      |       | 9,400                          |       |
| Other assets            |       | 66                             |       |
| Assets acquired         |       | 48,287                         |       |
|                    |       |                           |       |
| Current  liabilities    |       | 4,438                          |       |
| Liabilities  assumed    |       | 4,438                          |       |
|                    |       |                           |       |
| Net assets acquired     | ** ** | **$**                          | **43,849** | ** ** |

 

The excess of the purchase price over the fair valueof assets acquired and liabilities assumed was allocated to goodwill. Werecorded $7.0 million of goodwill in our Packaging & Newsprintsegment. During the year ended December 31, 2006, we recorded$0.3 million of purchase price adjustments that decreased the recordedamount of goodwill. See Note 11, Goodwill and Intangible Assets, for moreinformation.

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The amount allocated to intangible assets wasattributed to the following categories of intangibles:
|                         | ** ** | **February 1,  2006** | ** ** |
|-------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **(thousands)**            | ** ** |
| Trade name              |       | $                          | 1,800      |   |
| Customer  relationships |       | 6,400                      |       |
| Noncompete  agreements  |       | 1,200                      |       |
|                    | ** ** | **$**                      | **9,400**  | ** ** |

 

Intangible assets are amortized over their expected useful lives.The trade name asset represents the fair value of the Central Texas Corrugatedname and is amortized over five years. Customer relationships are amortizedover ten years, and the noncompete agreements are amortized over four years.

Pro forma resultsof operations have not been presented because the effects of the acquisitionwere not material to prior periods.

***5.             Transactions With Related Parties***

*Sales*

Duringeach of the periods presented, we sold paper and paper products to OfficeMax atsales prices that were designed to approximate market prices. For the yearsended December 31, 2006 and 2005, and the period of October 29through December 31, 2004, sales to OfficeMax were $575.9 million,$562.3 million, and $92.7 million, respectively. For the predecessorperiod of January 1 through October 28, 2004, sales to OfficeMax were$442.1 million. These sales are included in “Sales, Related parties” inthe Consolidated Statements of Income.

*Costs andExpenses*

Duringthe year ended December 31, 2005, and the period of October 29through December 31, 2004, fiber purchases from Boise Land & TimberCorp., a subsidiary of Timber Holdings, were $17.6 million and$24.5 million. For the predecessor period of January 1 throughOctober 28, 2004, fiber purchases from our predecessor’s timberlandoperations were $95.5 million. During each of these periods, we purchasedfiber from related parties at prices that approximated market prices. The costsassociated with these purchases are recorded as “Fiber costs from relatedparties” in the Consolidated Statements of Income. On February 4, 2005,Timber Holdings sold all of its timberlands.

Duringthe predecessor period presented, our predecessor participated in OfficeMax’scash management system. Cash receipts attributable to our predecessor’soperations were collected by OfficeMax, and cash disbursements were funded byOfficeMax. The net effect of these transactions has been reflected as “Netequity transactions with OfficeMax” in the Consolidated Statement of CashFlows. The following table includes the components of net equity transactionswith OfficeMax:

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|                                                  | ** ** | **January 1**   | ** ** |
|--------------------------------------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **through**          | ** ** |
| ** **                                       | ** ** | **October 28,** | ** ** |
| ** **                                       | ** ** | **2004**             | ** ** |
| ** **                                       | ** ** | **(thousands)**      | ** ** |
| Cash collections                                 |       | $                    | (4,644,933 | ) |
| Payment of  accounts payable                     |       | 4,510,643            |       |
| Capital  expenditures and acquisitions           |       | 140,217              |       |
| Income taxes                                     |       | 38,018               |       |
| Net debt  issuances                              |       | (17,784              | )          |
| Corporate  general and administrative allocation |       | 42,621               |       |
| Other                                            |       | (1,651               | )          |
| Net equity transactions  with OfficeMax          | ** ** | **$**                | **67,131** | ** ** |

 

Duringthe predecessor period presented, our predecessor used services andadministrative staff of OfficeMax. These services included, but were notlimited to, finance, accounting, legal, information technology, and human resourcefunctions. The costs not specifically identifiable to Boise Forest ProductsOperations were allocated based on average sales, assets, and labor costs. Forthe predecessor period of January 1 through October 28, 2004, theallocated costs amounted to $42.6 million. These costs are included in “Generaland administrative expenses” in the Consolidated Statement of Income.Management believes these allocations were a reasonable reflection of ourpredecessor’s use of such services. However, they may not necessarily beindicative of costs to be incurred by us in the future.

*Debt and Interest*

At December 31, 2005, we had a$270.9 million note payable to Timber Corp. recorded as “Note payable torelated party, net” on the Consolidated Balance Sheet. In November 2006, werepaid the related-party note in full (See Note 3, Merger With BoiseLand & Timber Holdings Corp.). At December 31, 2005, the “Notepayable to related party, net” included $18.9 million of accrued interestexpense. For the years ended December 31, 2006 and 2005, and the period ofOctober 29 (inception) through December 31, 2004, interest expense inour Consolidated Statements of Income included $14.1 million,$18.9 million, and zero of related-party interest expense.

*Equity Distributions*

The majority ofour businesses and assets are held and operated by limited liability companies,which are not subject to entity-level federal or state income taxation. We makecash distributions to permit the members of Boise and affiliates to pay incometaxes. During the years ended December 31, 2006 and 2005, we paid FPH$16.1 million and $18.4 million. FPH in turn paid $14.2 millionand $16.3 million to Madison Dearborn Partners (MDP), our equity sponsor,and $1.9 million and $2.1 million to management investors. During theyears ended December 31, 2006 and 2005, we also paid $3.2 million and$4.7 million to OfficeMax. These payments represented cash paid to fundtheir tax obligations related to their investments in us. For the period ofOctober 29 (inception) through December 31, 2004, we made no taxdistributions to members.

Atthe closing of the Forest Products Acquisition, MDP received a fee of$40 million. MDP may be paid additional fees from time to time in thefuture for providing management, consulting, or advisory services and will bereimbursed for all future expenses incurred in connection with its investmentin us.

*OfficeMax Indemnifications*

Theasset purchase agreement entered into in connection with the purchase ofOfficeMax’s forest products and paper assets contains customaryrepresentations, warranties, and covenants, including an obligation byOfficeMax to indemnify us for breaches of representations, warranties, andcovenants. OfficeMax’s indemnification obligations with respect to suchbreaches generally survived until April 29, 2006, with indemnificationobligations with respect to breaches relating to employee and environmental lawmatters surviving until October 29, 2009. OfficeMax’s indemnificationobligations for breaches of representations, warranties, and covenants are,with certain exceptions, subject to a deductible of $20.7 million and anaggregate cap of $248.9 million. We are also indemnified with respect tocertain pre-

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ForestProducts Acquisition liabilities, including environmental, asbestos, tax,benefits, and other legacy liabilities.

***6.******                                      Other(Income) Expense, Net***

“Other (income) expense, net”includes miscellaneous income and expense items. The components of “Other(income) expense, net” in the Consolidated Statements of Income are as follows:

 
| ** **                                       | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **                                | ** ** | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **                                       | ** ** | ** **                                | ** ** | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                                       | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                                       | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | ** **                                | ** ** | **(thousands)**       | ** ** | ** ** | ** ** |
| Changes in retiree  healthcare programs (a) |       | $                                         | (3,741     | )                     | $          | (9,900 | ) | $ | — |   | $ | — |   |
| Sales of assets, net                             |       | 3,639                                     |       | 585                   |       | 107 |   | 10,038 |   |
| Offering and project  costs (b)             |       | 4,546                                     |       | 3,600                 |       | — |   | — |   |
| Compensation  expense (c)                   |       | —                                    |       | —                |       | — |   | 12,665 |   |
| Other, net                                       |       | 1,645                                     |       | 123                   |       | (130 | ) | 2,645 |   |
| ** **                                       | ** ** | **$**                                     | **6,089**  | ** **            | **$**      | **(5,592** | **)** | **$** | **(23** | **)** | **$** | **25,348** | ** ** |

----

(a)                                  2006and 2005 included a $3.7 million and $9.9 million gain, respectively,for changes in our retiree healthcare programs. See Note 15, Retirementand Benefit Plans, for more information.

 

(b)                                 2005included the write-off of costs incurred in connection with the canceledinitial public offering, and 2006 included other special project costs.

 

(c)                                  Theperiod of January 1 through October 28, 2004, included$12.7 million of expense primarily for a one-time retention bonusOfficeMax granted to its employees.

 

***7.******                                      Leases***

                 We lease our headquartersbuilding and a portion of our distribution centers as well as other propertyand equipment under operating leases. For purposes of determining straight-linerent expense, the lease term is calculated from the date we first takepossession of the facility, including any periods of free rent and any optionperiods we are reasonably assured of exercising. Straight-line rent expense isalso adjusted to reflect any allowances or reimbursements provided by the lessor.Rental expense for operating leases and sublease rental income received was asfollows:
| ** **             | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **             | ** ** | ** **                                | ** ** | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **             | ** ** | ** **                                | ** ** | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **             | ** ** | ** **                                | ** ** | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **             | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **             | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **             | ** ** | ** **                                | ** ** | **(thousands)**       | ** ** | ** ** | ** ** |
|                   |       |                                      |       |                  |       |   |   |   |   |
| Rental expense         |       | $                                         | 23,305     |                  | $          | 17,089 |   | $ | 2,889 |   | $ | 14,679 |   |
| Sublease rental income |       | —                                    |       | 70                    |       | — |   | 28 |   |
|                        |            |                                           |            |                       |            |  |  |  |  |  |  |  |  |

 

Fornoncancelable operating leases with remaining terms of more than one year, theminimum lease payment requirements are $18.6 million in 2007,$16.7 million in 2008, $15.4 million in 2009, $14.1 million in2010, and $11.3 million in 2011, with total payments thereafter of$48.6 million. These future minimum lease payment requirements have notbeen reduced by sublease rentals due in the future under noncancelablesubleases. Minimum sublease income received in the future is not expected to bematerial.

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In 2006, we sold our headquarters building in Boise, Idaho, for$27.2 million, net of related fees and expenses, and recorded a$1.7 million loss in “Other (income) expense, net” in our ConsolidatedStatement of Income. The proceeds were used to pay down our Tranche D termloan, which decreased payments due in 2011 by that amount. In connection withthe sale, we leased back approximately 65% of the building over a staggeredlease term of ten to 12 years. The lease is accounted for as an operatinglease. The minimum lease payment requirements related to the transaction areincluded in the minimum lease payments disclosed above.

In August 2006, we sold andleased back (over 15-year lease terms, plus renewal options) our Lakeville,Minnesota, and Rochelle, Illinois, building materials distribution facilities.We collected $11.0 million of sale proceeds, net of related fees andexpenses, which we used to pay down our Tranche D term loan. In connectionwith the sale, we recorded a $1.5 million deferred gain in “Otherlong-term liabilities” on our Consolidated Balance Sheet, which we arerecognizing as a reduction of lease expense over the life of the lease. Theleases are accounted for as operating leases. The minimum lease paymentrequirements related to the transactions are included in the minimum leasepayments disclosed above.

Substantiallyall lease agreements have fixed payment terms based on the passage of time.Some lease agreements provide us with the option to purchase the leasedproperty. Additionally, some agreements contain renewal options averagingapproximately seven years, with fixed payment terms similar to those in theoriginal lease agreements.

***8.             Income Taxes***

At December 31, 2006and 2005, the majority of our businesses and assets were held and operated bylimited liability companies, which are not subject to entity-level federal orstate income taxation. The income taxes in respect to these operations arepayable by our equity holders in accordance with their respective ownershippercentages. We make cash distributions to permit the members of Boise andaffiliates to pay these taxes. For the years ended December 31, 2006 and2005, and the period of October 29 through December 31, 2004, we made$19.3 million, $23.1 million, and no cash distributions,respectively, to permit our equity holders to pay these taxes. Both our seniorcredit facilities and the indenture governing our notes permit thesedistributions.

During the years ended December 31, 2006 and 2005, and theperiod of October 29 (inception) through December 31, 2004, oureffective tax rates for our separate subsidiaries that are taxed ascorporations were 37.3%, 42.0%, and 40.9%. The primary reason for thedifference in tax rates is the effect of state income taxes and the mix ofdomestic and foreign sources of income.

In May 2005, we converted to a C corporation from a limitedliability company. In December 2005, we rescinded our conversion toC corporation status. As a result of rescinding our C corporationstatus, we received $6.1 million of federal and state income tax refundsin 2006. In 2006 and 2005, we paid $4.4 million and $1.2 million oftaxes, net of other refunds received. For the period of October 29through December 31, 2004, these subsidiaries paid income taxes, net ofrefunds received, of $80,000. At December 31, 2006 and 2005, we had a$376,000 and $388,000 deferred tax liability related to these subsidiariesrecorded on our Consolidated Balance Sheets.

At December 31, 2006 and 2005, ourtax basis was $271.3 million and $153.5 million lower than thereported amount of net assets recorded on our Consolidated Balance Sheet,primarily due to accelerated depreciation recorded for tax purposes.

Boise Building Solutions Manufacturing Holdings Corp., a wholly owned,fully consolidated operating entity, has an investment in foreign subsidiaries.At December 31, 2006 and 2005, the foreign subsidiaries had$22.3 million and $18.8 million, respectively, of deferred taxassets.  The deferred tax assets resultedprimarily from net operating losses and were fully offset by a valuationallowance.

*Taxes Collected*

We account for taxes collected fromcustomers and remitted to governmental authorities in accordance with the EITF06-3, *How Taxes Collected from Customers andRemitted to Governmental*

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*Authorities Should BePresented in the Income Statement (That Is, Gross Versus Net Presentation)*. Wepresent taxes on a net basis in our Consolidated Statement of Income.

*Predecessor Period*

In the predecessor period presented, Boise ForestProducts Operations results were included in the consolidated income taxreturns of OfficeMax. However, in the predecessor consolidated financialstatement, income taxes were provided based on a calculation of the income taxexpense that would have been incurred if our predecessor had operated as aseparate taxpayer. Income taxes have been provided for all items included inthe Consolidated Statement of Income, regardless of when such items werereported for tax purposes or when the taxes were actually paid or refunded.Current tax liabilities and receivables were transferred to OfficeMax and areincluded in “Net equity transactions with OfficeMax.” During the period ofJanuary 1 through October 28, 2004, the net current tax liability was$38.0 million.

The income taxprovision shown in the Consolidated Statement of Income includes the following:
|                                | ** ** | **Predecessor**      | ** **  |
|--------------------------------|------------|----------------------|-------------|
| ** **                     | ** ** | **January 1**   | ** **  |
| ** **                     | ** ** | **through**          | ** **  |
| ** **                     | ** ** | **October 28,** | ** **  |
| ** **                     | ** ** | **2004**             | ** **  |
| ** **                     | ** ** | **(thousands)**      | ** **  |
| Current income  tax provision  | ** ** | ** **           | ** **  |
| Federal                        |       | $                    | (32,152     | ) |
| State                          |       | (5,864               | )           |
| Foreign                        |       | (2                   | )           |
|                           |       | (38,018              | )           |
| Deferred income  tax provision | ** ** | ** **           | ** **  |
| Federal                        |       | (7,894               | )           |
| State                          |       | (1,439               | )           |
|                           |       | (9,333               | )           |
|                           | ** ** | **$**                | **(47,351** | **)** |

 

A reconciliation of the statutory U.S. federal taxprovision and the reported tax provision is as follows:
|                                                     | ** ** | **Predecessor**      | ** **  |
|-----------------------------------------------------|------------|----------------------|-------------|
| ** **                                          | ** ** | **January 1**   | ** **  |
| ** **                                          | ** ** | **through**          | ** **  |
| ** **                                          | ** ** | **October 28,** | ** **  |
| ** **                                          | ** ** | **2004**             | ** **  |
| ** **                                          | ** ** | **(thousands)**      | ** **  |
| Statutory tax  provision                            |       | $                    | (40,886     | ) |
| State taxes                                         |       | (4,613               | )           |
| Foreign tax provision different from statutory rate |       | (3,998               | )           |
| ESOP dividend deduction                             |       | 1,973                |        |
| Increase in cash surrender value of life insurance  |       | 866                  |        |
| Other, net                                          |       | (693                 | )           |
| Reported tax provision                              | ** ** | **$**                | **(47,351** | **)** |

 

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Pretax income (loss) from domestic and foreign sourcesis a follows:
|               | ** ** | **Predecessor**      | ** **  |
|---------------|------------|----------------------|-------------|
| ** **    | ** ** | **January 1**   | ** **  |
| ** **    | ** ** | **through**          | ** **  |
| ** **    | ** ** | **October 28,** | ** **  |
| ** **    | ** ** | **2004**             | ** **  |
| ** **    | ** ** | **(thousands)**      | ** **  |
| Domestic      |       | $                    | 124,426     |   |
| Foreign       |       | (7,609               | )           |
| Pretax income | ** ** | **$**                | **116,817** | ** ** |

 

AtOctober 28, 2004, our predecessor’s foreign subsidiaries did not have anyundistributed earnings that had been indefinitely reinvested.

***9.******                                Receivables***

We have a large, diversified customerbase. A large portion of our uncoated free sheet and office paper sales volumeis sold to OfficeMax. We market our newsprint through Abitibi-Consolidated(Abitibi) pursuant to an arrangement whereby Abitibi purchases all of thenewsprint we produce at a price equal to the price at which Abitibi sellsnewsprint produced at its mills located in the southern United States, lessassociated expenses and a sales and marketing discount. Sales to OfficeMax andAbitibi-Consolidated represent concentrations in the volumes of businesstransacted and concentrations of credit risk. At December 31, 2006, we had$37.2 million and $30.1 million of accounts receivable due fromOfficeMax and Abitibi, respectively. See Note 1, Summary of SignificantAccounting Policies, for information about our accounting policy related totrade receivables and our allowance for doubtful accounts.

A large portion of our receivables are used to secure ourborrowings under the accounts receivable securitization program described inNote 13, Debt.

AtDecember 31, 2004, we had a $157.5 million note receivable fromTimber Corp. that we repaid in February 2005. The note accrued interest at 6%.For the year ended December 31, 2005, and the period of October 29through December 31, 2004, we recorded $0.9 million and$1.7 million, respectively, of interest income from the note,respectively.

*Predecessor*

In the predecessorperiod presented, Boise Forest Products Operations participated in OfficeMax’sreceivable sales program. The program consisted of a revolving sale ofreceivables for 364 days and was subject to renewal. Boise Forest ProductsOperations’ portion of the costs related to the program are included in “Other(income) expense, net” in the Consolidated Statement of Income. SeeNote 6, Other (Income) Expense, Net. During third quarter 2004, inanticipation of the sale of the forest products and paper assets, OfficeMaxstopped selling the receivables related to these businesses.

Underthe sales program, OfficeMax sold fractional ownership interests in a definedpool of trade accounts receivable. At October 28, 2004, zero of soldaccounts receivable were excluded from Receivables, compared with$148.8 million at December 31, 2003. The decrease of $148.8 millionat October 28, 2004, from the amount at December 31, 2003, used cashfrom operations for the period ended October 28, 2004.

***10.******                               Investmentin Equity Affiliate***

In May 2004, Boise Forest Products Operations sold its 47%interest in Voyageur Panel, which owned an oriented strand board plant inBarwick, Ontario, Canada, to Ainsworth Lumber Co. Ltd. for $91.2 millionin cash. Boise Forest Products Operations recorded a $46.5 million pretaxgain, which is reflected in the Wood Products segment. This item increased netincome $28.4 million after taxes for the period of January 1 throughOctober 28, 2004.

 

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Priorto the sale, Boise Forest Products Operations accounted for the joint ventureunder the equity method. Accordingly, the results do not include the jointventure’s sales but do include $6.3 million of equity in earnings duringthe period of January 1 through October 28, 2004.

***11.******                               Goodwilland Intangible Assets***

Goodwillrepresents the excess of purchase price and related costs over the valueassigned to the net tangible and intangible assets of businesses acquired. Weaccount for goodwill in accordance with the provisions of SFAS No. 142, *Goodwill and Other Intangible Assets*, which requires us toassess our acquired goodwill and intangible assets with indefinite lives forimpairment at least annually in the absence of an indicator of possibleimpairment and immediately upon an indicator of possible impairment. We assessgoodwill and intangible assets with indefinite lives in the fourth quarter ofeach year using a fair-value-based approach. We also evaluate the remaininguseful lives of our finite-lived purchased intangible assets to determinewhether any adjustments to the useful lives are necessary. We completed ourannual assessment in accordance with SFAS No. 142 in fourth quarter 2006and 2005 and determined that there was no impairment.

Weaccount for acquisitions using the purchase method of accounting. As a result,we allocate the purchase price to the tangible and intangible assets acquiredand liabilities assumed based on their respective fair values as of the date ofacquisition. In accordance with SFAS No. 141, *BusinessCombinations*, we have one year from the purchase date to finalize orreceive information to determine changes in estimates of the fair value ofassets acquired and liabilities assumed. During 2006, we recorded$0.3 million of net purchase price adjustments that decreased the recordedamount of goodwill. The adjustments were for fair value adjustments related toour acquisition of Central Texas Corrugated. During 2005, we recorded$3.3 million of net purchase price adjustments that decreased the recordedamount of goodwill. The adjustments were related to fair value assetadjustments, liability accruals, and pension and other severance accrualsrelated to the Forest Products Acquisition.

Changes in thecarrying amount of our goodwill by segment are as follows:
| ** **                                       | ** ** | **Building  Materials  Distribution** | ** ** | **Wood   Products** | ** ** | **Paper**       | ** ** | **Packaging &  Newsprint** | ** ** | **Corporate  and  Other** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|-----------------|------------|-------------------------------------|------------|---------------------------|------------|-----------|------------|
| ** **                                       | ** ** | ** **                            | ** ** | ** **               | ** ** | **(thousands)** | ** ** | ** **                          | ** ** | ** **                | ** ** |
| Balance at  December 31, 2004               |       | $                                     | 348        |                     | $          | 3,198           |       | $                                   | 8,776      |                      | $          | 1,510     |       | $ | 4,558 |   | $ | 18,390 |   |
|                                             |       |                                  |       |                     |       |            |       |                                |       |                      |       |      |       |
| Purchase price  adjustments                      |       | 5,245                                 |       | 3,379                    |       | (7,435          | )          | 80                                  |       | (4,558                    | )          | (3,289    | )          |
| Balance at  December 31, 2005               |       | 5,593                                 |       | 6,577                    |       | 1,341           |       | 1,590                               |       | —                    |       | 15,101    |       |
|                                             |       |                                  |       |                     |       |            |       |                                |       |                      |       |      |       |
| Goodwill acquired  during the year (Note 4) |       | —                                |       | —                   |       | —          |       | 7,046                               |       | —                    |       | 7,046     |       |
| Purchase price adjustments                       |       | —                                |       | —                   |       | —          |       | (301                                | )          | —                    |       | (301      | )          |
| Balance at December 31, 2006                | ** ** | **$**                                 | **5,593**  | ** **               | **$**      | **6,577**       | ** ** | **$**                               | **1,341**  | ** **                | **$**      | **8,335** | ** ** | **$** | **—** | ** ** | **$** | **21,846** | ** ** |

 

Intangible assets representthe values assigned to trade names and trademarks, customer relationships,noncompete agreements, and technology. The Central Texas Corrugated trade nameis amortized over five years. The trade names and trademark assets acquired inthe Forest Products Acquisition have an indefinite life and are not amortized.Customer relationships are amortized over five to ten years, noncompeteagreements are amortized over four years, and technology is amortized overthree to five years. Intangible assets consisted of the following:

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| ** **                  | ** ** | **December 31, 2006** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| ** **                  | ** ** | **(thousands)**                 | ** ** |
| Trade names and  trademarks |       | $                               | 24,700     |   | $ | (346 | ) | $ | 24,354 |   |
| Customer  relationships     |       | 13,400                          |       | (3,887 | ) | 9,513 |   |
| Noncompete  agreements      |       | 1,200                           |       | (281 | ) | 919 |   |
| Technology                  |       | 5,043                           |       | (2,322 | ) | 2,721 |   |
|                        | ** ** | **$**                           | **44,343** | ** ** | **$** | **(6,836** | **)** | **$** | **37,507** | ** ** |

 
| ** **                  | ** ** | **December 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| ** **                  | ** ** | **(thousands)**                 | ** ** |
| Trade names and  trademarks |       | $                               | 22,800     |   | $ | — |   | $ | 22,800 |   |
| Customer  relationships     |       | 6,800                           |       | (1,588 | ) | 5,212 |   |
| Technology                  |       | 5,080                           |       | (1,288 | ) | 3,792 |   |
| ** **                  | ** ** | **$**                           | **34,680** | ** ** | **$** | **(2,876** | **)** | **$** | **31,804** | ** ** |

 

Intangible assetamortization expense was $4.0 million and $2.6 million for the yearsended December 31, 2006 and 2005, and $0.3 million and$0.1 million for the periods of October 29 through December 31,2004, and January 1 through October 28, 2004. The estimatedamortization expense is $4.6 million in 2007, $4.1 million in 2008,$3.4 million in 2009, $1.1 million in 2010, and $0.5 million in2011.

***12.          Asset Retirement Obligations***

We account for asset retirementobligations in accordance with SFAS No. 143, *Accountingfor Asset Retirement Obligations*, and FIN No. 47, *Accounting for Conditional Asset Retirement Obligations — aninterpretation of FASB Statement No. 143*. We accrue for assetretirement obligations in the period in which they are incurred if sufficientinformation is available to reasonably estimate the fair value of theobligation. When we record the liability, we capitalize the cost by increasingthe carrying amount of the related long-lived asset. Over time, the liabilityis accreted to its settlement value, and the capitalized cost is depreciatedover the useful life of the related asset. Upon settlement of the liability, wewill recognize a gain or loss for any difference between the settlement amountand the liability recorded. On a pro forma basis, if the provisions ofFIN No. 47 had been in effect during all of 2005 and 2004, our netincome would not have changed materially.

At December 31, 2006 and 2005, we had$11.5 million of asset retirement obligations recorded in “Other, otherlong-term liabilities,” on our Consolidated Balance Sheets. These liabilitiesrelated primarily to landfill closure and closed-site monitoring costs. Theliabilities are based on the best estimate of current costs and are updatedperiodically to reflect current technology, laws and regulations, inflation,and other economic factors. We do not have any assets legally restricted forpurposes of settling asset retirement obligations. The table below describeschanges to our asset retirement obligations for the years endedDecember 31, 2006 and 2005:
| ** **                                          | ** ** | **December 31** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(thousands)**      | ** ** |
| Asset retirement  obligation at beginning of period |       | $                    | 11,484     |   | $ | 10,286 |   |
| Liabilities  incurred                               |       | 1,633                |       | — |   |
| Net transition  adjustment                          |       | —               |       | 485 |   |
| Accretion  expense                                  |       | 1,020                |       | 789 |   |
| Payments                                            |       | (53                  | )          | (76 | ) |
| Revisions in  estimated cash flows                  |       | (2,540               | )          | — |   |
| Asset retirement  obligation at end of year         | ** ** | **$**                | **11,544** | ** ** | **$** | **11,484** | ** ** |

 

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We have additional asset retirementobligations with indeterminate settlement dates. The fair value of these assetretirement obligations cannot be estimated due to the lack of sufficientinformation to estimate the settlement dates of the obligations. These assetretirement obligations include, for example, (i) removal and disposal ofpotentially hazardous materials on equipment and/or an operating facility ifthe equipment and/or facilities were to undergo major maintenance, renovation,or demolition; (ii) wastewater treatment ponds that may be required to bedrained and/or cleaned if the related operating facility is closed; and(iii) storage sites or owned facilities for which removal and/or disposalof chemicals and other related materials are required if the operating facilityis closed. We will recognize a liability in the period in which sufficient informationbecomes available to reasonably estimate the fair value of these obligations.

***13.          Debt***

At December 31, 2006and 2005, our short- and long-term debt and the interest rates on that debtwere as follows:
| ** **                                      | ** ** | **December 31, 2006** | ** **    | **December 31, 2005**    | ** ** |
|-------------------------------------------------|------------|---------------------------------|---------------|------------------------------------|------------|
| ** **                                      | ** ** | **Amount**                      | ** **    | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** | **Amount** | ** ** | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** |
| ** **                                      | ** ** | **(thousands)**                 | ** **    | ** **                         | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revolving credit  facility, due 2010            |       | $                               | —        |                               | N/A        |   | N/A |   | $ | — |   | N/A |   | N/A |   |
| Tranche D  term loan, due 2011             |       | 538,900                         |          | 7.1                                | %          | 6.8 | % | 635,800 |   | 5.8 | % | 4.9 | % |
| Senior unsecured  floating-rate notes, due 2012 |       | 250,000                         |          | 8.2                                | %          | 7.6 | % | 250,000 |   | 7.0 | % | 6.6 | % |
| 7.125% senior  subordinated notes, due 2014     |       | 400,000                         |          | 7.1                                | %          | N/A |   | 400,000 |   | 7.1 | % | N/A |   |
| Borrowings  secured by receivables              |       | 25,000                          |          | 5.6                                | %          | N/A |   | 80,000 |   | 4.3 | % | N/A |   |
|                                            |       | 1,213,900                       |          | 7.3                                | %          | 7.1 | % | 1,365,800 |   | 6.3 | % | 5.8 | % |
| Note payable to  related party, net, due 2009   |       | —                          |          | N/A                                |       | N/A |   | 270,854 |   | 8.0 | % | N/A |   |
| Long-term debt                                  |       | 1,213,900                       |          |                               |       |   |   | 1,636,654 |   |   |   |   |   |
| Short-term  borrowings                          |       | 3,200                           |          | 6.0                                | %          | N/A |   | — |   | N/A |   | N/A |   |
| Total debt                                      | ** ** | **$**                           | **1,217,100** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,636,654** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

*SeniorSecured Credit Facilities*

Boise Cascade, L.L.C. (Boise LLC) andaffiliates have a $475.0 million senior secured revolving credit facility(due in 2010) and an $840.0 million Tranche D term loan (duein 2011). These borrowings represent our senior secured credit facilities (theFacilities).

Our revolving credit facility agreement permits us toborrow up to $475.0 million for general corporate purposes. AtDecember 31, 2006, we had no borrowings outstanding under our revolvingcredit facility; however, $42.8 million of letters of credit wereconsidered a draw on the revolver, reducing our borrowing capacity to$432.2 million. Borrowings under our revolving credit facility are basedon the prime rate, the federal funds effective rate, or the LondonInterbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustmentbased on the ratio of our total indebtedness to our last four quarters ofconsolidated earnings before interest, taxes, depreciation, and amortization(EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to1.25% or the federal funds effective rate plus 1.00% to 1.75% or(ii) LIBOR plus 1.50% to 2.25%. For the years ended December 31,2006 and 2005, the average interest rates for our borrowings under the revolverwere 6.0% and 5.1%. Letters of credit are subject to a 0.25% fronting feepayable to the issuing bank and a fee payable to the lenders equal to theproduct of the interest rate spread applicable to LIBOR borrowings underour revolving credit facility and the daily average amount available fordrawing under the outstanding letters of credit. The minimum and maximumborrowings under the revolver were zero and $30.0 million during the yearended December 31, 2006, and zero and $126.5 million for the sameperiod in 2005. The weighted average amounts of borrowings outstanding underthe revolver during the years ended December 31, 2006 and 2005, were$0.8 million and $11.8 million. The revolving credit facilityprovides for a commitment fee of 0.50% per annum payable to the lenders on theaverage daily unused portion of the revolving credit facility. We also have aswingline option under the revolver, which allows us to borrow at negotiatedrates up to an aggregate of $40.0 million from individual banks that areparties to the agreement. Swingline borrowings are considered borrowings underthe revolving credit facility agreement.

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AtDecember 31, 2006 and 2005, we had $538.9 million and$635.8 million outstanding under the Tranche D term loan, and ourborrowing rates were 7.1% and 5.8%. Borrowings under the Tranche D termloan are based on (i) the higher of the prime rate plus 0.75% or the federalfunds effective rate plus 1.25% or (ii) LIBOR plus 1.75%. As a result of a$200.0 million prepayment in October 2005, we are not required to makescheduled principal payments on the Tranche D term loan until 2011, atwhich time the principal balance is due. However, during the year ended December 31,2006, we prepaid $96.9 million on our Tranche D term loan with$38.2 million of proceeds from asset sales, $25.6 million of proceedsfrom unwinding and resetting the fixed interest rate we pay under our interestrate swap agreements, and other cash flows.

Borrowings under the Facilities are subject tofinancial covenants and restrictions, including a minimum interest expensecoverage ratio, maximum leverage ratio, and limitations on capitalexpenditures.

*SeniorNotes*

In October 2004, weissued $250.0 million of senior unsecured floating-rate notes due in 2012and $400.0 million of 7.125% senior subordinated notes due in 2014. Netproceeds from the notes were used to fund a portion of the purchase price forthe Forest Products Acquisition. In July 2005, we completed an exchangeoffer whereby all of our senior unsecured floating-rate notes and seniorsubordinated notes were exchanged for publicly traded, registered securitieswith identical terms (other than terms relating to registration rights) to thenotes issued in October 2004. We may redeem all or part of the notes at anytime at redemption prices defined in the indenture. If we sell specific assetsor experience specific kinds of changes in control, we must offer to purchasethe notes. The senior unsecured floating-rate notes bear interest at a floatingrate equal to LIBOR plus 2.9%. At December 31, 2006 and 2005, ourborrowing rates for the $250.0 million senior unsecured floating-ratenotes were 8.2% and 7.0%.

*BorrowingsSecured by Receivables*

In October2005, our wholly owned subsidiary, Boise LLC, and several of its subsidiaries,including Birch Creek Investments, L.L.C. (Birch Creek), entered into anaccounts receivable securitization program with Bank of America NationalAssociation and Calyon New York Branch (the Investors). Under this three-yearprogram, Boise LLC sells its interest in a defined pool of accounts receivablegenerated by its domestic operations on a revolving basis to Birch Creek, aconsolidated, wholly owned, special-purpose subsidiary. In turn, Birch Creeksells the receivables to the affiliates of the Investors. Because Boise LLC hasthe right to repurchase the sold receivables, sales of receivables under theprogram are accounted for as a secured borrowing. At December 31, 2006 and2005, we had $25.0 million and $80.0 million outstanding under ouraccounts receivable securitization program. The receivables outstanding and thecorresponding debt are included as “Receivables” and “Long-term debt,”respectively, on our Consolidated Balance Sheets. We record the financing costsassociated with the program in “Interest expense” in our ConsolidatedStatements of Income. The cost of funds under this program varies based onchanges in interest rates. At December 31, 2006 and 2005, the interestrates for borrowings secured by receivables were 5.6% and 4.3%.

Under the accounts receivable securitization program, the maximum borrowingamount is subject to change based on the level of eligible receivables andrestrictions on concentrations of receivables and, at December 31, 2006,could not exceed $243.9 million. The accounts receivable securitizationprogram contains the same financial covenants as our senior secured creditfacilities.

*NotePayable to Related Party, Net*

At December 31,2005, we had a $270.9 million note payable to Timber Corp. recorded as “Notepayable to related party, net” on the Consolidated Balance Sheet. In November2006, we repaid the related-party note in full (See Note 3, Merger WithBoise Land & Timber Holdings Corp.). At December 31, 2005, the “Notepayable to related party, net” included $18.9 million of accrued interestexpense. For the years ended December 31, 2006 and 2005, and the period ofOctober 29 (inception) through December 31, 2004, interest expense inour Consolidated Statements of Income included $14.1 million,$18.9 million, and zero of related-party interest expense.

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*Other*

We have enteredinto interest rate swaps to hedge the majority of the cash flow risk from thevariable interest payments on our variable-rate debt. These swaps gave useffective interest rates on all of our long-term variable-rate debt of 7.0% and5.3% at December 31, 2006 and 2005, respectively. For additionalinformation on our interest rate swaps, see Note 14, Financial Instruments.

We paid approximately$85.9 million of fees and expenses associated with our senior securedcredit facilities, our senior unsecured floating-rate notes, and our seniorsubordinated notes, which we entered into in October 2004. The fees are beingamortized over the terms of the loans, which range from six to ten years. AtDecember 31, 2006 and 2005, we had $31.5 million and$37.8 million of costs recorded in “Deferred financing costs” on ourConsolidated Balance Sheets. In connection with the repayment of theTranche B term loan in second quarter 2005, we recorded a$43.0 million charge for the write-off of the deferred financing costs in “Interestexpense” in our Consolidated Statement of Income.

AtDecember 31, 2006 and 2005, our average effective interest rates,including the effect of our interest rate swaps, on all of our long-termnonrelated party debt were 7.1% and 5.8%.

Forthe years ended December 31, 2006 and 2005, and the periods ofOctober 29 through December 31, 2004, and January 1 throughOctober 28, 2004, cash payments for interest, net of interest capitalized,were $95.1 million, $95.5 million, $11.3 million, and$64.8 million, respectively.

Foradditional information on our interest rate swaps, see Note 14, FinancialInstruments.

# *Predecessor Period*

Inthe predecessor period presented, our predecessor participated in OfficeMax’scentralized cash management system. Cash advances necessary to fund BoiseForest Products Operations’ major improvements to, and replacements of,property, as well as acquisitions and expansion, to the extent not providedthrough internally generated funds, were provided by OfficeMax’s cash or fundedwith debt. In the predecessor period presented, interest costs were allocatedto our predecessor based on its average asset balances. The interest expenseattributable to the debt allocated from OfficeMax is included in ourConsolidated Statement of Income. For the period of January 1 throughOctober 28, 2004, our predecessor’s average interest rate was 6.7%. Webelieve the allocation of interest is a reasonable reflection of Boise ForestProducts Operations’ interest cost.

***14.          Financial Instruments***

We are exposed to risks such as changes in interest rates,energy prices, and foreign currency exchange rates. We employ a variety ofpractices to manage these risks, including operating and financing activitiesand, where deemed appropriate, the use of derivative instruments. Derivativeinstruments are used only for risk management purposes and not for speculationor trading. Derivatives are such that a specific debt instrument, contract, oranticipated purchase determines the amount, maturity, and other specifics ofthe hedge. If a derivative contract is entered into, we either determine thatit is an economic hedge or we designate the derivative as a cash flow or fairvalue hedge. We formally document all relationships between hedging instrumentsand the hedged items, as well as our risk management objectives and strategiesfor undertaking various hedged transactions. For those derivatives designatedas cash flow or fair value hedges, we formally assess, both at the derivatives’inception and on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in the hedgeditems. The ineffective portion of hedging transactions is recognized in income(loss).

Inaccordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, as amended, werecord all derivative instruments as assets or liabilities on our ConsolidatedBalance Sheets at fair value. The fair value of these instruments is determinedby third parties. Changes in the fair value of derivatives are recorded ineither “Net income (loss)” or “Other comprehensive income,” as appropriate. Thegain or loss on derivatives designated as cash flow hedges is included in “Othercomprehensive income” in the period in which changes in fair value occur and isreclassified to income (loss) in the period in which the hedged item affectsincome (loss), and any ineffectiveness is recognized currently in ourConsolidated Statements of Income (Loss). The gain or loss on derivativesdesignated as fair value hedges and the offsetting gain or loss on the hedgeditem attributable to the hedged risk are included in income (loss) in theperiod in which changes in fair value occur. The gain or loss on

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derivatives that have notbeen designated as hedging instruments is included in income (loss) in theperiod in which changes in fair value occur.

*Interest Rate Risk*

Our debt is predominantlyvariable-rate. We manage interest rate risk on our variable-rate debt byentering into interest rate swaps. At December 31, 2006, the estimatedcurrent market value of our fixed-rate debt, based on then-current interestrates for similar obligations with like maturities, was approximately$12.2 million less than the amount reported on our Consolidated BalanceSheet.

In November 2004, we entered into interest rateswaps with a total notional amount of $800 million to hedge the cash flowexposure to interest rate fluctuations associated with a portion of ourvariable-rate debt. In connection with the refinancing of our Tranche B termloan in April 2005, we reclassified $9.9 million of amounts recorded in “Accumulatedother comprehensive income” to our Consolidated Statement of Income as “Changein fair value of interest rate swaps.”

In April 2006, we terminated two interest rate swapsand reset the fixed interest rate we pay on the remaining swaps. In connectionwith the terminations of and rate resets, we received $25.6 million. Weare reclassifying the $25.6 million of “Accumulated other comprehensiveincome” as a reduction of interest expense over the periods in which thepreviously hedged interest payments affect earnings.

At December 31, 2006, we had six interest rate swapsto hedge our exposure to interest rate fluctuations associated with a portionof our variable-rate debt. The swaps effectively hedge $500 million of ourvariable-rate debt exposure through 2009 and $250 million of exposureduring 2010. At December 31, 2006, assuming no changes in interest rates,we expect to reclassify $9.2 million of amounts recorded in “Accumulatedother comprehensive income” as a decrease in interest expense in 2007. AtDecember 31, 2006, there was no ineffectiveness related to these hedges.

*EnergyRisk*

We enter into natural gas swaps, options, or acombination of these instruments to hedge the variable cash flow risk ofnatural gas purchases at index prices. As of December 31, 2006, we hadentered into derivative instruments related to approximately 90% of ourforecasted natural gas purchases through February 2007 and 10% of our expectedpurchases from July 2007 through October 2007. Assuming natural gas pricesfollow the futures curve in effect at December 31, 2006, we expect toreclassify $9.7 million of the amounts recorded in “Accumulated othercomprehensive income” as an increase in “Materials, labor, and other operatingexpenses” in 2007. There was no ineffectiveness related to these hedges.

*ForeignCurrency Risk*

At December 31, 2006, we had no material fair value offoreign currency hedges.

*PredecessorPeriod*

Asdescribed in Note 13, Debt, in the predecessor period presented, OfficeMaxallocated debt and interest costs to Boise Forest Products Operations based onits average asset balances. OfficeMax occasionally used derivative financialinstruments, such as interest rate swaps, rate hedge agreements, and forwardexchange contracts, to hedge underlying debt obligations or anticipatedtransactions. The effects of these financial instruments are not included inthe predecessor financial statement other than through OfficeMax’s allocationsto our predecessor.

 

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***15.          Retirement and Benefit Plans***

*Retirement and Benefit Plans*

Our retirement plans consist of noncontributorydefined benefit pension plans, contributory defined contribution savings plans,deferred compensation plans, and postretirement healthcare benefit plans.

Someof our employees are covered by noncontributory defined benefit pension plans.The salaried defined benefit pension plan is available only to employees whowere formerly employed by OfficeMax before November 2003. The pension benefitfor salaried employees is based primarily on the employees’ years of serviceand highest five-year average compensation. The benefit for hourly employees isgenerally based on a fixed amount per year of service. We use aDecember 31 measurement date for our pension plans.

Wealso sponsor contributory defined contribution savings plans for most of oursalaried and hourly employees. For the years ended December 31, 2006 and2005, and the periods of October 29 through December 31, 2004, andJanuary 1 through October 28, 2004, company matching contributions tothe plans were $14.7 million, $13.6 million, $1.9 million, and$16.6 million, respectively. Employees that are not eligible toparticipate in our defined benefit pension plans are eligible for additionaldiscretionary company matching contributions based on a percentage approved bythe company each plan year. For the years ended December 31, 2006 and2005, and for the period of October 29 through December 31, 2004, wemade $0.2 million, $0.02 million, and zero of discretionarycontributions.

We sponsor a deferred compensation plan, in which ourkey managers and nonaffiliated directors may irrevocably elect to defer aportion of their base salary and bonus or director’s fees until termination ofemployment or beyond. A participant’s account is credited with imputed interestat a rate equal to 130% of Moody’s composite average of yields on corporatebonds. In addition, participants other than directors may elect to receivetheir company matching contribution in our deferred compensation plan in lieuof any matching contribution in our savings plan. The deferred compensationplan is unfunded; therefore, benefits are paid from our general assets. Thetotal participant deferrals were $3.1 million, $1.7 million, and$0.2 million for the years ended December 31, 2006 and 2005, and theperiod of October 29 through December 31, 2004. For the years endedDecember 31, 2006 and 2005, and the period of October 29 throughDecember 31, 2004, we recognized $0.3 million, $0.1 million, andzero of interest expense related to the plan. At December 31, 2006 and2005, we had $5.9 million and $2.2 million of liabilities related tothe plans recorded in “Other, Compensation and benefits” on our ConsolidatedBalance Sheets.

We also have postretirement healthcare benefit plans. The type of retireehealthcare benefits and the extent of coverage vary based on employeeclassification, date of retirement, location, and other factors. All of ourpostretirement healthcare plans are unfunded. In 2006 and 2005, we communicatedto our employees changes to our retiree healthcare programs. We discontinuedhealthcare coverage for most of our post-65 retirees. In addition, weeliminated the company subsidy for some of our pre-65 hourly retirees. Thischange shifts retiree medical costs to the plan participants. As a result ofthis change, we recorded a $3.7 million and $9.9 million gain in ourConsolidated Statements of Income for the years ended December 31, 2006and 2005. We use a December 31 measurement date for our postretirementbenefit plans.

During the predecessor period, most Boise ForestProducts Operations employees, along with some employees of OfficeMax,participated in OfficeMax’s defined benefit pension plans. In addition, mostemployees of Boise Forest Products Operations were eligible for participationin OfficeMax’s defined contribution plans. Boise Forest Products Operationsrecorded costs associated with the employees who participated in OfficeMax’splans in the Consolidated Statements of Income. For the years endedDecember 31, 2006 and 2005, and the period of October 29 throughDecember 31, 2004, we recognized $26.9 million, $26.8 million,and $2.6 million, respectively, of pension expense. For the period of January 1through October 28, 2004, our predecessor incurred $60.9 million ofpension expense. OfficeMax retained all pension costs related to its employeeswho retired or were terminated on or before July 31, 2004, allpostretirement benefit costs related to its employees who retired or wereterminated before the Forest Products Acquisition, and all pension andpostretirement benefit costs related to active OfficeMax employees. As aresult, our annual pension expense is lower than amounts included in thepredecessor financial statements. In connection with the Forest ProductsAcquisition, OfficeMax transferred to Boise LLC, our operating subsidiary, theportion of the pension plan liability that was

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attributableto active employees who became employed by Boise LLC immediately following the ForestProducts Acquisition and Boise Forest Products Operations employees whoterminated employment after July 31, 2004. We were not required to makeany contributions in 2006. However, we contributed $20 million to ourqualified pension plans.

*Obligations and Funded Status*

In December 2006, we adopted SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans — anamendment of FASB Statements No. 87, 88, 106, and 132(R)*, whichrequired us to recognize the funded status of our pension and otherpostretirement benefit plans on our 2006 Consolidated Balance Sheet. It alsorequired us to recognize the actuarial and experience gains and losses and theprior service costs and credits as a component of other comprehensive income,net of tax, in our Consolidated Statement of Capital. See the ConsolidatedStatement of Capital and Note 17, Capital, for the adjustments recorded toother comprehensive income as a result of applying this statement.Retrospective application was not permitted. The following table shows theeffect of adopting SFAS No. 158 on the line items included on our ConsolidatedBalance Sheet at December 31, 2006:
| ** **                        | ** ** | **Before Application  of SFAS No. 158** | ** ** | **Adjustments** | ** ** | **After Application  of SFAS No. 158** | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------|------------|-----------------|------------|------------------------------------------------------------|------------|
| ** **                        | ** ** | **(thousands)**                                             | ** ** |
| Other assets                      |       | $                                                           | 29,173     |            | $          | (783                                                       | )          | $ | 28,390 |   |
| Total assets                      |       | 2,705,980                                                   |       | (783            | )          | 2,705,197                                                  |       |
|                              |       |                                                        |       |            |       |                                                       |       |
| Other,  Compensation and benefits |       | 149,780                                                     |       | (38,104         | )          | 111,676                                                    |       |
| Total  liabilities                |       | 1,904,457                                                   |       | (38,104         | )          | 1,866,353                                                  |       |
|                              |       |                                                        |       |            |       |                                                       |       |
| Series B  equity units       |       | 687,667                                                     |       | 37,321          |       | 724,988                                                    |       |
| Capital                           |       | 777,612                                                     |       | 37,321          |       | 814,933                                                    |       |
|                                   |            |                                                             |            |                 |            |                                                            |            |  |  |  |

 

The following table, which includes only company-sponsored plans,reconciles the beginning and ending balances of our benefit obligation. It alsoshows the fair value of plan assets and aggregate funded status of our plans.The funded status changes from year to year based on the investment return fromplan assets, contributions, benefit payments, and the discount rate used tomeasure the liability.
| ** **                                          | ** ** | **Pension Benefits** | ** **  | **Other Benefits** | ** **   |
|-----------------------------------------------------|------------|---------------------------|-------------|-------------------------|--------------|
| ** **                                          | ** ** | **2006**                  | ** **  | **2005**                | ** **   | **2006** | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | ** **                | ** **  | **(thousands)**         | ** **   | ** ** | ** ** |
| Change in  benefit obligation                       |       |                      |        |                    |         |   |   |   |   |
| Benefit obligation at beginning of year             |       | $                         | 607,284     |                    | $            | 543,722 |   | $ | 10,980 |   | $ | 19,574 |   |
| Service cost                                        |       | 24,931                    |        | 25,451                  |         | 213 |   | 665 |   |
| Interest cost                                       |       | 33,866                    |        | 30,813                  |         | 378 |   | 1,213 |   |
| Amendments                                          |       | 2,881                     |        | 4,343                   |         | — |   | — |   |
| Actuarial (gain) loss                               |       | (10,122                   | )           | 10,871                  |         | (96 | ) | 108 |   |
| Special termination benefits                        |       | —                    |        | 2,482                   |         | — |   | — |   |
| Closure and curtailment (gain) loss                 |       | 1,050                     |        | (5,731                  | )            | (3,694 | ) | (10,358 | ) |
| Benefits paid                                       |       | (8,709                    | )           | (4,667                  | )            | (134 | ) | (222 | ) |
| Benefit  obligation at end of year                  |       | $                         | 651,181     |                    | $            | 607,284 |   | $ | 7,647 |   | $ | 10,980 |   |
|                                                |       |                      |        |                    |         |   |   |   |   |
| Change in plan  assets                              |       |                      |        |                    |         |   |   |   |   |
| Fair value of plan assets at beginning of year |       | $                         | 480,958     |                    | $            | 444,087 |   | $ | — |   | $ | — |   |
| Actual return on plan assets                        |       | 62,819                    |        | 31,190                  |         | — |   | — |   |
| Employer contributions                              |       | 20,328                    |        | 10,348                  |         | — |   | — |   |
| Benefits paid                                       |       | (8,709                    | )           | (4,667                  | )            | — |   | — |   |
| Fair value of  plan assets at end of year           |       | $                         | 555,396     |                    | $            | 480,958 |   | $ | — |   | $ | — |   |
|                                                |       |                      |        |                    |         |   |   |   |   |
| Funded status                                       | ** ** | **$**                     | **(95,785** | **)**                   | $            | (126,326 | ) | **$** | **(7,647** | **)** | $ | (10,980 | ) |
| Unrecognized  (gain) loss (2005)                    |       |                      |        | (5,098                  | )            |   |   | 154 |   |
| Unrecognized  prior service cost (2005)             |       |                      |        | 4,343                   |         |   |   | — |   |
| Net amount recognized  (2005)                       | ** ** | ** **                | ** **  | **$**                   | **(127,081** | **)** | ** ** | ** ** | **$** | **(10,826** | **)** |

 

The projected benefit obligation, accumulatedbenefit obligation, and fair value of plan assets for the pension plans withaccumulated benefit obligations in excess of plan assets were$571.7 million, $504.1 million, and $472.7 million,respectively, as of December 31, 2006, compared with $607.3 million,$532.5 million, and $481.0 million, respectively, as ofDecember 31, 2005.

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The following table showsthe amounts recognized on our Consolidated Balance Sheets:

 
| ** **                                  | ** ** | **Pension Benefits** | ** **  | **Other Benefits** | ** ** |
|---------------------------------------------|------------|---------------------------|-------------|-------------------------|------------|
| ** **                                  | ** ** | **2006**                  | ** **  | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                  | ** ** | **(thousands)**           | ** **  |
| Noncurrent assets                           |       | $                         | 3,229       |                    | $          | 2,029 |   | $ | — |   | $ | — |   |
| Current liabilities                         |       | (168                      | )           | (20,168                 | )          | (712 | ) | (712 | ) |
| Noncurrent liabilities                      |       | (98,846                   | )           | (109,000                | )          | (6,935 | ) | (10,114 | ) |
| Accumulated other  comprehensive income (a) |       | —                    |        | 58                      |       | — |   | — |   |
| Net amount recognized                       | ** ** | **$**                     | **(95,785** | **)**                   | **$**      | **(127,081** | **)** | **$** | **(7,647** | **)** | **$** | **(10,826** | **)** |

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(a)                                  See Note 17, Capital, foramounts recognized in “Accumulated other comprehensive income” in 2006.

*Components of Net Periodic Benefit Cost*

The components ofnet periodic benefit cost are as follows:

 
| ** **                                     | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | ** **                | ** ** | ** **              | ** ** | ** ** | ** ** | **Prede-** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Prede-** | ** ** |
| ** **                                     | ** ** | **Boise**                 | ** ** | **cessor**              | ** ** | **Boise** | ** ** | **cessor** | ** ** |
| ** **                                     | ** ** | ** **                | ** ** | ** **              | ** ** | **Oct. 29** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Oct. 29** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | ** **                | ** ** | ** **              | ** ** | **(inception)** | ** ** | **Jan. 1** | ** ** | ** ** | ** ** | ** ** | ** ** | **(inception)** | ** ** | **Jan. 1** | ** ** |
| ** **                                     | ** ** | **Year Ended**       | ** ** | **through**             | ** ** | **through** | ** ** | **Year Ended** | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                                     | ** ** | **December 31**      | ** ** | **Dec. 31,**       | ** ** | **Oct. 28,** | ** ** | **December 31 ** | ** ** | **Dec. 31,** | ** ** | **Oct. 28,** | ** ** |
| ** **                                     | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2004** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | **(thousands)**           |
| Service  cost                                  |       | $                         | 24,931     |                    | $          | 25,451 |   | $ | 2,480 |   | $ | 24,046 |   | $ | 213 |   | $ | 665 |   | $ | 101 |   | $ | 992 |   |
| Interest  cost                                 |       | 33,866                    |       | 30,813                  |       | 5,096 |   | 69,223 |   | 378 |   | 1,213 |   | 180 |   | 4,635 |   |
| Expected  return on plan assets                |       | (34,221                   | )          | (30,338                 | )          | (5,007 | ) | (66,728 | ) | — |   | — |   | — |   | — |   |
| Recognized  actuarial loss                     |       | 277                       |       | 374                     |       | — |   | 25,205 |   | — |   | — |   | — |   | 970 |   |
| Amortization  of prior service costs and other |       | 597                       |       | —                  |       | — |   | 8,658 |   | — |   | — |   | — |   | (838 | ) |
| Plan  settlement/curtailment expense           |       | 904                       |       | —                  |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Company-sponsored  plans                       |       | 26,354                    |       | 26,300                  |       | 2,569 |   | 60,404 |   | 591 |   | 1,878 |   | 281 |   | 5,759 |   |
| Multiemployer  pension plans                   |       | 502                       |       | 503                     |       | 57 |   | 460 |   | — |   | — |   | — |   | — |   |
| Net  periodic benefit cost                     | ** ** | **$**                     | **26,856** | ** **              | **$**      | **26,803** | ** ** | **$** | **2,626** | ** ** | **$** | **60,864** | ** ** | **$** | **591** | ** ** | **$** | **1,878** | ** ** | **$** | **281** | ** ** | **$** | **5,759** | ** ** |

 

# *Assumptions*

The assumptionsused in accounting for our plans are estimates of factors that will determine,among other things, the amount and timing of future benefit payments. Thefollowing table presents the assumptions used in the measurement of our benefitobligations:

 

|                                                      | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                           | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Weighted average  assumptions as of December 31 |       |                      |       |                    |       |   |   |   |   |
| Discount rate                                        |       | 5.90                      | %          | 5.60                    | %          | 5.75 | % | 5.40 | % |
| Rate of  compensation increase                       |       | 4.25                      | %          | 4.25                    | %          | — |   | — |   |

 

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The following tablepresents the assumptions used in the measurement of net periodic benefit cost:

* *
| ** **                                                               | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                                               | ** ** | ** **                | ** ** | ** **              | ** ** | ** ** | ** ** | **Prede-** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Prede-** | ** ** |
| ** **                                                               | ** ** | **Boise**                 | ** ** | **cessor**              | ** ** | **Boise** | ** ** | **cessor** | ** ** |
| ** **                                                               | ** ** | ** **                | ** ** | ** **              | ** ** | **Oct. 29** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Oct. 29** | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | ** **                | ** ** | ** **              | ** ** | **(inception)** | ** ** | **Jan. 1** | ** ** | ** ** | ** ** | ** ** | ** ** | **(inception)** | ** ** | **Jan. 1** | ** ** |
| ** **                                                               | ** ** | **Year Ended**       | ** ** | **through**             | ** ** | **through** | ** ** | **Year Ended** | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                                                               | ** ** | **December 31**      | ** ** | **Dec. 31,**       | ** ** | **Oct. 28,** | ** ** | **December 31** | ** ** | **Dec. 31,** | ** ** | **Oct. 28,** | ** ** |
| ** **                                                               | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2004** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** |
| Weighted average  assumptions as of the last day in the presented period |       |                      |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                            |       | 5.60                      | %          | 5.75                    | %          | 5.75 | % | 6.25 | % | 5.40 | % | 5.50 | % | 5.75 | % | 6.25 | % |
| Expected  long-term rate of return on plan assets                        |       | 7.25                      | %          | 7.25                    | %          | 7.25 | % | 8.25 | % | — |   | — |   | — |   | — |   |
| Rate of  compensation increases                                          |       | 4.25                      | %          | 4.25                    | %          | 4.25 | % | 4.25 | % | — |   | — |   | — |   | — |   |

 

*Discount Rate Assumption*.  In all periods presented, the discount rateassumption was determined using a spot rate yield curve constructed toreplicate Aa-graded corporate bonds. The plan’s projected cash flows wereduration-matched to this yield curve to develop an appropriate discount rate.

*AssetReturn Assumption*.  Webase our expected long-term rate of return on plan assets on a weighted averageof our expected returns for the major asset classes in which we invest.Expected returns for the asset classes are based on long-term historicalreturns, inflation expectations, forecasted gross domestic product, earningsgrowth, and other economic factors. The weights we assign each asset class arebased on our investment strategy. The weighted-average expected return on planassets we will use in our calculation of 2007 net periodic benefit cost is7.25%.

*Rate of Compensation Increases. *This assumption reflectsour long-term actual experience, the near-term outlook, and assumed inflation.

The following table presents our assumed healthcarecost trend rates at December 31, 2006 and 2005.

 

|                                                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted average  assumptions as of December 31                                 |       |     |       |     |       |
| Healthcare cost  trend rate assumed for next year                                    |       | 6.00     | %          | 7.00     | %          |
| Rate to which  the cost trend rate is assumed to decline   (the ultimate trend rate) |       | 5.00     | %          | 5.00     | %          |
| Year that the  rate reaches the ultimate trend rate                                  |       | 2008     |       | 2008     |       |

 

Assumed healthcare cost trend rates have an effect on theamounts reported for the healthcare plans. At December 31, 2006, aone-percentage-point change in assumed healthcare cost trend rates would havethe following effects:

 

|                                               | ** ** | **One-Percentage-  Point Increase** | ** ** | **One-Percentage-  Point Decrease** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **(thousands)**                          | ** ** |
| Effect on total  of service and interest cost |       | $                                        | 34         |                                     | $          | (29 | ) |
| Effect on  postretirement benefit obligation  |       | 294                                      |       | (259                                     | )          |
|                                               |            |                                          |            |                                          |            |  |  |

 

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*Plan Assets*

Our pension plan assetallocations by asset category at December 31, 2006 and 2005, are asfollows:

|                                  | ** ** | **Plan Assets at  December 31** | ** ** |
|----------------------------------|------------|------------------------------------------------|------------|
| **Asset Category**          | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| U.S. equity securities           |       | 49                                             | %          | 52 | % |
| International equity  securities |       | 17                                             | %          | 16 | % |
| Fixed-income securities          |       | 34                                             | %          | 32 | % |
|                             | ** ** | **100**                                        | **%**      | **100** | **%** |

 

Our RetirementFunds Investment Committee is responsible for establishing and overseeing theimplementation of our investment policy. The investment policy is structured tooptimize growth of the pension plan trust assets, while minimizing the risk ofsignificant losses, in order to enable the plans to satisfy their benefitpayment obligations over time. We currently invest primarily in U.S. equitysecurities, international equity securities, and fixed income securities. Weuse benefit payments and sponsor contributions as our primary rebalancingmechanisms to maintain our asset class exposures within the guideline rangesestablished under the investment policy.

Our current guidelines setforth a U.S. equity range of 45% to 60%, an international equity range of 12.5%to 17.5%, and a fixed-income range of 25% to 40%. We adjust our assetclass positions within the ranges based on our expectations for future returns,our funded position, and market risks. Occasionally, we utilize futures orother financial instruments to alter our exposure to various asset classes in alower-cost manner than trading securities in the underlying portfolios.

*Cash Flows*

In connection with theForest Products Acquisition, OfficeMax transferred sufficient assets to fundBoise’s accumulated benefit obligation at a 6.25% discount rate, and as aresult, we were not required to make any pension plan contributions during 2006or 2005. For the years ended December 31, 2006 and 2005, and for theperiod of October 29 through December 31, 2004, we made cashcontributions and certain benefit payments to our pension and other postretirementbenefit plans totaling $20.7 million, $11.1 million, and$0.1 million. For the period of January 1 through October 28,2004, our predecessor made contributions of $66.6 million. In 2007, we arenot required to make a minimum contribution to our pension plans; however, wemay elect to make voluntary contributions.

The following benefitpayments, which reflect expected future service, as appropriate, are expectedto be paid. Qualified pension benefit payments are paid from plan assets, whilenonqualified pension and other benefit payments are paid by the company.

|                 | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------|------------|---------------------------|------------|-------------------------|------------|
| ** **      | ** ** | **(thousands)**           | ** ** |
| 2007            |       | $                         | 12,855     |                    | $          | 712 |   |
| 2008            |       | 17,033                    |       | 838                     |       |
| 2009            |       | 21,710                    |       | 720                     |       |
| 2010            |       | 26,082                    |       | 816                     |       |
| 2011            |       | 30,428                    |       | 593                     |       |
| Years 2012-2016 |       | 223,836                   |       | 2,410                   |       |
|                 |            |                           |            |                         |            |  |  |

 

***16.          Redeemable Equity Units***

*Management Equity Agreement*

In April 2006 and December 2004, key managers of Boise purchased, pursuantto the terms of a Management Equity Agreement (Equity Plan), 0.3 millionand 18.6 million equity units in FPH at $2.00 and $1.00 per unit,respectively, which was approximately equal to the estimated fair value on thedate of purchase. Those who purchased FPH’s Series B equity units in April2006 and December 2004 received

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grants of 5.3 million and 35.6 million, respectively, of FPH’sSeries C equity units (profit interests) that represent the right toparticipate in profits after capital is returned to the holders of FPH’s SeriesB equity units. FPH’s Series C equity units participate in equity valueappreciation above a specified level.In addition, in April 2006, FPH issued 2.6 million 2006 Series Cequity units of FPH to two other key managers and our four nonaffiliateddirectors for no consideration. We account for awards granted under theEquity Plan in our consolidated financial statements in accordance with SFASNo. 123(R).

FPH’s Series B and Series C equity units held by management areredeemable at FPH’s option upon termination of the management investor’semployment and at the option of the holder in the event of death or disabilityor the sale of a division resulting in the termination of his or heremployment. Our Credit Agreement limits the amount of redemptions to$3 million in any year. Except in the event of death or disability, webelieve that the redemption of these units is within our control due to theinterlocking boards of FPH and Boise and because FPH was organized solely forthe purpose of establishing Boise to acquire the forest products and paperassets of OfficeMax. Repurchases under the Equity Plan have been funded bymirror-image redemptions of B units/shares and C units/shares held byFPH in its subsidiaries. Because the redemption of FPH’s Series B andSeries C equity units and the expected parallel redemptions of ourSeries B and Series C equity units are a contingent event outside theemployee’s control and the repurchase of immature units (units for which theinvestor has not been subject to the risks and rewards of ownership for atleast six months after vesting occurs) is****not currentlydeemed probable of occurring, we account for the units using equity planaccounting in accordance with FSP No. FAS 123(R)-4, *Classification of Options and Similar Instruments Issued as EmployeeCompensation That Allow for Cash Settlement Upon the Occurrence of a ContingentEvent*. However, because FPH units are subject to mandatoryredemption in an event that is outside of our control (death or disability), weare required to classify these units outside of permanent equity on ourConsolidated Balance Sheets at grant-date fair value. Accordingly, atDecember 31, 2006, we had $23.9 million recorded in “Redeemableequity units” on our Consolidated Balance Sheet. At December 31, 2005,prior to the merger discussed in Note 3, Merger With Boise Land &Timber Holdings Corp., we recorded 55% of management’s investment in us, or$12.4 million in, “Redeemable equity units” on our Consolidated BalanceSheet, and Timber Holdings recorded 45% of the investment, or$7.8 million, in “Redeemable common stock” in their consolidated financialstatements. Under equity plan accounting, the carrying value of management’sinvestment will not be adjusted to redemption value unless payment ofredeemable amounts becomes probable. At the date it becomes probable, we adjustthe carrying value to redemption value by marking the value of the equity unitsto market, which could result in additional compensation expense.

*Vesting*

Generally, the appreciation in the valueof FPH’s Series B equity units issued under the Equity Plan and 50% of itsSeries C equity units vest 20% each year on December 31, 2005 through2009. The other 50% of the Series C equity units generally vest at the endof 2009 if specific criteria tied to internal rates of return are met. Uponeither the sale of the company as defined in the Equity Plan or an initialpublic offering, vesting is accelerated for all management investors. Otherevents may accelerate vesting for specifically affected management investors,but none of these events are within the control of the investor. The vestingschedules are shortened for those investors who were at least 60 years oldas of the grant date, so that the units fully vest by December 31 of theyear in which the investor reaches age 65 and at least two vesting periodshave been met. Vesting does not trigger a right or obligation on the part ofFPH or us to repurchase equity units held by management investors.

*Compensation Expense*

We did not recognize compensation expenseon the date of grant for the Series B equity units because the fair valueof the units issued by FPH was equal to or less than the amount each employeewas required to pay. The Series C equity units are accounted for asrestricted stock. We accrue compensation expense for the Series C equityunits based on the fair value on the date of the grant as described below.Compensation expense is recognized ratably over the vesting period for theSeries C equity units that vest over time and ratably over the awardperiod for the units that vest based on internal rates of return. During theyears ended December 31, 2006 and 2005, we recognized $3.5 millionand $2.9 million of compensation expense. Most of these costs wererecorded in “General and administrative expenses” in our ConsolidatedStatements of Income.

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*Fair Value Measurement — Series C Equity Units*

The fair value of the Series C equityunits as of the grant date was estimated by analyzing our possible futureevents, the paths to liquidity for the holders of the Series C equityunits, and how these paths may affect the valuation of the Series C equityunits. These possible future events included a sale of the company, an initialpublic offering, and remaining a private company. We estimated probabilities ofthese events occurring based on our strategies as of the grant date. A decisiontree analysis that incorporated these event outcomes and the likelihood oftheir occurrences was created. Payoffs to the holders of the Series Cequity units were constructed at each event outcome on the decision tree. Basedon this framework, a simulation analysis was run to arrive at the fair valuesof the Series C equity units.

SFAS No. 123(R) requires different valuation calculations for equitygrants that have a service condition and equity grants that have a marketcondition. The 50% of the Series C equity units that vest over time are “servicecondition” awards. Under the requirements of SFAS No. 123(R), the fairvalue of these awards is measured assuming that all conditions have been met,or as if they were fully vested on the grant date. Compensation expense isrecognized over the vesting period and adjusted if the service condition is notmet. We determined the average fair value on the date of grant of theSeries C equity units granted in 2006 and 2004 that vest over time to be approximately$0.11 and $0.46 per unit, respectively.

The 50% of Series C equity units that vest based on internal rates ofreturn are “market condition” grants under the requirements ofSFAS No. 123(R). Thestandard requires that the valuation of market condition awards considers thelikelihood that the market condition will be satisfied rather than assumingthat the award is vested on the award date. Because the internal rate of returnrepresents a more difficult threshold to meet before payout, with greater uncertaintythat the market condition will be satisfied, these awards have a lower fairvalue than those that vest based solely on the passage of time. However,compensation expense is required to be recognized under SFAS No. 123(R)for an award regardless of when, if ever, the market condition is satisfied. Wedetermined the average fair value on the date of grant of the Series Cequity units granted in 2006 and 2004 that generally vest based on internalrates of return to be approximately $0.08 and $0.24 per unit, respectively.

*Activityof Redeemable Equity Units*

The following summarizes the activity of our outstanding service and marketcondition equity units awarded under the Equity Plan as of December 31,2006 and 2005, and changes during the years then ended:

 
| ** **                                                    | ** ** | **Service Condition**                           | ** ** | **Market Condition**                                    | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **Series B Redeemable  Equity Units** | ** ** | **Series C Redeemable  Equity Units**         | ** ** |
| **Outstanding Units**                                    | ** ** | **Units**                                            | ** ** | **Weighted-  Average  Grant-Date  Fair Value (c)** | ** ** | **Units** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** | **Units** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
| ** **                                                    | ** ** | **(thousands)**                                      | ** ** | ** **                                                   | ** ** | **(thousands)** | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** |
| Outstanding at  December 31, 2004                        |       | 18,643                                               |       | $                                                            | 0.55       |   | 17,800 |   | $ | 0.46 |   | 17,800 |   | $ | 0.24 |   |
| Granted                                                       |       | —                                               |       | —                                                       |       | — |   | — |   | — |   | — |   |
| Repurchased                                                   |       | (1,346                                               | )          | 0.55                                                         |       | — |   | — |   | — |   | — |   |
| Forfeited                                                     |       | —                                               |       | —                                                       |       | (1,713 | ) | 0.46 |   | (1,713 | ) | 0.15 |   |
| Outstanding at  December 31, 2005 (a)          |       | 17,297                                               |       | 0.55                                                         |       | 16,087 |   | 0.46 |   | 16,087 |   | 0.24 |   |
|                                                          |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Granted                                                       |       | 335                                                  |       | 2.00                                                         |       | 3,950 |   | 0.11 |   | 3,950 |   | 0.08 |   |
| Repurchased                                                   |       | (524                                                 | )          | 1.00                                                         |       | (37 | ) | 0.46 |   | — |   | — |   |
| Forfeited                                                     |       | —                                               |       | —                                                       |       | (212 | ) | 0.46 |   | (249 | ) | 0.15 |   |
| Outstanding at  December 31, 2006 (a) (b) | ** ** | **17,108**                                           | ** ** | **1.02**                                                     | ** ** | **19,788** | ** ** | **0.39** | ** ** | **19,788** | ** ** | **0.21** | ** ** |
|                                                               |            |                                                      |            |                                                              |            |  |  |  |  |  |  |  |  |  |  |  |

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(a)                                  Outstanding units include both vested and nonvested units, as unitsoutstanding are only reduced through repurchase of units by us or throughforfeiture of units by employees.

(b)                                 The weighted average remaining contractual term is approximately2.5 years.

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(c)                                  In 2006, after Timber Holdings merged with andinto us (see Note 3, Merger With Boise Land & Timber HoldingsCorp.), 100% of the grant-date fair value at FPH was recorded on ourConsolidated Balance Sheet. In 2005 and 2004, theweighted-average grant-date fair value at FPH was $1.00, with 55% included inBoise and 45% included in Timber Holdings.

In the event that a management investor’s employment with us is terminated,FPH holds an option, pursuant to agreements between it and the managementinvestors, to reacquire its equity units held by departing investors at pricesprovided for in such agreements. During 2006 and 2005, FPH voluntarily redeemedthe Series B and Series C equity units of departing managementinvestors. We do not currently expect to redeem immature equity units (unitsfor which the investor has not been subject to the risks and rewards ofownership for at least six months after vesting occurs). In 2006, after TimberHoldings merged with Boise, 100% of FPH’s equity unit redemptions were fundedby redemption by Boise of an identical number of redeemable Series Bequity units or redeemable Series C equity units. Prior to the merger,redemptions were funded by redemption by Boise of an identical number ofredeemable Series B equity units or redeemable Series C equity units, asthe case may be, from FPH for a consideration equal to 55% of the amount paidby FPH to reacquire its equity units from the departing management investors. Aparallel redemption of redeemable Series B shares and redeemableSeries C shares was made by Timber Holdings to provide the balance of thefunds required by FPH for the redemption of its equity units. The redemption byTimber Holdings of its shares held by FPH was in turn funded by an advance byBoise under the intercompany note between it and Timber Corp. During 2006 and2005, Boise redeemed 523,735 and 1,346,775 redeemable Series B equityunits and 37,163 and 360 redeemable Series C equity units. The total cashpaid by Boise during 2006 and 2005, including advances made to Timber Holdings,for parallel redemptions of redeemable Series B and Series C sharesby FPH was $0.7 million and $1.4 million, consisting of$0.5 million and $0.8 million for Boise and $0.2 million and$0.6 million for Timber Holdings.

The following summarizes the activity ofour nonvested service and market condition equity units awarded under theEquity Plan as of December 31, 2006 and 2005, and changes during the yearsthen ended:

 
| ** **                                | ** ** | **Service Condition**                           | ** ** | **Market Condition**                            | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **Series B  Redeemable Equity Units** | ** ** | **Series C  Redeemable Equity Units** | ** ** |
| **Nonvested Units**                  | ** ** | **Units**                                            | ** ** | **Weighted-  Average  Grant-Date  Fair Value**  | ** ** | **Units** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** | **Units** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
| ** **                                | ** ** | **(thousands)**                                      | ** ** | ** **                                           | ** ** | **(thousands)** | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** |
| Nonvested at  December 31, 2004      |       | 18,643                                               |       | $                                                    | 0.55       |   | 17,800 |   | $ | 0.46 |   | 17,800 |   | $ | 0.24 |   |
| Granted                                   |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
| Repurchased                               |       | (1,346                                               | )          | 0.55                                                 |       | — |   | — |   | — |   | — |   |
| Vested                                    |       | (4,011                                               | )          | 0.55                                                 |       | (3,953 | ) | 0.46 |   | — |   | — |   |
| Forfeited                                 |       | —                                               |       | —                                               |       | (1,713 | ) | 0.46 |   | (1,713 | ) | 0.15 |   |
| Nonvested at  December 31, 2005 |       | 13,286                                               |       | 0.55                                                 |       | 12,134 |   | 0.46 |   | 16,087 |   | 0.24 |   |
|                                      |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Granted                                   |       | 335                                                  |       | 2.00                                                 |       | 3,950 |   | 0.11 |   | 3,950 |   | 0.08 |   |
| Repurchased                               |       | (524                                                 | )          | 1.00                                                 |       | (37 | ) | 0.46 |   | — |   | — |   |
| Vested                                    |       | (3,963                                               | )          | 1.03                                                 |       | (5,606 | ) | 0.35 |   | (56 | ) | 0.41 |   |
| Forfeited                                 |       | —                                               |       | —                                               |       | (212 | ) | 0.46 |   | (249 | ) | 0.15 |   |
| Nonvested at  December 31, 2006 | ** ** | **9,134**                                            | ** ** | **1.02**                                             | ** ** | **10,229** | ** ** | **0.38** | ** ** | **19,732** | ** ** | **0.21** | ** ** |
|                                           |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

At December 31, 2006, we had $5.8 million of total unrecognizedcompensation cost related to the nonvested Series C redeemable equityunits granted under the Equity Plan. The cost is expected to be recognizedgenerally over a weighted-average period of 2.5 years. In 2006, werecognized $3.5 million of compensation expense, of which $2.0 millionrelated to the grant-date fair value of service condition awards vested through2006 and $1.2 million related to the market condition awards thatgenerally vest on December 31, 2009. In addition, per SFASNo. 123(R), we recognized approximately $0.3 million of compensationexpense related to nonrefundable tax distributions paid to management investorsin connection with their investment in us that we estimate will not vest.

 

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***17.******                              ******Capital***

Excluding theSeries B and Series C redeemable equity units included in “Redeemableequity units” on our Consolidated Balance Sheets at December 31, 2006 and 2005,Boise was capitalized with $814.9 million and $465.0 million ofequity capital allocated among three series of equity units as follows:

| Equity Units | ** ** | **Units Outstanding** | ** ** | **Amount**      | ** ** |
|-------------------|------------|----------------------------|------------|-----------------|------------|
| ** **        | ** ** | **2006**                   | ** ** | **2005**        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **        | ** ** | ** **                 | ** ** | **(thousands)** | ** ** | ** ** | ** ** |
| Series A          |       | 66,000                     |       | 66,000          |       | $ | 78,290 |   | $ | 39,885 |   |
| Series B          |       | 530,357                    |       | 530,357         |       | 724,988 |   | 417,601 |   |
| Series C          |       | —                     |       | —          |       | 11,655 |   | 7,535 |   |
|                   |            |                            |            |                 |            |  |  |  |  |  |  |

 

At December 31, 2006 and 2005, OfficeMax ownedall of the Series A equity units. FPH and OfficeMax owned 421 millionand 109 million Series B equity units at December 31, 2006,reflecting $576 million and $149 million of equity, respectively. FPHand OfficeMax owned 421 million and 109 million Series B equityunits at December 31, 2005, reflecting $335 million and$83 million of equity, respectively. The increase in the value of theSeries A and Series B equity units in 2006, relative to 2005, was dueprimarily to FPH and OfficeMax using the related-party loan repayment proceedsto make an additional equity investment in us. See Note 3, Merger WithBoise Land & Timber Holdings Corp. for more information.

The Series C equity units were issued to FPHwithout additional capital contributions, pursuant to the provisions of theEquity Plan discussed in Note 16, Redeemable Equity Units. The profitinterest allocated to the Series C equity units is reflected in thetable above. The holders of the equity units, or the members of the limitedliability company, are not liable for any of the obligations of the company.

*Series AEquity Units. *TheSeries A equity units have no voting rights. They accrue dividends dailyat a rate of 8% per annum on the holder’s capital contributions and accumulateddividends (net of any distributions previously received by such holder).Accrued and unpaid dividends accumulate on the Series A equity units onJune 30 and December 31 of each year. At December 31, 2006 and2005, $7.2 million and $3.5 million, respectively, of dividends wereaccrued on our Consolidated Balance Sheets as an increase in the value of theSeries A equity units. Series A equity units participate in distributionsas described below. Other than through accrual and receipt of dividends, theSeries A equity units do not participate in the earnings of the company.

*Series BEquity Units. *The Series B equity units entitleeach holder to one vote on matters to be voted on by the members of Boise. TheSeries B equity units participate in distributions as described below.

*Series CEquity Units*.  TheSeries C equity units have no voting rights. Series C equity unitswere issued to FPH in 2004 (the 2004 Series C units) and 2006 (the 2006 SeriesC units) without capital contributions in accordance with the arrangementsdescribed in Note 16, Redeemable Equity Units. The 2004 Series C unitshave no right to participate in earnings of the company until distributions tothe holders of the Series A equity units equal the original capitalinvested in such units plus accumulated and accrued dividends and distributionsto the holders of Series B equity units equal the amount originallyinvested in them. The 2006 Series C units have no right to participate in theearnings of the company until the total amount distributed to Series B units isequal to or greater than $2.00 per unit. When the relevant threshold fordistributions to Series C units has been met, they participate as outlinedbelow. Accordingly, $4.1 million, $7.5 million, and zero income ofthe company for the years ended December 31, 2006 and 2005, and the periodof October 29 (inception) through December 31, 2004, were allocatedto the Series C equity units.

*Distributions*.  The allocation of distributions (liquidatingand otherwise) among the three series of equity units is made as follows:  first to Series A equity unit andSeries B equity unit holders ratably, based on the number of units outstanding,until each has received distributions in an amount equal to his or her capitalcontributions (plus, in the case of Series A equity units, accumulateddividends and accrued and unpaid dividends) and then to Series B equityunit and 2004 Series C equity unit holders ratably, based on the number ofunits of each series outstanding (exclusive of 2006 Series C units) untiltotal

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distributions to theSeries B holders have reached $2.00 per unit then outstanding. Thereafter,assets available for distribution are distributed ratably to all Series Band Series C unit holders in proportion to their respective holdings ofsuch units.

In addition, Boise’sOperating Agreement provides for tax distributions to be made annually (orquarterly at the discretion of the board of directors) to the holders of its equityunits of all classes in an amount equal to the estimated combined federal andstate income taxes incurred by such holders on their allocable share of thetaxable income of Boise for such period (see Note 8, Income Taxes). Taxdistributions are not considered in determining the allocation of otherdistributions.

*Accumulated Other Comprehensive Income (Loss)*

Accumulated othercomprehensive income (loss) includes the following:
| ** **                                       | ** ** | ** **       | ** ** | **Minimum**               | ** ** | **Unfunded Accumulated** | ** ** | **Accumulated**                       | ** ** |
|--------------------------------------------------|------------|------------------|------------|---------------------------|------------|-------------------------------|------------|---------------------------------------|------------|
| ** **                                       | ** ** | **Cash**         | ** ** | **Pension**               | ** ** | **Benefit Obligation**   | ** ** | **Other**                             | ** ** |
| ** **                                       | ** ** | **Flow  Hedges** | ** ** | **Liability  Adjustment** | ** ** | **Actuarial  Gain (a)**  | ** ** | **Prior Service  Cost (a)** | ** ** | **Comprehensive  Income** | ** ** |
| ** **                                       | ** ** | ** **       | ** ** | **(thousands)**           | ** ** | ** **                    | ** ** |
| Balance at  December 31, 2005, net of taxes |       | $                | 13,530     |                      | $          | (58                           | )          | $                                     | —     |   | $ | — |   | $ | 13,472 |   |
| Current-period  changes, before taxes            |       | (21,944          | )          | 58                        |       | 43,890                        |       | (6,627                                | )          | 15,377 |   |
| Reclassifications  to earnings, before taxes     |       | 10,793           |       | —                    |       | —                        |       | —                                |       | 10,793 |   |
|                                             |       | 2,379            |       | —                    |       | 43,890                        |       | (6,627                                | )          | 39,642 |   |
| Income taxes                                     |       | 824              |       | —                    |       | —                        |       | —                                |       | 824 |   |
|                                             |       |             |       |                      |       |                          |       |                                  |       |   |   |
| Balance at  December 31, 2006, net of taxes | ** ** | **$**            | **3,203**  | ** **                | **$**      | **—**                    | ** ** | **$**                                 | **43,890** | ** ** | **$** | **(6,627** | **)** | **$** | **40,466** | ** ** |

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(a)                                  For all of our qualified pension plans, theactuarial gain recorded as “Unfunded accumulated benefit obligation” in ourConsolidated Statement of Capital is within the gain/loss corridor (is lessthan 10% of the projected benefit obligation and 10% of the market-relatedvalue of plan assets). As a result, we will not amortize the amounts as areduction of pension expense in 2007 for those plans. We will, however,recognize $0.5 million of the actuarial loss related to our nonqualifiedplans and $0.7 million of prior service cost related to our qualified andnonqualified plans as an increase in 2007 pension expense.

*Securityholders Agreement*

In connection with the Forest Products Acquisition, we entered into aSecurityholders Agreement with OfficeMax. This agreement describes the rightsand responsibilities regarding OfficeMax’s equity ownership in Boise CascadeHoldings, L.L.C. Specifically, under the agreement, OfficeMax has the right toappoint one director to our board of directors. The agreement also requiresthat OfficeMax obtain our consent before transferring its equity interest inour company. The agreement grants “tag-along” rights, which entitle OfficeMaxto participate in sales of equity interests to third parties. In addition, theagreement grants “drag-along” rights, which entitle OfficeMax to require theother equity holders to participate in sales of all or substantially all of theequity interests in our company. If we propose to issue additional equitysecurities, we will generally be required to offer OfficeMax a pro rata portionof the securities issued in such a transaction. The agreement will terminate ina liquidation or dissolution of the company, in an initial public offering, orin a sale of all or substantially all of the company’s stock or assets.

*RegistrationRights Agreement*

Inconnection with the Forest Products Acquisition, we entered into a RegistrationRights Agreement with FPH and OfficeMax with respect to the equity intereststhey own in us. Under the Registration Rights Agreement, (i) FPH has theright to demand that we effect an unlimited number of registrations of itsequity interests, whether pursuant to a long-form registration statement or ashort-form registration and pay all expenses, other than underwriting discountsand commissions, related to such registrations and (ii) after the earlierof the fifth anniversary of the completion of the Forest Products Acquisitionor completion of an initial public offering by us, OfficeMax has the right todemand that we effect (a) seven registrations of its equity interests on along-form registration statement and pay all

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expenses, otherthan underwriting discounts and commissions, related to any two of suchregistrations (with OfficeMax paying all expenses relating to the other five ofsuch registrations) and (b) an unlimited number of registrations of itsequity interests on a short-form registration statement and pay all expenses,other than underwriting discounts and commissions, related to suchregistrations. In addition, FPH and OfficeMax have the right to participate inregistrations of our equity interests effected by us, whether suchregistrations relate to an offering by us or by our stockholders. FPH andOfficeMax have agreed not to effect any public sale or private placement of anyof our equity interests during the period beginning seven days prior to andending 180 days after the effective date of the registration statement forany underwritten public offering of our equity interests in which FPH orOfficeMax participate.

*Predecessor Period*

During the predecessorperiod presented, stock compensation was granted to our employees underOfficeMax’s stock compensation plans. Depending on the award, stockcompensation awards were exercisable one year to three years after the grantdate. Boise Forest Products Operations recognized compensation expense over thevesting period based on closing stock prices on the dates of grant. For theperiod of January 1 through October 28, 2004, they recognized$14.6 million of pretax compensation expense. Compensation expense wascalculated based on shares of restricted stock granted to employees of BoiseForest Products Operations plus an allocation of expense related to restrictedstock granted to corporate employees that serviced all business units. Theallocation was based on average sales, assets, and labor costs. Managementbelieves these allocations are reasonable. However, they are not necessarilyindicative of costs to be incurred in the future.

***18.******                              ******Segment Information***

Weoperate our business in the following five reportable segments:  Building Materials Distribution, WoodProducts, Paper, Packaging & Newsprint, and Corporate and Other. Thesesegments represent distinct businesses that are managed separately because ofdiffering products and services. Each of these businesses requires distinctoperating and marketing strategies. Management reviews the performance of thecompany based on these segments. Historically, OfficeMax conducted Boise ForestProducts Operations in three segments: Boise Building Solutions, Boise Paper Solutions, and Corporate andOther. We have recast the financial statements of our predecessor includedherein to conform with our current segment presentation. OfficeMax historicallyallocated the results of its timberland operations to each of its BoiseBuilding Solutions and Boise Paper Solutions segments. Since we did not acquirethe timberland operations from OfficeMax, they are not included in thesefinancial statements.

Our BuildingMaterials Distribution segment is a leading national inventory-carryingwholesale distributor of building materials. We distribute a broad line ofbuilding materials, including engineered wood products (EWP), oriented strandboard (OSB), plywood, lumber, and general line items such as framingaccessories, composite decking, roofing, siding, and insulation. We purchasemost of these building materials from third-party suppliers and market themprimarily to customers that resell building materials to professional buildersin the residential, light commercial construction, and repair-and-remodelingmarkets.

OurWood Products segment manufactures and sells EWP, consisting of laminatedveneer lumber (LVL), a high-strength engineered lumber often used in beams; I-joists,a structural support typically used in floors and roofs; and laminated beams.We also produce plywood, particleboard, dimension lumber, and high-qualityponderosa pine lumber, a premium lumber grade sold primarily to manufacturersof specialty wood windows, moldings, and doors. Our wood products are used innew residential and light commercial construction and in residential repair andremodeling. Most of these products are sold to wholesalers, major retailers,and industrial converters or through our own wholesale building materialsdistribution outlets. During 2006, approximately 43% of the wood products wemanufactured, including approximately 60% of our EWP, were sold to our BuildingMaterials Distribution segment.

Our Paper segment manufactures and sells uncoated freesheet (including cut-size office papers, commercial printing paper, envelopepapers, and a wide range of value-added papers), market pulp, andcontainerboard (corrugating medium). Many of our paper products are commodity products,while others have specialized features that make these products value-added.Our value-added grades include high-bright and colored cut-size office papersand custom-developed specialty papers for such uses as label

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and release. We sell to customers both directly fromour mills and through distribution centers. In 2006, approximately 45% of ouruncoated free sheet sales volume, including about 80% of our office paperssales volume, was sold to OfficeMax.

Our Packaging & Newsprint segment manufactures and sellscontainerboard (linerboard) and newsprint at our mill in DeRidder, Louisiana.We also operate five corrugated container plants in the Northwest and a sheetfeeder plant in Waco, Texas, which we acquired in February 2006. Our corrugatedcontainers are used in the packaging of fresh fruit and vegetables, processedfood, beverages, and other industrial and consumer products. Our Waco plant,known as Central Texas Corrugated, or CTC, produces corrugated sheets that aresold to sheet plants in the region, where they are converted into corrugatedcontainers for a variety of customers. Our containerboard and corrugatedproducts are sold by brokers or our own sales personnel. We market ournewsprint through Abitibi-Consolidated (Abitibi) pursuant to an arrangementwhereby Abitibi purchases all of the newsprint we produce at a price equal tothe price at which Abitibi sells newsprint produced at its mills located in thesouthern United States, less associated expenses and a sales and marketingdiscount. The newsprint price is verified through a third-party review.

OurCorporate and Other segment includes corporate support staff services, relatedassets and liabilities, and foreign exchange gains and losses.

Thesegments’ profits and losses are measured on operating profits before change infair value of interest rate swaps, interest expense, interest income, andcumulative effect of accounting change. Specified expenses are allocated to thesegments. For many of these allocated expenses, the related assets andliabilities remain in the Corporate and Other segment.

Thesegments follow the accounting principles described in Note 1, Summary ofSignificant Accounting Policies.

Salesto OfficeMax were $575.9 million and $562.3 million in 2006 and 2005,representing 10% of total sales in both periods. For the period ofOctober 29 through December 31, 2004, sales to OfficeMax represented11% of total sales. In the predecessor period, sales to OfficeMax were justover 9% of total sales. No other single customer accounted for 10% or more ofconsolidated trade sales. Export sales to foreign unaffiliated customers were$199.3 million, $217.3 million, and $30.7 million for the yearsended December 31, 2006 and 2005, and the period of October 29through December 31, 2004, respectively. For the period of January 1through October 28, 2004, our predecessor’s export sales were $104.0million.

OurWood Products segment has a small wood I-joist plant in Canada and a veneerplant in Brazil. Our predecessor had a 47% interest in an oriented strand boardplant in Canada, which it sold in May 2004 and which it accounted for under theequity method.

The followingtable summarizes the origin of our net sales and details our long-lived assetsby geography:
| ** **         | ** ** | **Boise**                                 | ** **  | **Predecessor**       | ** ** |
|--------------------|------------|-------------------------------------------|-------------|-----------------------|------------|
| ** **         | ** ** | ** **                                | ** **  | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **         | ** ** | ** **                                | ** **  | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **         | ** ** | ** **                                | ** **  | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **         | ** ** | **Year Ended December 31** | ** **  | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **         | ** ** | **2006**                                  | ** **  | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **         | ** ** | ** **                                | ** **  | **(millions)**        | ** ** | ** ** | ** ** |
| Net sales          |       |                                      |        |                  |       |   |   |   |   |
| United States      |       | $                                         | 5,680.8     |                  | $          | 5,848.0 |   | $ | 866.4 |   | $ | 4,829.7 |   |
| Foreign            |       | 99.1                                      |        | 59.4                  |       | 6.3 |   | 32.3 |   |
| ** **         | ** ** | **$**                                     | **5,779.9** | ** **            | **$**      | **5,907.4** | ** ** | **$** | **872.7** | ** ** | **$** | **4,862.0** | ** ** |
|               |       |                                      |        |                  |       |   |   |   |   |
| Long-lived  assets |       |                                      |        |                  |       |   |   |   |   |
| United States      |       | $                                         | 1,573.8     |                  | $          | 1,630.8 |   | $ | 1,778.0 |   | $ | 2,167.4 |   |
| Foreign            |       | 48.2                                      |        | 47.4                  |       | 42.3 |   | 48.1 |   |
|               | ** ** | **$**                                     | **1,622.0** | ** **            | **$**      | **1,678.2** | ** ** | **$** | **1,820.3** | ** ** | **$** | **2,215.5** | ** ** |

 

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Segment sales to external customers by product lineare as follows:
| ** **                       | ** ** | **Boise**                                 | ** **  | **Predecessor**       | ** ** |
|----------------------------------|------------|-------------------------------------------|-------------|-----------------------|------------|
| ** **                       | ** ** | ** **                                | ** **  | ** **            | ** ** | **October 29** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** **                                | ** **  | ** **            | ** ** | **(inception)** | ** ** | **January 1** | ** ** |
| ** **                       | ** ** | ** **                                | ** **  | ** **            | ** ** | **through** | ** ** | **through** | ** ** |
| ** **                       | ** ** | **Year Ended December 31** | ** **  | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                       | ** ** | **2006**                                  | ** **  | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                       | ** ** | ** **                                | ** **  | **(millions)**        | ** ** | ** ** | ** ** |
| Building  Materials Distribution |       |                                      |        |                  |       |   |   |   |   |
| Structural panels                |       | $                                         | 470.1       |                  | $          | 674.9 |   | $ | 88.9 |   | $ | 655.0 |   |
| Engineered wood products         |       | 461.0                                     |        | 483.7                 |       | 61.5 |   | 318.6 |   |
| Lumber                           |       | 726.4                                     |        | 804.7                 |       | 117.3 |   | 727.3 |   |
| Particleboard                    |       | 26.1                                      |        | 21.2                  |       | 3.4 |   | 16.7 |   |
| Building supplies and other      |       | 1,266.5                                   |        | 1,067.0               |       | 130.5 |   | 724.8 |   |
| ** **                       |       | 2,950.1                                   |        | 3,051.5               |       | 401.6 |   | 2,442.4 |   |
|                             |       |                                      |        |                  |       |   |   |   |   |
| Wood Products                    |       |                                      |        |                  |       |   |   |   |   |
| Plywood and veneer               |       | 282.8                                     |        | 364.9                 |       | 62.0 |   | 387.4 |   |
| Engineered wood products         |       | 222.8                                     |        | 237.0                 |       | 28.9 |   | 168.4 |   |
| Lumber                           |       | 111.8                                     |        | 126.0                 |       | 24.1 |   | 132.2 |   |
| Particleboard                    |       | 51.4                                      |        | 44.3                  |       | 5.7 |   | 42.1 |   |
| Building supplies and other      |       | 17.7                                      |        | 34.8                  |       | 10.1 |   | 60.1 |   |
| ** **                       |       | 686.5                                     |        | 807.0                 |       | 130.8 |   | 790.2 |   |
|                             |       |                                      |        |                  |       |   |   |   |   |
| Paper                            |       |                                      |        |                  |       |   |   |   |   |
| Uncoated free sheet              |       | 1,319.9                                   |        | 1,151.8               |       | 195.1 |   | 972.4 |   |
| Containerboard (medium)          |       | 0.7                                       |        | 10.1                  |       | 1.3 |   | 8.4 |   |
| Market pulp and other            |       | 118.5                                     |        | 213.2                 |       | 22.7 |   | 113.6 |   |
| ** **                       |       | 1,439.1                                   |        | 1,375.1               |       | 219.1 |   | 1,094.4 |   |
|                             |       |                                      |        |                  |       |   |   |   |   |
| Packaging &  Newsprint       |       |                                      |        |                  |       |   |   |   |   |
| Containerboard (linerboard)      |       | 449.7                                     |        | 430.0                 |       | 75.9 |   | 339.9 |   |
| Newsprint                        |       | 230.4                                     |        | 210.1                 |       | 38.6 |   | 158.2 |   |
| Other                            |       | 9.4                                       |        | 10.3                  |       | 1.5 |   | 10.7 |   |
|                             |       | 689.5                                     |        | 650.4                 |       | 116.0 |   | 508.8 |   |
|                             |       |                                      |        |                  |       |   |   |   |   |
| Corporate and  Other             |       | 14.7                                      |        | 23.4                  |       | 5.2 |   | 26.2 |   |
| ** **                       | ** ** | **$**                                     | **5,779.9** | ** **            | **$**      | **5,907.4** | ** ** | **$** | **872.7** | ** ** | **$** | **4,862.0** | ** ** |

 

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An analysis of our operations by segment is as follows:
| ** **                             | ** ** | **Boise**      | ** **  |
|----------------------------------------|------------|----------------|-------------|
| ** **                             | ** ** | **Sales**      | ** **  | **Income** | ** ** | **Depre-  ciation,  Amorti-** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Trade**      | ** **  | **Related  Parties** | ** ** | **Inter-  segment** | ** ** | **Total** | ** ** | **(Loss)  Before  Taxes** | ** ** | **zation,  and  Depletion** | ** ** | **EBITDA  (i)** | ** ** | **Capital  Expendi-  tures** | ** ** | **Assets** | ** ** |
| ** **                             | ** ** | **(millions)** | ** **  |
| **Year Ended  December 31, 2006** | ** ** | ** **     | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Building Materials  Distribution       |       | $              | 2,950.1     |   | $ | — |   | $ | 0.2 |   | $ | 2,950.3 |   | $ | 75.3 |   | $ | 9.2 |   | $ | 84.6 |   | $ | 10.5 |   | $ | 395.2 |   |
| Wood Products                          |       | 686.5          |        | — |   | 469.4 |   | 1,155.9 |   | 37.2 |   | 27.6 |   | 64.9 |   | 30.7 |   | 466.5 |   |
| Paper                                  |       | 863.7          |        | 575.4 |   | 55.6 |   | 1,494.7 |   | 63.1 |   | 62.3 |   | 125.4 |   | 85.5 |   | 1,192.8 |   |
| Packaging &  Newsprint        |       | 689.0          |        | 0.5 |   | 77.0 |   | 766.5 | (a) | 45.3 |   | 50.8 |   | 96.1 |   | 66.1 | (c) | 578.9 |   |
| Corporate and Other                    |       | 14.7           |        | — |   | 46.0 |   | 60.7 |   | (37.1 | )(b) | 5.4 |   | (31.9 | )(b) | 3.3 |   | 171.7 |   |
|                                   |       | 5,204.0        |        | 575.9 |   | 648.2 |   | 6,428.1 |   | 183.8 |   | 155.3 |   | 339.1 |   | 196.1 |   | 2,805.1 |   |
| Intersegment  eliminations             |       | —         |        | — |   | (648.2 | ) | (648.2 | ) | — |   | — |   | — |   | — |   | (99.9 | ) |
| Interest expense                       |       | —         |        | — |   | — |   | — |   | (112.4 | ) | — |   | — |   | — |   | — |   |
| Interest income                        |       | —         |        | — |   | — |   | — |   | 3.8 |   | — |   | — |   | — |   | — |   |
| ** **                             | ** ** | **$**          | **5,204.0** | ** ** | **$** | **575.9** | ** ** | **$** | **—** | ** ** | **$** | **5,779.9** | ** ** | **$** | **75.2** | ** ** | **$** | **155.3** | ** ** | **$** | **339.1** | ** ** | **$** | **196.1** | ** ** | **$** | **2,705.2** | ** ** |

 
| **Year Ended  December 31, 2005**       | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|-------------|------------|------------|------------|------------|------------|------------|------------|------------|-------------|------------|------------|------------|------------|------------|------------|------------|
| Building Materials  Distribution             |       | $          | 3,051.5     |       | $          | —     |       | $          | 0.8        |       | $          | 3,052.3     |       | $          | 99.9       |       | $          | 9.1        |       | $ | 109.0 |   | $ | 11.7 |   | $ | 433.8 |   |
| Wood Products                                |       | 807.0      |        | —     |       | 487.4      |       | 1,294.4    |       | 119.4      |       | 23.0        |       | 142.4      |       | 50.1       |       | 499.0      |       |
| Paper                                        |       | 812.8      |        | 562.3      |       | 42.7       |       | 1,417.8    |       | 58.6       |       | 54.0        |       | 112.6      |       | 80.3       |       | 1,149.8    |       |
| Packaging &  Newsprint              |       | 650.4      |        | —     |       | 81.2       |       | 731.6      |       | 23.8       |       | 37.2        |       | 61.0       |       | 19.5       |       | 544.3      |       |
| Corporate and Other                          |       | 23.4       |        | —     |       | 46.6       |       | 70.0       |       | (29.4      | )(d)       | 5.5         |       | (23.8      | )(d)       | 8.7        |       | 338.8      |       |
|                                         |       | 5,345.1    |        | 562.3      |       | 658.7      |       | 6,566.1    |       | 272.3      |       | 128.8       |       | 401.2      |       | 170.3      |       | 2,965.7    |       |
| Intersegment  eliminations                   |       | —     |        | —     |       | (658.7     | )          | (658.7     | )          | —     |       | —      |       | —     |       | —     |       | (152.0     | )          |
| Change in fair value of  interest rate swaps |       | —     |        | —     |       | —     |       | —     |       | 9.9        | (e)        | —      |       | —     |       | —     |       | —     |       |
| Interest expense                             |       | —     |        | —     |       | —     |       | —     |       | (166.3     | )(f)       | —      |       | —     |       | —     |       | —     |       |
| Interest income                              |       | —     |        | —     |       | —     |       | —     |       | 3.4        |       | —      |       | —     |       | —     |       | —     |       |
| ** **                                   | ** ** | **$**      | **5,345.1** | ** ** | **$**      | **562.3**  | ** ** | **$**      | **—** | ** ** | **$**      | **5,907.4** | ** ** | **$**      | **119.3**  | ** ** | **$**      | **128.8**  | ** ** | **$** | **401.2** | ** ** | **$** | **170.3** | ** ** | **$** | **2,813.7** | ** ** |

 

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| ** **                                                 | ** ** | **Boise**      | ** ** |
|------------------------------------------------------------|------------|----------------|------------|
| ** **                                                 | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Depre-** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Income** | ** ** | **ciation,** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Loss)** | ** ** | **Amorti-** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **Sales**      | ** ** | **Before** | ** ** | **zation,** | ** ** | ** ** | ** ** | **Capital** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | ** **     | ** ** | **Related** | ** ** | **Inter-** | ** ** | ** ** | ** ** | **Taxes** | ** ** | **and** | ** ** | **EBITDA** | ** ** | **Expendi-** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **Trade**      | ** ** | **Parties** | ** ** | **segment** | ** ** | **Total** | ** ** | **(g)** | ** ** | **Depletion** | ** ** | **(g) (i)** | ** ** | **tures** | ** ** | **Assets** | ** ** |
| ** **                                                 | ** ** | **(millions)** | ** ** |
| **October 29 (inception) through  December 31, 2004** | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Building Materials  Distribution                           |       | $              | 401.6      |   | $ | — |   | $ | 0.1 |   | $ | 401.7 |   | $ | 10.1 |   | $ | 1.5 |   | $ | 11.6 |   | $ | 1.1 |   | $ | 396.6 |   |
| Wood Products                                              |       | 130.8          |       | — |   | 69.3 |   | 200.1 |   | 15.6 |   | 3.3 |   | 18.9 |   | 7.6 |   | 456.9 |   |
| Paper                                                      |       | 126.4          |       | 92.7 |   | 11.0 |   | 230.1 |   | 19.0 |   | 8.3 |   | 27.3 |   | 16.5 |   | 1,079.2 |   |
| Packaging &  Newsprint                            |       | 116.0          |       | — |   | 12.9 |   | 128.9 |   | 7.3 |   | 6.0 |   | 13.3 |   | 2.8 |   | 550.1 |   |
| Corporate and Other                                        |       | 5.2            |       | — |   | 7.9 |   | 13.1 |   | (6.8 | ) | 0.9 |   | (5.9 | ) | 0.9 |   | 615.0 |   |
| Acquisition of forest products  and paper businesses       |       | —         |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,196.5 |   | — |   |
| Loan to related party                                      |       | —         |       | — |   | — |   | — |   | — |   | — |   | — |   | 157.5 |   | — |   |
|                                                       |       | 780.0          |       | 92.7 |   | 101.2 |   | 973.9 |   | 45.2 |   | 20.0 |   | 65.2 |   | 2,382.9 |   | 3,097.8 |   |
| Intersegment  eliminations                                 |       | —         |       | — |   | (101.2 | ) | (101.2 | ) | — |   | — |   | — |   | — |   | (165.7 | ) |
| Interest expense                                           |       | —         |       | — |   | — |   | — |   | (22.2 | ) | — |   | — |   | — |   | — |   |
| Interest income                                            |       | —         |       | — |   | — |   | — |   | 2.0 |   | — |   | — |   | — |   | — |   |
| ** **                                                 | ** ** | **$**          | **780.0**  | ** ** | **$** | **92.7** | ** ** | **$** | **—** | ** ** | **$** | **872.7** | ** ** | **$** | **25.0** | ** ** | **$** | **20.0** | ** ** | **$** | **65.2** | ** ** | **$** | **2,382.9** | ** ** | **$** | **2,932.1** | ** ** |

 

 
| ** **                                             | ** ** | **Predecessor** | ** **  |
|--------------------------------------------------------|------------|-----------------|-------------|
| ** **                                             | ** ** | **Sales**       | ** **  | **Income (Loss)**

**Before**

**Taxes**

**(h)** | ** ** | **Depre-**

**ciation,**

**Amorti-**

**zation,**

**and**

**Depletion** | ** ** | **EBITDA**

**(h) (i)** | ** ** | **Equity**

**in Net**

**Income**

**of**

**Affiliates** | ** ** | **Capital**

**Expendi-**

**tures** | ** ** | **Assets** | ** ** |
| ** **                                             | ** ** |
| ** **                                             | ** ** |
| ** **                                             | ** ** |
| ** **                                             | ** ** | **Trade**       | ** **  | **Related Parties** | ** ** | **Inter-**

**segment** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** |
| ** **                                             | ** ** | **(millions)**  | ** **  |
| **January 1 through  October 28, 2004** | ** ** | ** **      | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Building Materials  Distribution                       |       | $               | 2,442.4     |   | $ | — |   | $ | — |   | $ | 2,442.4 |   | $ | 78.8 |   | $ | 6.1 |   | $ | 84.9 |   | $ | — |   | $ | 9.8 |   | $ | 442.9 |   |
| Wood Products                                          |       | 787.7           |        | 2.5 |   | 369.7 |   | 1,159.9 |   | 203.0 |   | 23.5 |   | 226.5 |   | 6.3 |   | 41.3 |   | 437.9 |   |
| Paper                                                  |       | 652.4           |        | 442.0 |   | 46.0 |   | 1,140.4 |   | (35.4 | ) | 118.5 |   | 83.1 |   | — |   | 56.2 |   | 1,767.1 |   |
| Packaging &  Newsprint                        |       | 508.7           |        | 0.1 |   | 56.8 |   | 565.6 |   | (1.2 | ) | 34.7 |   | 33.5 |   | — |   | 27.1 |   | 549.6 |   |
| Corporate and Other                                    |       | 26.2            |        | — |   | 51.2 |   | 77.4 |   | (56.8 | ) | 11.0 |   | (45.8 | ) | — |   | 5.8 |   | 375.7 |   |
|                                                   |       | 4,417.4         |        | 444.6 |   | 523.7 |   | 5,385.7 |   | 188.4 |   | 193.8 |   | 382.2 |   | 6.3 |   | 140.2 |   | 3,573.2 |   |
| Intersegment  eliminations                             |       | —          |        | — |   | (523.7 | ) | (523.7 | ) | — |   | — |   | — |   | — |   | — |   | (207.7 | ) |
| Interest expense                                       |       | —          |        | — |   | — |   | — |   | (72.1 | ) | — |   | — |   | — |   | — |   | — |   |
| Interest income                                        |       | —          |        | — |   | — |   | — |   | 0.5 |   | — |   | — |   | — |   | — |   | — |   |
| ** **                                             | ** ** | **$**           | **4,417.4** | ** ** | **$** | **444.6** | ** ** | **$** | **—** | ** ** | **$** | **4,862.0** | ** ** | **$** | **116.8** | ** ** | **$** | **193.8** | ** ** | **$** | **382.2** | ** ** | **$** | **6.3** | ** ** | **$** | **140.2** | ** ** | **$** | **3,365.5** | ** ** |

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(a)                                  Includes the impact of adopting EITF 04-13effective January 1, 2006, which required us to report our inventorybuy/sell transactions with the same counterparty on a net basis. SeeNote 1, Summary of Significant Accounting Policies.

(b)                                 Includes a $3.7 million gain for changesin our retiree healthcare programs.

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(c)                                  Includes $42.6 million of cash paid for the purchaseof CTC’s assets in Waco, Texas.

(d)                                 Includes a $9.9 million gain for changes in ourretiree healthcare programs. For more information about the changes to ourretiree healthcare programs, see Note 15, Retirement and Benefit Plans.

(e)                                 Includes a net $9.9 million gain for thechange in the fair value of interest rate swaps related to our amended andrestated senior credit facilities.

(f)                                   Includes the write-off of $43.0 millionof deferred financing costs resulting from the repayment of the Tranche Bterm loan.

(g)                                 As a result of purchase price accounting, wewrote up the value of our inventory, which increased the costs and expensesrecognized by us upon the sale of the inventory by $20.2 million for theperiod of October 29 (inception) through December 31, 2004.

(h)                                 Income (loss) before taxes and EBITDA for theperiod of January 1 through October 28, 2004, include the followingitems: (i) $7.1 million of costs incurred in connection with the February2004 sale of our predecessor’s Yakima, Washington, plywood and lumberoperations; (ii) a $46.5 million pretax gain for the sale of ourpredecessor’s 47% interest inVoyageur Panel in May 2004; (iii) $12.7 million of expense primarily for aone-time retention bonus OfficeMax granted to our employees; and (iv) $14.6million of noncash restricted stock expenses.

(i)                                     EBITDA represents income (loss) beforeinterest (interest expense, interest income, and change in fair value ofinterest rate swaps), income tax provision (benefit), and depreciation,amortization, and depletion. EBITDA is the primary measure used by our chiefoperating decision makers to evaluate segment operating performance and todecide how to allocate resources to segments. We believe EBITDA is useful toinvestors because it provides a means to evaluate the operating performance ofour segments and our company on an ongoing basis using criteria that are usedby our internal decision makers and because it is frequently used by investorsand other interested parties in the evaluation of companies with substantialfinancial leverage. We believe EBITDA is a meaningful measure because itpresents a transparent view of our recurring operating performance and allowsmanagement to readily view operating trends, perform analytical comparisons,and identify strategies to improve operating performance. For example, webelieve that the inclusion of items such as taxes, interest expense, andinterest income distorts management’s ability to assess and view the coreoperating trends in our segments. EBITDA, however, is not a measure of ourliquidity or financial performance under GAAP and should not be considered asan alternative to net income (loss), income (loss) from operations, or anyother performance measure derived in accordance with GAAP or as an alternativeto cash flow from operating activities as a measure of our liquidity. The useof EBITDA instead of net income (loss) or segment income (loss) has limitationsas an analytical tool, including the inability to determine profitability; theexclusion of interest expense, interest income, change in the fair value ofinterest rate swaps, and associated significant cash requirements; and theexclusion of depreciation, amortization, and depletion, which representsignificant and unavoidable operating costs, given the level of ourindebtedness and the capital expenditures needed to maintain our businesses.Management compensates for these limitations by relying on our GAAP results.Our measures of EBITDA are not necessarily comparable to other similarly titledcaptions of other companies due to potential inconsistencies in the methods ofcalculation.

The following is a reconciliation of net income toEBITDA:
| ** **                                   | ** ** | **Boise**                                 | ** ** | **Predecessor**       | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | ** **                                | ** ** | **October 29**   | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | ** **                                | ** ** | **(inception)**       | ** ** | **January 1** | ** ** |
| ** **                                   | ** ** | ** **                                | ** ** | **through**           | ** ** | **through** | ** ** |
| ** **                                   | ** ** | **Year Ended December 31** | ** ** | **December 31,** | ** ** | **October 28,** | ** ** |
| ** **                                   | ** ** | **2006**                                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2004** | ** ** |
| ** **                                   | ** ** | **(millions)**                            | ** ** |
| Net income                                   |       | $                                         | 71.6       |                  | $          | 121.4 |   | $ | 24.7 |   | $ | 69.5 |   |
| Change in fair  value of interest rate swaps |       | —                                    |       | (9.9                  | )          | — |   | — |   |
| Interest expense                             |       | 112.4                                     |       | 166.3                 |       | 22.2 |   | 72.1 |   |
| Interest income                              |       | (3.8                                      | )          | (3.4                  | )          | (2.0 | ) | (0.5 | ) |
| Income tax  provision (benefit)              |       | 3.6                                       |       | (2.1                  | )          | 0.3 |   | 47.3 |   |
| Depreciation,  amortization, and depletion   |       | 155.3                                     |       | 128.8                 |       | 20.0 |   | 193.8 |   |
| EBITDA                                       | ** ** | **$**                                     | **339.1**  | ** **            | **$**      | **401.2** | ** ** | **$** | **65.2** | ** ** | **$** | **382.2** | ** ** |

 

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***19.          Commitments andGuarantees***

*Commitments*

We have commitments for fiber, leases, and long-termdebt that are discussed further in Note 1, Summary of SignificantAccounting Policies, Note 7, Leases, and Note 13, Debt. In additionwe have purchase obligations for goods and services, capital expenditures, andraw materials entered into in the normal course of business.

At December 31, 2006, we estimate that we have acontractual obligation to purchase approximately $839.8 million of woodfiber. This includes the obligations related to the long-term log and fibersupply agreements entered into in connection with the Timberlands Sale. Undermost of the log and fiber supply agreements, we have the right to cancel orreduce our commitments in the event of a mill curtailment or shutdown. Theprices under most of these agreements is set quarterly or semiannually based onregional market prices and the estimate is based on contract terms or firstquarter 2007 pricing. Our log and fiber obligations are subject to change basedon, among other things, the effect of governmental laws and regulations, ourmanufacturing operations not operating in the normal course of business, logand fiber availability, and the status of environmental appeals. Except fordeposits required pursuant to wood supply contracts, these obligations are notrecorded in our consolidated financial statements until contract payment termstake effect.

We enter into utility contracts for the purchase ofelectricity and natural gas. We also purchase these services under utilitytariffs. The contractual and tariff arrangements include multiple-yearcommitments and minimum annual purchase requirements. At December 31,2006, we had approximately $41.0 million of utility purchase commitments.These payment obligations were valued at prices in effect on December 31,2006, or contract language, if available. Because we consume the energy in themanufacture of our products, these obligations represent the face value of thecontracts, not resale value.

Pursuant to an Additional Consideration Agreementbetween OfficeMax and us, we may be required to make substantial cash paymentsto, or receive substantial cash payments from, OfficeMax. Under the AdditionalConsideration Agreement, the purchase price paid for the forest products andpaper assets may be adjusted upward or downward based on paper prices duringthe six years following the Forest Products Acquisition, subject to annual andaggregate caps. Neither party will be obligated to make a payment under theAdditional Consideration Agreement in excess of $45 million in any oneyear. Payments are also subject to an aggregate cap of $125 million thatdeclines to $115 million in the fifth year and $105 million in thesixth year. After each anniversary of the Forest ProductsAcquisition, we review paper prices with the provisions of the AdditionalConsideration Agreement to determine whether any amounts are owed or receivableunder the agreement. For the first and second anniversary periods, which endedOctober 29, 2005 and 2006, neither Boise nor OfficeMax owed additionalconsideration for the purchase price.

# *Guarantees*

We provide guarantees,indemnifications, and assurances to others, which constitute guarantees asdefined under FIN No. 45, *Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others*.

Boise Cascade Holdings, L.L.C. (Boise) and its directand indirect domestic subsidiaries, excluding foreign subsidiaries and BirchCreek, are parties to a second amended and restated Credit Agreement dated asof November 3, 2006, with JPMorgan Chase Bank, as Administrative Agent,and certain lenders named therein and to a related Guarantee and CollateralAgreement of the same date (collectively the Bank Credit Agreements).Boise Cascade, L.L.C. (Boise LLC), a wholly owned directsubsidiary of Boise Cascade Holdings, L.L.C., acts as borrower under the BankCredit Agreements for the $538.9 million Tranche D term loan and a$475.0 million revolving credit facility that had no outstanding balanceat December 31, 2006, and contingent reimbursement obligations in respectof $42.8 million of standby letters of credit issued under the revolvingfacility. Boise LLC’s loans and reimbursement obligations are guaranteedby Boise and each of its domestic subsidiaries (other than Boise LLC andBirch Creek). Timber Holdings and its subsidiaries were parties tothe Bank Credit Agreements; however, as part of the related-party noterepayment and the Timber Holdings merger with and into us, we amended ourCredit Agreement in November 2006 so that Timber Corp. is no longer a party toand/or

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guarantor of the lending arrangements provided in the Credit Agreement. Formore information, see Note 3, Merger with Boise Land & Timber HoldingsCorp.

Boise LLC and its wholly owned subsidiary, BoiseCascade Finance Corporation, have jointly issued $250.0 million of seniorunsecured floating-rate notes due in 2012 and $400.0 million of 7.125%senior subordinated notes due in 2014. The senior notes are guaranteed on asenior basis and the subordinated notes on a subordinated basis by Boise andeach of its domestic subsidiaries, excluding foreign subsidiaries of Boise andBirch Creek, other than Boise LLC and Boise Cascade Finance Corporation, whichare the issuers of the notes. In July 2005, we completed an exchange offerwhereby all of our senior unsecured floating-rate notes and senior subordinatednotes were exchanged for publicly traded, registered securities with identicalterms (other than terms relating to registration rights) to the$250.0 million senior unsecured floating-rate notes and the$400.0 million senior subordinated notes issued in October 2004. Wemay redeem all or part of the notes at any time at redemption prices defined inthe indenture. If we sell specific assets or experience specific kinds ofchanges in control, we must offer to purchase the notes. Prior tothe related-party note prepayment and the Timber Holdings merger with and intous in November 2006, the senior notes were guaranteed on a senior basis and thesubordinated notes on a subordinated basis by Boise and its subsidiaries andTimber Holdings and its subsidiaries. After the merger and amendment to ourCredit Agreement (discussed above), Timber Holdings and its subsidiaries are nolonger guarantors of the debt. For more information, see Note 3, MergerWith Boise Land & Timber Holdings Corp.

Boise LLC guarantees the obligations andperformance of its wholly owned subsidiary, Boise Cascade do Brasil LTDA.,under the terms of the purchase agreements in Brazil. These agreements extendthrough 2014. Boise LLC’s exposure is effectively limited to the loss ofits investment in Boise Cascade do Brasil LTDA., which was approximately$36.0 million at December 31, 2006.

Boise LLC has issued guarantees to a limited number of trade creditorsof one or more of its principal operating subsidiaries, Boise BuildingSolutions Distribution, L.L.C.; Boise Building SolutionsManufacturing, L.L.C.; Boise White Paper, L.L.C.; and Boise Packaging &Newsprint, L.L.C., for trade credit obligations arising in the ordinarycourse of the business of such operating subsidiaries. These include guaranteesof the obligations of both Boise White Paper, L.L.C., and Boise Building SolutionsManufacturing, L.L.C., in respect to present and future timber saleagreements and several facility leases entered into by such subsidiaries.Boise LLC also guarantees the performance and payment obligations of BoiseBuilding Solutions Distribution, L.L.C., in respect to several facility leases.Our exposure under these agreements is limited to future timber purchases andthe minimum lease payment requirements under the agreements. We also enter intoguarantees of various raw material or energy supply agreements arising in theordinary course of business.

Boise LLC provides credit support for itsprincipal operating subsidiaries in the form of reimbursement or indemnityobligations to the issuers of surety bonds and standby letters of creditsupporting obligations of its operating subsidiaries arising in the ordinarycourse of business to suppliers of goods and services and to governmententities regulating such subsidiaries’ environmental and workers’ compensationobligations.

We enter into awide range of indemnification arrangements in the ordinary course of business.These include tort indemnifications, tax indemnifications, financingtransactions, indemnifications against third-party claims arising out ofarrangements to provide services to us, and indemnifications in merger andacquisition agreements. It is impossible to quantify the maximum potentialliability under these indemnifications. At December 31, 2006, we were notaware of any material liabilities arising from these indemnifications.

In connection with the Timberlands Sale, we, along with Timber Holdings,agreed to indemnify the purchasers for any breach of representation, warranty,or covenant contained in the purchase agreement. In all material respects, ourindemnification obligations survived until February 4, 2006, and weresubject to a deductible of $16.5 million and an aggregate cap of$100.0 million. Because we received no claims for indemnification beforeFebruary 4, 2006, our indemnification obligations with respect to the TimberlandsSale have terminated.

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***20.          Consolidating Guarantor and Nonguarantor FinancialInformation***

Thefollowing consolidating financial information presents the Statements of Income(Loss), Balance Sheets, and Cash Flows related to our business. The seniornotes are guaranteed on a senior basis, and the senior subordinated notes areguaranteed on a senior subordinated basis, in each case jointly and severallyby Boise and each of its existing and future subsidiaries (other than theco-issuers, Boise LLC and Boise Cascade Finance Corporation). Thenonguarantors include our foreign subsidiaries and Birch Creek. Other than theconsolidated financial statements and footnotes for Boise Cascade Holdings,L.L.C., financial statements and other disclosures concerning the guarantors havenot been presented because management believes that such information is notmaterial to investors.

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**BoiseCascade Holdings, L.L.C., and Subsidiaries**

**ConsolidatingStatements of Income (Loss)**

**For the Year Ended December 31, 2006**

|                                                                                      | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                                                            | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| Trade                                                                                |       | $                                               | —     |                              | $          | —                      |       | $                                 | 5,147,541   |             | $          | 56,411           |       | $ | — |   | $ | 5,203,952 |   |
| Intercompany                                                                         |       | —                                          |       | 4,278                             |       | 1,241                       |       | 81,267                            |        | (86,786          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                            |       | 575,913                     |       | —                            |        | —           |       | 575,913          |       |
|                                                                                 |       | —                                          |       | 4,278                             |       | 5,724,695                   |       | 137,678                           |        | (86,786          | )          | 5,779,865        |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| **Costs  and expenses**                                                              | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 4,868                             |       | 5,003,512                   |       | 110,026                           |        | (55,365          | )          | 5,063,041        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 3,886                             |       | 147,171                     |       | 4,254                             |        | —           |       | 155,311          |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                            |       | 281,366                     |       | 2,270                             |        | —           |       | 283,636          |       |
| General and  administrative expenses                                            |       | —                                          |       | 35,071                            |       | 82,070                      |       | 2,644                             |        | (31,421          | )          | 88,364           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | 1,467                             |       | 1,816                       |       | 2,806                             |        | —           |       | 6,089            |       |
|                                                                                 |       | —                                          |       | 45,292                            |       | 5,515,935                   |       | 122,000                           |        | (86,786          | )          | 5,596,441        |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (41,014                           | )          | 208,760                     |       | 15,678                            |        | —           |       | 183,424          |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | (2,120                            | )          | (210                        | )          | 2,731                             |        | —           |       | 401              |       |
| Interest expense                                                                     |       | —                                          |       | (102,418                          | )          | —                      |       | (9,986                            | )           | —           |       | (112,404         | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (545                              | )          | —                      |       | (20,291                           | )           | 20,836           |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 3,511                             |       | 189                         |       | 81                                |        | —           |       | 3,781            |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 187                               |       | 20,649                      |       | —                            |        | (20,836          | )          | —           |       |
|                                                                                 |       | —                                          |       | (101,385                          | )          | 20,628                      |       | (27,465                           | )           | —           |       | (108,222         | )          |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (142,399                          | )          | 229,388                     |       | (11,787                           | )           | —           |       | 75,202           |       |
| Income tax  (provision) benefit                                                      |       | —                                          |       | (910                              | )          | (2,721                      | )          | —                            |        | —           |       | (3,631           | )          |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (143,309                          | )          | 226,667                     |       | (11,787                           | )           | —           |       | 71,571           |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |        |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 71,571                                          |       | 214,880                           |       | —                      |       | —                            |        | (286,451         | )          | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                           | **71,571** | ** **                        | **$**      | **71,571**                  | ** ** | **$**                             | **226,667** | ** **       | **$**      | **(11,787**      | **)**      | **$** | **(286,451** | **)** | **$** | **71,571** | ** ** |

 

 

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**BoiseCascade Holdings, L.L.C., and Subsidiaries**

**ConsolidatingStatements of Income (Loss)**

**Forthe Year Ended December 31, 2005**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** **  |
| **Sales**                                                                            |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| Trade                                                                                |       | $                                               | —      |                        | $          | —                      |       | $                                 | 5,277,082   |             | $          | 68,024           |       | $ | — |   | $ | 5,345,106 |   |
| Intercompany                                                                         |       | —                                          |        | 2,567                       |       | 11,308                      |       | 58,394                            |        | (72,269          | )          | —           |       |
| Related parties                                                                      |       | —                                          |        | —                      |       | 562,338                     |       | —                            |        | —           |       | 562,338          |       |
|                                                                                 |       | —                                          |        | 2,567                       |       | 5,850,728                   |       | 126,418                           |        | (72,269          | )          | 5,907,444        |       |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Costs and expenses**                                                               |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| Materials, labor, and  other operating expenses                                      |       | —                                          |        | 3,084                       |       | 5,095,067                   |       | 125,803                           |        | (68,842          | )          | 5,155,112        |       |
| Fiber costs from  related parties                                                    |       | —                                          |        | —                      |       | 17,609                      |       | —                            |        | —           |       | 17,609           |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |        | 3,952                       |       | 121,340                     |       | 3,534                             |        | —           |       | 128,826          |       |
| Selling and  distribution expenses                                                   |       | —                                          |        | —                      |       | 261,825                     |       | 2,247                             |        | —           |       | 264,072          |       |
| General and  administrative expenses                                            |       | —                                          |        | 34,524                      |       | 43,607                      |       | 28                                |        | (3,427           | )          | 74,732           |       |
| Other (income) expense,  net                                                         |       | —                                          |        | (6,146                      | )          | (2,908                      | )          | 3,462                             |        | —           |       | (5,592           | )          |
|                                                                                 |       | —                                          |        | 35,414                      |       | 5,536,540                   |       | 135,074                           |        | (72,269          | )          | 5,634,759        |       |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Income (loss) from operations**                                                    |       | —                                          |        | (32,847                     | )          | 314,188                     |       | (8,656                            | )           | —           |       | 272,685          |       |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| Foreign exchange gain  (loss)                                                        |       | —                                          |        | 4,145                       |       | 32                          |       | (4,517                            | )           | —           |       | (340             | )          |
| Change in fair value of  interest rate swaps                                         |       | —                                          |        | 9,886                       |       | —                      |       | —                            |        | —           |       | 9,886            |       |
| Interest expense                                                                     |       | —                                          |        | (164,807                    | )          | (7                          | )          | (1,530                            | )           | —           |       | (166,344         | )          |
| Interest  expense—intercompany                                                  |       | —                                          |        | (230                        | )          | —                      |       | (2,302                            | )           | 2,532            |       | —           |       |
| Interest income                                                                      |       | —                                          |        | 3,076                       |       | 257                         |       | 58                                |        | —           |       | 3,391            |       |
| Interest  income—intercompany                                                   |       | —                                          |        | 274                         |       | 2,258                       |       | —                            |        | (2,532           | )          | —           |       |
|                                                                                 |       | —                                          |        | (147,656                    | )          | 2,540                       |       | (8,291                            | )           | —           |       | (153,407         | )          |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Income (loss) before income  taxes and equity in net income (loss) of affiliates** |       | —                                          |        | (180,503                    | )          | 316,728                     |       | (16,947                           | )           | —           |       | 119,278          |       |
| Income tax (provision)  benefit                                                      |       | 4,785                                           |        | (59                         | )          | (2,687                      | )          | 50                                |        | —           |       | 2,089            |       |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Income (loss) before equity in  net income (loss) of affiliates**                  |       | 4,785                                           |        | (180,562                    | )          | 314,041                     |       | (16,897                           | )           | —           |       | 121,367          |       |
|                                                                                 |       |                                            |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | 116,582                                         |        | 297,144                     |       | —                      |       | —                            |        | (413,726         | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                           | **121,367** | ** **                  | **$**      | **116,582**                 | ** ** | **$**                             | **314,041** | ** **       | **$**      | **(16,897**      | **)**      | **$** | **(413,726** | **)** | **$** | **121,367** | ** ** |

 

110

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**BoiseCascade Holdings, L.L.C., and Subsidiaries**

**ConsolidatingStatements of Income (Loss)**

**Forthe Period of October 29 (inception) Through December 31, 2004**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                                                            |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                               | —     |                              | $          | —                      |       | $                                 | 773,636    |             | $          | 6,317            |       | $ | — |   | $ | 779,953 |   |
| Intercompany                                                                         |       | —                                          |       | —                            |       | —                      |       | 6,642                             |       | (6,642           | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                            |       | 92,774                      |       | —                            |       | —           |       | 92,774           |       |
|                                                                                 |       | —                                          |       | —                            |       | 866,410                     |       | 12,959                            |       | (6,642           | )          | 872,727          |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Costs  and expenses**                                                              |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 1,320                             |       | 725,400                     |       | 13,431                            |       | (6,642           | )          | 733,509          |       |
| Fiber costs from  related parties                                                    |       | —                                          |       | —                            |       | 24,451                      |       | —                            |       | —           |       | 24,451           |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 590                               |       | 18,904                      |       | 543                               |       | —           |       | 20,037           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                            |       | 39,798                      |       | 320                               |       | —           |       | 40,118           |       |
| General and  administrative expenses                                                 |       | —                                          |       | 6,115                             |       | 4,493                       |       | —                            |       | —           |       | 10,608           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | 196                               |       | (482                        | )          | 263                               |       | —           |       | (23              | )          |
|                                                                                 |       | —                                          |       | 8,221                             |       | 812,564                     |       | 14,557                            |       | (6,642           | )          | 828,700          |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (8,221                            | )          | 53,846                      |       | (1,598                            | )          | —           |       | 44,027           |       |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | 87                                |       | 276                         |       | 818                               |       | —           |       | 1,181            |       |
| Interest expense                                                                     |       | —                                          |       | (22,182                           | )          | —                      |       | —                            |       | —           |       | (22,182          | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (51                               | )          | —                      |       | (194                              | )          | 245              |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 1,960                             |       | 41                          |       | 4                                 |       | —           |       | 2,005            |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 194                               |       | 51                          |       | —                            |       | (245             | )          | —           |       |
|                                                                                 |       | —                                          |       | (19,992                           | )          | 368                         |       | 628                               |       | —           |       | (18,996          | )          |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (28,213                           | )          | 54,214                      |       | (970                              | )          | —           |       | 25,031           |       |
| Income tax  provision                                                                |       | —                                          |       | (18                               | )          | (266                        | )          | (45                               | )          | —           |       | (329             | )          |
|                                                                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (28,231                           | )          | 53,948                      |       | (1,015                            | )          | —           |       | 24,702           |       |
| Equity in net  income (loss) of affiliates                                           |       | 24,702                                          |       | 52,933                            |       | —                      |       | —                            |       | (77,635          | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                           | **24,702** | ** **                        | **$**      | **24,702**                  | ** ** | **$**                             | **53,948** | ** **       | **$**      | **(1,015**       | **)**      | **$** | **(77,635** | **)** | **$** | **24,702** | ** ** |

 

111

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**BoiseCascade Holdings, L.L.C., and Subsidiaries**

**ConsolidatingBalance Sheets at December 31, 2006**
| ** **                     | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------|------------|-------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **(thousands)**                                 | ** **  |
| **ASSETS**                     | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
|                           |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Current**                    |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Cash and cash  equivalents     |       | $                                               | —      |                        | $          | 42,962                      |       | $                                 | 32            |             | $          | 2,175            |       | $ | — |   | $ | 45,169 |   |
| Receivables                    |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Trade, less allowances         |       | —                                          |        | —                      |       | 135                         |       | 327,003                           |          | —           |       | 327,138          |       |
| Intercompany                   |       | —                                          |        | —                      |       | 3,956                       |       | 1,988                             |          | (5,944           | )          | —           |       |
| Related parties                |       | —                                          |        | 695                         |       | 3,430                       |       | 33,861                            |          | —           |       | 37,986           |       |
| Other                          |       | —                                          |        | 1,447                       |       | 16,707                      |       | 873                               |          | —           |       | 19,027           |       |
| Inventories                    |       | —                                          |        | 17                          |       | 625,575                     |       | 15,234                            |          | —           |       | 640,826          |       |
| Other                          |       | —                                          |        | 6,123                       |       | 6,258                       |       | 646                               |          | —           |       | 13,027           |       |
|                           |       | —                                          |        | 51,244                      |       | 656,093                     |       | 381,780                           |          | (5,944           | )          | 1,083,173        |       |
|                           |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Property**                   |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Property and  equipment, net   |       | —                                          |        | 8,911                       |       | 1,421,512                   |       | 31,892                            |          | —           |       | 1,462,315        |       |
| Fiber farms and  deposits      |       | —                                          |        | —                      |       | 27,008                      |       | 13,484                            |          | —           |       | 40,492           |       |
|                           |       | —                                          |        | 8,911                       |       | 1,448,520                   |       | 45,376                            |          | —           |       | 1,502,807        |       |
|                           |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Deferred  financing costs**  |       | —                                          |        | 31,156                      |       | —                      |       | 318                               |          | —           |       | 31,474           |       |
| **Goodwill**                   |       | —                                          |        | —                      |       | 21,846                      |       | —                            |          | —           |       | 21,846           |       |
| **Intangible  assets**         |       | —                                          |        | —                      |       | 37,507                      |       | —                            |          | —           |       | 37,507           |       |
| **Investments  in affiliates** |       | 838,844                                         |        | 685,467                     |       | —                      |       | —                            |          | (1,524,311       | )          | —           |       |
| **Other  assets**              |       | —                                          |        | 10,539                      |       | 15,043                      |       | 2,808                             |          | —           |       | 28,390           |       |
| **Total assets**               | ** ** | **$**                                           | **838,844** | ** **                  | **$**      | **787,317**                 | ** ** | **$**                             | **2,179,009** | ** **       | **$**      | **430,282**      | ** ** | **$** | **(1,530,255** | **)** | **$** | **2,705,197** | ** ** |

 

112

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at December 31, 2006 (continued)**
| ** **                        | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| ** **                        | ** ** | **(thousands)**                                 | ** **  |
| **LIABILITIES AND CAPITAL**       | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Current**                       | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Short-term borrowings             |       | $                                               | —      |                        | $          | 3,200                       |       | $                                 | —        |             | $          | —           |       | $ | — |   | $ | 3,200 |   |
| Accounts payable                  |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Trade                             |       | —                                          |        | 32,860                      |       | 303,732                     |       | 4,609                             |          | —           |       | 341,201          |       |
| Intercompany                      |       | —                                          |        | 2,752                       |       | 1,988                       |       | 1,204                             |          | (5,944           | )          | —           |       |
| Accrued liabilities               |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Compensation and  benefits        |       | —                                          |        | 22,793                      |       | 69,847                      |       | 647                               |          | —           |       | 93,287           |       |
| Interest payable                  |       | —                                          |        | 11,213                      |       | —                      |       | 634                               |          | —           |       | 11,847           |       |
| Other                             |       | —                                          |        | 16,317                      |       | 32,155                      |       | 6,128                             |          | —           |       | 54,600           |       |
|                              |       | —                                          |        | 89,135                      |       | 407,722                     |       | 13,222                            |          | (5,944           | )          | 504,135          |       |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Debt**                          | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Long-term debt                    |       | —                                          |        | 1,188,900                   |       | —                      |       | 25,000                            |          | —           |       | 1,213,900        |       |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Other**                         | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Compensation and  benefits        |       | —                                          |        | 111,676                     |       | —                      |       | —                            |          | —           |       | 111,676          |       |
| Other long-term  liabilities      |       | —                                          |        | 23,180                      |       | 13,462                      |       | —                            |          | —           |       | 36,642           |       |
|                              |       | —                                          |        | 134,856                     |       | 13,462                      |       | —                            |          | —           |       | 148,318          |       |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Due to (from) affiliates**      |       | —                                          |        | (1,464,418                  | )          | 1,155,558                   |       | 308,860                           |          | —           |       | —           |       |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Redeemable equity units**       | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series B equity  units       |       | 17,477                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 17,477           |       |
| Series C equity  units       |       | 6,434                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 6,434            |       |
| Redeemable equity units           |       | —                                          |        | 23,911                      |       | —                      |       | —                            |          | (23,911          | )          | —           |       |
|                              |       | 23,911                                          |        | 23,911                      |       | —                      |       | —                            |          | (23,911          | )          | 23,911           |       |
|                              |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Capital**                       | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series A equity units             |       | 78,290                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 78,290           |       |
| Series B equity units             |       | 724,988                                         |        | —                      |       | —                      |       | —                            |          | —           |       | 724,988          |       |
| Series C equity units             |       | 11,655                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 11,655           |       |
| Subsidiary equity                 |       | —                                          |        | 814,933                     |       | 602,267                     |       | 83,200                            |          | (1,500,400       | )          | —           |       |
| **Total capital**                 |       | 814,933                                         |        | 814,933                     |       | 602,267                     |       | 83,200                            |          | (1,500,400       | )          | 814,933          |       |
| **Total liabilities and capital** | ** ** | **$**                                           | **838,844** | ** **                  | **$**      | **787,317**                 | ** ** | **$**                             | **2,179,009** | ** **       | **$**      | **430,282**      | ** ** | **$** | **(1,530,255** | **)** | **$** | **2,705,197** | ** ** |

 

113

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at December 31, 2005**
| ** **                     | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **(thousands)**                                 | ** **  |
| **ASSETS**                     | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
|                           |       |                                            |        |                              |       |                        |       |                              |          |             |       |             |       |
| **Current**                    | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Cash and cash  equivalents     |       | $                                               | —      |                              | $          | 85,469                      |       | $                                 | 34            |             | $          | 2,668            |       | $ | — |   | $ | 88,171 |   |
| Receivables                    |       |                                            |        |                              |       |                        |       |                              |          |             |       |             |       |
| Trade, less allowances         |       | —                                          |        | —                            |       | 2,668                       |       | 336,153                           |          | —           |       | 338,821          |       |
| Intercompany                   |       | —                                          |        | —                            |       | 1,204                       |       | 1,284                             |          | (2,488           | )          | —           |       |
| Related parties                |       | —                                          |        | —                            |       | 3,335                       |       | 39,675                            |          | —           |       | 43,010           |       |
| Other                          |       | —                                          |        | 7,318                             |       | 10,570                      |       | 3,092                             |          | —           |       | 20,980           |       |
| Inventories                    |       | —                                          |        | 124                               |       | 610,418                     |       | 23,241                            |          | —           |       | 633,783          |       |
| Other                          |       | —                                          |        | 6,967                             |       | 3,195                       |       | 532                               |          | —           |       | 10,694           |       |
|                           |       | —                                          |        | 99,878                            |       | 631,424                     |       | 406,645                           |          | (2,488           | )          | 1,135,459        |       |
|                           |       |                                            |        |                              |       |                        |       |                              |          |             |       |             |       |
| **Property**                   | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Property and  equipment, net   |       | —                                          |        | 37,153                            |       | 1,426,907                   |       | 32,994                            |          | —           |       | 1,497,054        |       |
| Fiber farm and  deposits       |       | —                                          |        | —                            |       | 40,955                      |       | 11,281                            |          | —           |       | 52,236           |       |
|                           |       | —                                          |        | 37,153                            |       | 1,467,862                   |       | 44,275                            |          | —           |       | 1,549,290        |       |
| ** **                     | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Deferred  financing costs**  |       | —                                          |        | 37,294                            |       | —                      |       | 484                               |          | —           |       | 37,778           |       |
| **Goodwill**                   |       | —                                          |        | —                            |       | 15,101                      |       | —                            |          | —           |       | 15,101           |       |
| **Intangible  assets**         |       | —                                          |        | —                            |       | 31,804                      |       | —                            |          | —           |       | 31,804           |       |
| **Investments  in affiliates** |       | 477,433                                         |        | 470,587                           |       | —                      |       | —                            |          | (948,020         | )          | —           |       |
| **Other  assets**              |       | —                                          |        | 33,237                            |       | 7,903                       |       | 3,091                             |          | —           |       | 44,231           |       |
| **Total assets**               | ** ** | **$**                                           | **477,433** | ** **                        | **$**      | **678,149**                 | ** ** | **$**                             | **2,154,094** | ** **       | **$**      | **454,495**      | ** ** | **$** | **(950,508** | **)** | **$** | **2,813,663** | ** ** |

 

114

----

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at December 31, 2005 (continued)**
| ** **                          | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **(thousands)**                                 | ** **  |
| **LIABILITIES AND CAPITAL**         | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Current**                         | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Accounts payable                    |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Trade                               |       | $                                               | —      |                        | $          | 39,517                      |       | $                                 | 340,772       |             | $          | 2,918            |       | $ | — |   | $ | 383,207 |   |
| Intercompany                        |       | —                                          |        | —                      |       | 1,284                       |       | 1,204                             |          | (2,488           | )          | —           |       |
| Accrued liabilities                 |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Compensation and  benefits          |       | —                                          |        | 42,240                      |       | 63,078                      |       | 971                               |          | —           |       | 106,289          |       |
| Interest payable                    |       | —                                          |        | 9,945                       |       | —                      |       | 685                               |          | —           |       | 10,630           |       |
| Other                               |       | —                                          |        | 4,036                       |       | 38,469                      |       | 3,739                             |          | —           |       | 46,244           |       |
|                                |       | —                                          |        | 95,738                      |       | 443,603                     |       | 9,517                             |          | (2,488           | )          | 546,370          |       |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Debt**                            | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Long-term debt                      |       | —                                          |        | 1,285,800                   |       | —                      |       | 80,000                            |          | —           |       | 1,365,800        |       |
| Note payable to related  party, net |       | —                                          |        | 270,854                     |       | —                      |       | —                            |          | —           |       | 270,854          |       |
|                                |       | —                                          |        | 1,556,654                   |       | —                      |       | 80,000                            |          | —           |       | 1,636,654        |       |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Other**                           | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Compensation and  benefits          |       | —                                          |        | 121,269                     |       | —                      |       | —                            |          | —           |       | 121,269          |       |
| Other long-term  liabilities        |       | —                                          |        | 19,612                      |       | 12,325                      |       | —                            |          | —           |       | 31,937           |       |
|                                |       | —                                          |        | 140,881                     |       | 12,325                      |       | —                            |          | —           |       | 153,206          |       |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Due to (from) affiliates**        |       | —                                          |        | (1,592,557                  | )          | 1,322,896                   |       | 269,661                           |          | —           |       | —           |       |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Redeemable equity units**         | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series B equity  units         |       | 9,508                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 9,508            |       |
| Series C equity  units         |       | 2,904                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 2,904            |       |
| Redeemable equity units             |       | —                                          |        | 12,412                      |       | —                      |       | —                            |          | (12,412          | )          | —           |       |
|                                |       | 12,412                                          |        | 12,412                      |       | —                      |       | —                            |          | (12,412          | )          | 12,412           |       |
|                                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Capital**                         | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series A equity units               |       | 39,885                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 39,885           |       |
| Series B equity units               |       | 417,601                                         |        | —                      |       | —                      |       | —                            |          | —           |       | 417,601          |       |
| Series C equity units               |       | 7,535                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 7,535            |       |
| Subsidiary equity                   |       | —                                          |        | 465,021                     |       | 375,270                     |       | 95,317                            |          | (935,608         | )          | —           |       |
| **Total capital**                   |       | 465,021                                         |        | 465,021                     |       | 375,270                     |       | 95,317                            |          | (935,608         | )          | 465,021          |       |
| **Total liabilities and capital**   | ** ** | **$**                                           | **477,433** | ** **                  | **$**      | **678,149**                 | ** ** | **$**                             | **2,154,094** | ** **       | **$**      | **454,495**      | ** ** | **$** | **(950,508** | **)** | **$** | **2,813,663** | ** ** |

 

115

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Year Ended December 31, 2006**
| ** **                                                                             | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                             | ** ** | **(thousands)**                                 | ** ** |
| **Cash  provided by (used for) operations**                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Net income (loss)                                                                      |       | $                                               | 71,571     |                              | $          | 71,571                      |       | $                                 | 226,667    |             | $          | (11,787          | )          | $ | (286,451 | ) | $ | 71,571 |   |
| Items in net  income (loss) not using (providing) cash                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Equity in net income of affiliates                                                     |       | (71,571                                         | )          | (214,880                          | )          | —                      |       | —                            |       | 286,451          |       | —           |       |
| Depreciation, depletion, and amortization of deferred  financing costs and other costs |       | —                                          |       | 5,713                             |       | 147,171                     |       | 4,428                             |       | —           |       | 157,312          |       |
| Related-party interest expense                                                         |       | —                                          |       | 14,615                            |       | —                      |       | 20,291                            |       | (20,836          | )          | 14,070           |       |
| Related-party interest income                                                          |       | —                                          |       | (187                              | )          | (20,649                     | )          | —                            |       | 20,836           |       | —           |       |
| Deferred income taxes                                                                  |       | —                                          |       | 984                               |       | (16                         | )          | —                            |       | —           |       | 968              |       |
| Pension and other postretirement benefit expense                                       |       | —                                          |       | 27,447                            |       | —                      |       | —                            |       | —           |       | 27,447           |       |
| Gain on changes in retiree healthcare programs                                         |       | —                                          |       | (3,741                            | )          | —                      |       | —                            |       | —           |       | (3,741           | )          |
| Management equity units expense                                                   |       | —                                          |       | 3,514                             |       | —                      |       | —                            |       | —           |       | 3,514            |       |
| Loss on sales of assets                                                                |       | —                                          |       | 1,602                             |       | 1,709                       |       | —                            |       | —           |       | 3,311            |       |
| Other                                                                                  |       | —                                          |       | 2,120                             |       | 3,601                       |       | (2,731                            | )          | —           |       | 2,990            |       |
| Decrease  (increase) in working capital, net of acquisitions                           |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                            |       | —                                          |       | 2,511                             |       | 4,568                       |       | 16,479                            |       | —           |       | 23,558           |       |
| Inventories                                                                            |       | —                                          |       | 107                               |       | (12,927                     | )          | 8,007                             |       | —           |       | (4,813           | )          |
| Accounts payable and accrued liabilities                                          |       | —                                          |       | (4,242                            | )          | (24,582                     | )          | 3,721                             |       | —           |       | (25,103          | )          |
| Pension and other  postretirement benefit payments                                     |       | —                                          |       | (20,736                           | )          | —                      |       | —                            |       | —           |       | (20,736          | )          |
| Current and  deferred income taxes                                                     |       | —                                          |       | 6,552                             |       | (2,167                      | )          | —                            |       | —           |       | 4,385            |       |
| Other                                                                                  |       | —                                          |       | (1,493                            | )          | 575                         |       | (137                              | )          | —           |       | (1,055           | )          |
| Cash provided by (used for) operations                                                 |       | —                                          |       | (108,543                          | )          | 323,950                     |       | 38,271                            |       | —           |       | 253,678          |       |
|                                                                                   |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used for) investment**                                        |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Expenditures for property and equipment                                           |       | —                                          |       | (3,164                            | )          | (146,562                    | )          | (3,798                            | )          | —           |       | (153,524         | )          |
| Acquisitions of businesses and facilities                                              |       | —                                          |       | —                            |       | (42,609                     | )          | —                            |       | —           |       | (42,609          | )          |
| Sales of assets                                                                        |       | —                                          |       | 27,900                            |       | 15,587                      |       | —                            |       | —           |       | 43,487           |       |
| Investments in affiliates                                                              |       | (261,008                                        | )          | 214,880                           |       | —                      |       | —                            |       | 46,128           |       | —           |       |
| Other                                                                                  |       | —                                          |       | (1,989                            | )          | 1,940                       |       | 1,957                             |       | —           |       | 1,908            |       |
| Cash provided by (used for) investment                                            |       | (261,008                                        | )          | 237,627                           |       | (171,644                    | )          | (1,841                            | )          | 46,128           |       | (150,738         | )          |
|                                                                                   |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used for) financing**                                              | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of long-term debt                                                            |       | —                                          |       | 68,300                            |       | —                      |       | 305,000                           |       | —           |       | 373,300          |       |
| Payments of long-term debt                                                             |       | —                                          |       | (165,200                          | )          | —                      |       | (360,000                          | )          | —           |       | (525,200         | )          |
| Note payable to related party, net                                                     |       | —                                          |       | (283,847                          | )          | —                      |       | —                            |       | —           |       | (283,847         | )          |
| Tax distributions to members                                                           |       | (19,269                                         | )          | —                            |       | —                      |       | —                            |       | —           |       | (19,269          | )          |
| Tax distribution to Boise Cascade Holdings, L.L.C.                                     |       | —                                          |       | (19,269                           | )          | —                      |       | —                            |       | 19,269           |       | —           |       |
| Proceeds from changes to interest rate swaps                                           |       | —                                          |       | 25,620                            |       | —                      |       | —                            |       | —           |       | 25,620           |       |
| Capital contribution from members                                                      |       | 280,366                                         |       | 280,366                           |       | —                      |       | —                            |       | (280,366         | )          | 280,366          |       |
| Net repurchases of equity units                                                        |       | (89                                             | )          | (89                               | )          | —                      |       | —                            |       | 89               |       | (89              | )          |
| Other                                                                                  |       | —                                          |       | 3,185                             |       | —                      |       | (8                                | )          | —           |       | 3,177            |       |
| Cash provided by (used for) financing                                             |       | 261,008                                         |       | (90,934                           | )          | —                      |       | (55,008                           | )          | (261,008         | )          | (145,942         | )          |
|                                                                                   |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Due to (from)  affiliates                                                              |       | —                                          |       | (80,657                           | )          | (152,308                    | )          | 18,085                            |       | 214,880          |       | —           |       |
|                                                                                   |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Decrease  in cash and cash equivalents**                                        |       | —                                          |       | (42,507                           | )          | (2                          | )          | (493                              | )          | —           |       | (43,002          | )          |
| **Balance  at beginning of the year**                                                  |       | —                                          |       | 85,469                            |       | 34                          |       | 2,668                             |       | —           |       | 88,171           |       |
| **Balance at end of the year**                                                         | ** ** | **$**                                           | **—** | ** **                        | **$**      | **42,962**                  | ** ** | **$**                             | **32**     | ** **       | **$**      | **2,175**        | ** ** | **$** | **—** | ** ** | **$** | **45,169** | ** ** |

 

 

116

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Year Ended December 31, 2005**
| ** **                                                                                                | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                | ** ** | **(thousands)**                                 | ** ** |
| **Cash provided by (used  for) operations**                                                          | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income (loss)                                                                                         |       | $                                               | 121,367    |                              | $          | 116,582                     |       | $                                 | 314,041    |             | $          | (16,897          | )          | $ | (413,726 | ) | $ | 121,367 |   |
| Items in net income  (loss) not using (providing) cash                                                    |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Equity  in net income of affiliates                                                                       |       | (116,582                                        | )          | (297,144                          | )          | —                      |       | —                            |       | 413,726          |       | —           |       |
| Depreciation,  depletion, and amortization of    deferred financing costs and  other costs |       | —                                          |       | 53,803                            |       | 121,340                     |       | 3,534                             |       | —           |       | 178,677          |       |
| Related-party  interest expense                                                                           |       | —                                          |       | 19,139                            |       | —                      |       | 2,302                             |       | (2,532           | )          | 18,909           |       |
| Related-party  interest income                                                                            |       | —                                          |       | (274                              | )          | (2,258                      | )          | —                            |       | 2,532            |       | —           |       |
| Deferred  income taxes                                                                                    |       | (4,785                                          | )          | —                            |       | (3                          | )          | —                            |       | —           |       | (4,788           | )          |
| Pension  and other postretirement benefit expense                                                         |       | —                                          |       | 28,681                            |       | —                      |       | —                            |       | —           |       | 28,681           |       |
| Gain  on changes in retiree healthcare programs                                                           |       | —                                          |       | (9,900                            | )          | —                      |       | —                            |       | —           |       | (9,900           | )          |
| Change  in fair value of interest rate swaps                                                              |       | —                                          |       | (9,886                            | )          | —                      |       | —                            |       | —           |       | (9,886           | )          |
| Management  equity units expense                                                                     |       | —                                          |       | 2,904                             |       | —                      |       | —                            |       | —           |       | 2,904            |       |
| Other                                                                                                     |       | —                                          |       | (2,120                            | )          | (32                         | )          | 4,517                             |       | —           |       | 2,365            |       |
| Decrease (increase) in  working capital, net of acquisitions                                              |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                                               |       | —                                          |       | (52,592                           | )          | 358,940                     |       | (367,763                          | )          | —           |       | (61,415          | )          |
| Inventories                                                                                               |       | —                                          |       | (5,247                            | )          | (27,559                     | )          | (6,136                            | )          | —           |       | (38,942          | )          |
| Accounts  payable and accrued liabilities                                                            |       | —                                          |       | 45,781                            |       | 48,788                      |       | 1,328                             |       | —           |       | 95,897           |       |
| Pension and other  postretirement benefit payments                                                        |       | —                                          |       | (11,073                           | )          | —                      |       | —                            |       | —           |       | (11,073          | )          |
| Current and deferred  income taxes                                                                        |       | —                                          |       | (6,204                            | )          | 1,745                       |       | (7                                | )          | —           |       | (4,466           | )          |
| Other                                                                                                     |       | —                                          |       | (965                              | )          | (489                        | )          | (137                              | )          | —           |       | (1,591           | )          |
| Cash  provided by (used for) operations                                                                   |       | —                                          |       | (128,515                          | )          | 814,513                     |       | (379,259                          | )          | —           |       | 306,739          |       |
|                                                                                                      |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used  for) investment**                                                          | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Expenditures for  property and equipment                                                             |       | —                                          |       | (8,716                            | )          | (155,324                    | )          | (6,242                            | )          | —           |       | (170,282         | )          |
| Sales of assets                                                                                           |       | —                                          |       | 1,833                             |       | 16,703                      |       | —                            |       | —           |       | 18,536           |       |
| Repayment of note  receivable from related party, net                                                     |       | —                                          |       | 157,509                           |       | —                      |       | —                            |       | —           |       | 157,509          |       |
| Investments in  affiliates                                                                                |       | 23,889                                          |       | 297,144                           |       | —                      |       | —                            |       | (321,033         | )          | —           |       |
| Other                                                                                                     |       | —                                          |       | 16,981                            |       | (6,780                      | )          | (6,547                            | )          | —           |       | 3,654            |       |
| Cash  provided by (used for) investment                                                              |       | 23,889                                          |       | 464,751                           |       | (145,401                    | )          | (12,789                           | )          | (321,033         | )          | 9,417            |       |
|                                                                                                      |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used for)  financing**                                                                | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of long-term  debt                                                                              |       | —                                          |       | 840,000                           |       | —                      |       | 80,000                            |       | —           |       | 920,000          |       |
| Payments of long-term  debt                                                                               |       | —                                          |       | (1,534,200                        | )          | —                      |       | —                            |       | —           |       | (1,534,200       | )          |
| Note payable to related  party, net                                                                       |       | —                                          |       | 250,272                           |       | —                      |       | —                            |       | —           |       | 250,272          |       |
| Tax distributions to  members                                                                             |       | (23,143                                         | )          | —                            |       | —                      |       | —                            |       | —           |       | (23,143          | )          |
| Tax distribution to  Boise Cascade Holdings, L.L.C.                                                       |       | —                                          |       | (23,143                           | )          | —                      |       | —                            |       | 23,143           |       | —           |       |
| Net repurchases of  equity units                                                                          |       | (746                                            | )          | (746                              | )          | —                      |       | —                            |       | 746              |       | (746             | )          |
| Other                                                                                                     |       | —                                          |       | (7,156                            | )          | —                      |       | 3,643                             |       | —           |       | (3,513           | )          |
| Cash  provided by (used for) financing                                                               |       | (23,889                                         | )          | (474,973                          | )          | —                      |       | 83,643                            |       | 23,889           |       | (391,330         | )          |
|                                                                                                      |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Due to (from) affiliates                                                                                  |       | —                                          |       | 63,647                            |       | (669,117                    | )          | 308,326                           |       | 297,144          |       | —           |       |
|                                                                                                      |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Decrease in cash and  cash equivalents**                                                           |       | —                                          |       | (75,090                           | )          | (5                          | )          | (79                               | )          | —           |       | (75,174          | )          |
| **Balance at beginning of the  year**                                                                     |       | —                                          |       | 160,559                           |       | 39                          |       | 2,747                             |       | —           |       | 163,345          |       |
| **Balance at end of the year**                                                                            | ** ** | **$**                                           | **—** | ** **                        | **$**      | **85,469**                  | ** ** | **$**                             | **34**     | ** **       | **$**      | **2,668**        | ** ** | **$** | **—** | ** ** | **$** | **88,171** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Period of October 29 (inception) Through December 31, 2004**
| ** **                                                                             | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                             | ** ** | **(thousands)**                                 | ** ** |
| **Cash  provided by (used for) operations**                                       | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income (loss)                                                                      |       | $                                               | 24,702     |                        | $          | 24,702                      |       | $                                 | 53,948     |             | $          | (1,015           | )          | $ | (77,635 | ) | $ | 24,702 |   |
| Items in net  income (loss) not using (providing) cash                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Equity in net income of affiliates                                                     |       | (24,702                                         | )          | (52,933                     | )          | —                      |       | —                            |       | 77,635           |       | —           |       |
| Depreciation, depletion, and amortization of deferred  financing costs and other costs |       | —                                          |       | 2,915                       |       | 18,903                      |       | 543                               |       | —           |       | 22,361           |       |
| Related-party interest expense                                                         |       | —                                          |       | 51                          |       | —                      |       | 194                               |       | (245             | )          | —           |       |
| Related-party interest income                                                          |       | —                                          |       | (194                        | )          | (51                         | )          | —                            |       | 245              |       | —           |       |
| Pension and other postretirement benefit expense                                       |       | —                                          |       | 441                         |       | 2,466                       |       | —                            |       | —           |       | 2,907            |       |
| Other                                                                                  |       | —                                          |       | (87                         | )          | (276                        | )          | (818                              | )          | —           |       | (1,181           | )          |
| Decrease (increase)  in working capital, net of acquisitions                           |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                            |       | —                                          |       | (3,453                      | )          | 125,871                     |       | 1,315                             |       | (1,781           | )          | 121,952          |       |
| Inventories                                                                            |       | —                                          |       | (2,299                      | )          | (15,787                     | )          | (3,317                            | )          | —           |       | (21,403          | )          |
| Accounts payable and accrued liabilities                                          |       | —                                          |       | 69,697                      |       | 14,858                      |       | (768                              | )          | 1,781            |       | 85,568           |       |
| Pension and other  postretirement benefit payments                                     |       | —                                          |       | (62                         | )          | —                      |       | —                            |       | —           |       | (62              | )          |
| Other                                                                                  |       | —                                          |       | (5,459                      | )          | 1,300                       |       | (8                                | )          | (201             | )          | (4,368           | )          |
| Cash provided by (used for) operations                                                 |       | —                                          |       | 33,319                      |       | 201,232                     |       | (3,874                            | )          | (201             | )          | 230,476          |       |
|                                                                                   |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                       | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Expenditures for  property and equipment                                          |       | —                                          |       | (470                        | )          | (27,409                     | )          | (1,021                            | )          | —           |       | (28,900          | )          |
| Acquisition of  businesses and facilities                                              |       | —                                          |       | 25,074                      |       | (2,162,989                  | )          | (58,537                           | )          | —           |       | (2,196,452       | )          |
| Note receivable  from related party, net                                               |       | —                                          |       | (157,509                    | )          | —                      |       | —                            |       | —           |       | (157,509         | )          |
| Investment in  affiliate                                                               |       | (338,877                                        | )          | —                      |       | —                      |       | —                            |       | 338,877          |       | —           |       |
| Other                                                                                  |       | —                                          |       | (5,059                      | )          | 2,432                       |       | —                            |       | —           |       | (2,627           | )          |
| Cash provided by (used for) investment                                            |       | (338,877                                        | )          | (137,964                    | )          | (2,187,966                  | )          | (59,558                           | )          | 338,877          |       | (2,385,488       | )          |
|                                                                                   |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                             | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of  long-term debt                                                           |       | —                                          |       | 2,020,000                   |       | —                      |       | —                            |       | —           |       | 2,020,000        |       |
| Payments of  long-term debt                                                            |       | —                                          |       | (40,000                     | )          | —                      |       | —                            |       | —           |       | (40,000          | )          |
| Net issuance of  equity units                                                          |       | 338,877                                         |       | 338,877                     |       | —                      |       | —                            |       | (338,877         | )          | 338,877          |       |
| Other                                                                                  |       | —                                          |       | (520                        | )          | —                      |       | —                            |       | —           |       | (520             | )          |
| Cash provided by (used for) financing                                             |       | 338,877                                         |       | 2,318,357                   |       | —                      |       | —                            |       | (338,877         | )          | 2,318,357        |       |
|                                                                                   |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Due to (from)  affiliates                                                              |       | —                                          |       | (2,053,153                  | )          | 1,986,773                   |       | 66,179                            |       | 201              |       | —           |       |
|                                                                                   |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Increase  in cash and cash equivalents**                                        |       | —                                          |       | 160,559                     |       | 39                          |       | 2,747                             |       | —           |       | 163,345          |       |
| **Balance  at beginning of the period**                                                |       | —                                          |       | —                      |       | —                      |       | —                            |       | —           |       | —           |       |
| **Balance at end of the period**                                                       | ** ** | **$**                                           | **—** | ** **                  | **$**      | **160,559**                 | ** ** | **$**                             | **39**     | ** **       | **$**      | **2,747**        | ** ** | **$** | **—** | ** ** | **$** | **163,345** | ** ** |

 

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***21.          Legal Proceedings and Contingencies***

We are a party to routine legal proceedings that arisein the ordinary course of our business.  Weare not currently a party to any legal proceedings or environmental claims thatwe believe would have a material adverse effect on our financial position,results of operations, or cash flows.

***22.          QuarterlyResults of Operations (unaudited)***
| ** **             | ** ** | **2006**                    | ** ** |
|------------------------|------------|-----------------------------|------------|
| ** **             | ** ** | **First  Quarter (a)** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
| ** **             | ** ** | **(millions)**              | ** ** |
| Net sales              |       | $                           | 1,470.3    |   | $ | 1,559.8 |   | $ | 1,480.3 |   | $ | 1,269.5 |   |
| Income from operations |       | 30.5                        |       | 60.1 |   | 63.1 |   | 29.8 |   |
| Net income             |       | 0.1                         |       | 33.4 |   | 34.9 |   | 3.1 |   |
|                        |            |                             |            |  |  |  |  |  |  |  |  |  |  |

** **
| ** **             | ** ** | **2005**                    | ** ** |
|------------------------|------------|-----------------------------|------------|
| ** **             | ** ** | **First  Quarter (b)** | ** ** | **Second  Quarter (c)** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter (d)** | ** ** |
| ** **             | ** ** | **(millions)**              | ** ** |
| Net sales              |       | $                           | 1,432.3    |   | $ | 1,494.6 |   | $ | 1,556.3 |   | $ | 1,424.3 |   |
| Income from operations |       | 81.7                        |       | 77.4 |   | 79.4 |   | 34.2 |   |
| Net income (loss)      |       | 64.7                        |       | (14.5 | ) | 28.5 |   | 42.6 |   |
|                        |            |                             |            |  |  |  |  |  |  |  |  |  |  |

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(a)                                  Included a $3.7 million gain for changes inour retiree healthcare programs (see Note 15, Retirement and BenefitPlans).

(b)                                 Included a $15.2 million gain for thechange in the fair value of interest rate swaps related to our amended andrestated senior credit facilities (see Note 14, Financial Instruments).

(c)                                  Included the write-off of $43.0 millionof deferred financing costs resulting from the repayment of the Tranche Bterm loan (see Note 13, Debt).

Included $5.3 million of expense for thechange in the fair value of interest rate swaps related to our amended andrestated credit facilities (see Note 14, Financial Instruments).

(d)                                 Included a $9.9 million gain for changesin our retiree healthcare programs (see Note 15, Retirement and BenefitPlans).

Included a $37.3 million net income tax benefitrecorded as a result of rescinding our C corporation status (seeNote 8, Income taxes).

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***Report of Independent RegisteredPublic Accounting Firm***

To the Board of Directors of Boise Cascade Holdings,L.L.C.:

We have audited theaccompanying consolidated balance sheets of Boise Cascade Holdings, L.L.C. andsubsidiaries as of December 31, 2006 and 2005, and the relatedconsolidated statements of income, capital, and cash flows for the years endedDecember 31, 2006 and 2005, and the period from October 29, 2004(inception) through December 31, 2004. We have also audited the accompanyingstatements of income, capital, and cash flows of Boise Forest ProductsOperations (the predecessor) for the period from January 1, 2004 throughOctober 28, 2004. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Boise Cascade Holdings, L.L.C. andsubsidiaries as of December 31, 2006 and 2005, and the results of theiroperations and their cash flows for the years ended December 31, 2006 and2005, and for the period from October 29, 2004 (inception) throughDecember 31, 2004, as well as the results of operations of Boise ForestProducts Operations (the predecessor) and its cash flows for the period fromJanuary 1, 2004 through October 28, 2004, in conformity with U.S.generally accepted accounting principles.

As discussed in Note 1 to thefinancial statements, the Company adopted SFAS 158, Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans as of December 31, 2006.In addition, as discussed in Note 1, the Company adopted EITF 04-13, Accountingfor Purchases and Sales of Inventory With the Same Counterparty for the yearended December 31, 2006.
|  | /s/ KPMG LLP |
|--|--------------|

 

Boise, Idaho

February 28, 2007

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***ITEM9.******                                                 CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE***

None.

***ITEM 9A.******                                       ******CONTROLS AND PROCEDURES***

Attached as exhibits to this Form 10-K are certifications of ourchief executive officer and chief financial officer. Rule 13a-14 of theSecurities Exchange Act of 1934, as amended, requires that we include thesecertifications with this report. This Controls and Procedures section includesinformation concerning the disclosure controls and procedures referred to inthe certifications. You should read this section in conjunction with thecertifications.

*Evaluationof Disclosure Controls and Procedures*

We maintain “disclosure controls and procedures,” as Rule13a-15(e) under the Securities Exchange Act of 1934, as amended, defines suchterm. We have designed these controls and procedures to reasonably assure thatinformation required to be disclosed in our reports filed under the ExchangeAct, such as this Form 10-K, is recorded, processed, summarized, andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms. We have also designed our disclosure controls toprovide reasonable assurance that such information is accumulated andcommunicated to our senior management, including the chief executive officer(CEO) and chief financial officer (CFO), as appropriate, to allow them to maketimely decisions regarding our required disclosures.

We evaluate the effectiveness of our disclosure controls andprocedures on at least a quarterly basis. A number of key components in ourinternal control system assist us in these evaluations. Since the company’sinception, we have had a disclosure committee. The committee meets regularlyand includes input from our senior management, general counsel, internal auditstaff, and independent accountants. This committee is charged with consideringand evaluating the materiality of information and reviewing the company’sdisclosure obligations on a timely basis. Our internal audit department alsoevaluates many components of our internal controls on an ongoing basis. Toassist in its evaluations, the audit staff uses a web-based application thathelps to identify, document, and test our internal controls. Our intent is tomaintain disclosure controls and procedures as dynamic processes that change asour business and working environments change.

Our management, with the participation of our CEO and CFO, hasevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the fiscal year covered by this AnnualReport on Form 10-K. Based on that evaluation, the CEO and CFO haveconcluded that, as of such date, our disclosure controls and procedures wereeffective in meeting the objectives for which they were designed and wereoperating at a reasonable assurance level. Furthermore, the company’smanagement noted that, as a result of their evaluation of changes in internalcontrol over financial reporting, they identified no changes during the fourthquarter of fiscal year 2006 that materially affected, or would be reasonablylikely to materially affect, the company’s internal control over financialreporting.

*Limitationson the Effectiveness of Controls and Procedures*

In designing and evaluating our disclosure controls andprocedures, we recognized that disclosure controls and procedures, no matterhow well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the disclosure controls and procedures aremet. Additionally, in designing disclosure controls and procedures, ourmanagement necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible disclosure controls and procedures. Wehave also designed our disclosure controls and procedures based in part uponassumptions about the likelihood of future events, and there can be no assurancethat any design will succeed in achieving its stated goals under all potentialfuture conditions.

***ITEM 9B.             OTHERINFORMATION***

None.

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**PART III**

***ITEM 10.              DIRECTORS,EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE***

Following is alist of our directors and those individuals deemed “executive officers” underSection 16 of the Securities Exchange Act of 1934, along with briefdescriptions of their business experience.
| Name                    | ** ** | **Age** | ** ** | **Position** |
|-------------------------|------------|---------|------------|--------------|
|                    |       |    |       |         |   |   |
| Zaid F. Alsikafi        |       |    | 31         |         |   | Director |
| Matthew R. Broad        |       |    | 47         |         |   | Director |
| Hank Brown              |       |    | 67         |         |   | Director |
| William S.  Kirsch      |       |    | 50         |         |   | Director |
| John W. Madigan         |       |    | 69         |         |   | Director |
| Duane C.  McDougall     |       |    | 55         |         |   | Director |
| Christopher J.  McGowan |       |    | 35         |         |   | Director |
| Samuel M.  Mencoff      |       |    | 50         |         |   | Director |
| Thomas S.  Souleles     |       |    | 38         |         |   | Director |
| W. Thomas  Stephens     |       |    | 64         |         |   | Chief Executive Officer and Chairman, Director |
| Alexander  Toeldte      |       |    | 47         |         |   | Executive Vice President, Paper and Packaging &  Newsprint |
| Stanley R. Bell         |       |    | 60         |         |   | Senior Vice President, Building Materials  Distribution |
| Thomas E.  Carlile      |       |    | 55         |         |   | Senior Vice President and Chief Financial Officer |
| Miles A. Hewitt         |       |    | 48         |         |   | Senior Vice President, Paper |
| Thomas A.  Lovlien      |       |    | 51         |         |   | Senior Vice President, Wood Products |
| Samuel K.  Cotterell    |       |    | 55         |         |   | Vice President and Controller |

 

**Zaid F.Alsikafi, 31, Director.** Mr. Alsikafi became a director inOctober 2004. Mr. Alsikafi has been employed by our equity sponsor,Madison Dearborn Partners, LLC, since 2003 and currently serves as vicepresident. From 2001 to 2003, Mr. Alsikafi attended Harvard Business School.From 1999 to 2001, he was employed by Madison Dearborn Partners as anassociate. Mr. Alsikafi does not hold any public company directorships.

**MatthewR. Broad, 47, Director.** Mr. Broad became a director inNovember 2006. Mr. Broad became the executive vice president and generalcounsel of OfficeMax Incorporated (formerly known as Boise Cascade Corporation)in 2004. OfficeMax provides office supplies and paper, print and documentservices, technology products and solutions, and furniture to large, medium,and small businesses and consumers. From 1989 to 2004, Mr. Broad was associategeneral counsel of Boise Cascade Corporation and also served as corporatesecretary of Boise Cascade Office Products Corporation, a wholly ownedsubsidiary of Boise Cascade Corporation. Mr. Broad does not hold anypublic company directorships.

**HankBrown, 67, Director.** Mr. Brown became a director in July2005. Since August 2005, Mr. Brown has been president of the University ofColorado. From 2002 to July 2005, Mr. Brown served as president and chiefexecutive officer of The Daniels Fund in Denver, Colorado. Established in 1997,The Daniels Fund is a foundation that supports programs encouraging personalresponsibility and achievement. Prior to his employment with The Daniels Fund,Mr. Brown served as president of the University of Northern Colorado, U.S.Senator from Colorado, U.S. Representative from Colorado, and state senator inthe Colorado legislature. Mr. Brown is a member of the boards of directors ofSealed Air Corporation and Sensient Technologies Corporation.

**WilliamS. Kirsch, 50, Director.** Mr. Kirsch became a director in July2005. Since December 2006, Mr. Kirsch has been apartner with, and chair of the Global Private Equity Group of, the law firm ofPaul, Hastings, Janofsky & Walker. From August 2004 to May 2006,Mr. Kirsch served as a director and president and chief executive officerof Conseco, Inc. Conseco is a Fortune 500 company that providessupplemental health insurance, life insurance, and annuities. From 1981 to2004, Mr. Kirsch was with the law firm of Kirkland & Ellis LLP,where he served as a member of the Firmwide Management Committee. While atKirkland & Ellis, Mr. Kirsch served as general counsel of MadisonDearborn Partners, LLC, from 1999 to 2004. Mr. Kirsch does not hold anypublic company directorships.

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**John W.Madigan, 69, Director.** Mr. Madigan became a director inJanuary 2005. Mr. Madigan served as a special partner at Madison DearbornPartners, LLC, from 2004 to October 2006. In December 2003, Mr. Madiganretired from Tribune Company, where he had served as chairman and chiefexecutive officer since 1996. Tribune Company operates businesses inpublishing, interactive, and broadcasting. Mr. Madigan is a member of theboard of directors of Gilead Sciences, Inc.

**Duane C.McDougall, 55, Director.** Mr. McDougall became a director inJuly 2005. Mr. McDougall was president and chief executive officer ofWillamette Industries, an international paper and forest products company,until its acquisition in 2002. During his 23-year career with Willamette,Mr. McDougall held numerous operating and finance positions beforebecoming president and chief executive officer. Mr. McDougall is a memberof the boards of directors of Cascade Corporation, The Greenbrier Companies,Infocus Corporation, and West Coast Bancorp.

**ChristopherJ. McGowan, 35, Director.** Mr. McGowan became a director inOctober 2004. Mr. McGowan has been employed by our equity sponsor, MadisonDearborn Partners, LLC, since 1999 and currently serves as a director.Mr. McGowan does not hold any public company directorships.

**Samuel M.Mencoff, 50, Director.** Mr. Mencoff became a director inOctober 2004. Mr. Mencoff has been employed by our equity sponsor, MadisonDearborn Partners, LLC, since 1993 and currently serves as co-president.Mr. Mencoff is a member of the board of directors of Packaging Corporationof America.

**Thomas S.Souleles, 38, Director.** Mr. Souleles became a director inOctober 2004. Mr. Souleles has been employed by our equity sponsor,Madison Dearborn Partners, LLC, since 1995 and currently serves as a managingdirector. Mr. Souleles is a member of the boards of directors of Great LakesDredge & Dock Company, Magellan GP, LLC, Magellan Midstream HoldingsGP, LLC, and Packaging Corporation of America.

**W. ThomasStephens, 64, Chief Executive Officer and Chairman, Director.**Mr. Stephens became our chief executive officer and chairman and adirector in October 2004 following a period of retirement. Mr. Stephens servedas president and chief executive officer of MacMillan Bloedel, a Canadianforest products company, from 1997 until his retirement in 1999.Mr. Stephens currently serves as a trustee of The Putnam Funds.

**AlexanderToeldte, 47, Executive Vice President, Paper and Packaging & Newsprint.**Mr. Toeldte became our executive vice president, Paper andPackaging & Newsprint, on October 28, 2005. Since October 1, 2005, hehad served as president of the company’s Packaging & Newsprint businesssegment. From 2004 to 2006, Mr. Toeldte served as chair of AlgonacLimited, a private management and consulting firm based in Auckland, NewZealand. From 2001 to 2003, Mr. Toeldte served as executive vice presidentof Fonterra Co-operative Group, Ltd., and chief executive officer of FonterraEnterprises. Fonterra, based in New Zealand, is a global dairy company. From1999 to 2001, Mr. Toeldte served in various capacities with FletcherChallenge Limited, which had international holdings in paper, building materials,and energy.

**StanleyR. Bell, 60, Senior Vice President, Building Materials Distribution.**Mr. Bell became our senior vice president, Building MaterialsDistribution, in connection with the Forest Products Acquisition. From 2000 to2004, Mr. Bell served as senior vice president and general manager, BoiseBuilding Solutions, Distribution, of Boise Cascade Corporation.

**Thomas E.Carlile, 55, Senior Vice President and Chief Financial Officer.**Mr. Carlile became our senior vice president and chief financial officerin connection with the Forest Products Acquisition. From 1994 to 2004,Mr. Carlile served as vice president and controller of Boise CascadeCorporation.

**Miles A.Hewitt, 48, Senior Vice President, Paper*.***Mr. Hewitt became our senior vice president, Paper, in connection with theForest Products Acquisition. From 2001 to 2004, Mr. Hewitt served as vicepresident and general manager, Boise Paper Solutions, of Boise CascadeCorporation. From 1999 to 2001, Mr. Hewitt served as vice president, BoisePaper Solutions — Minnesota Operations, of Boise Cascade Corporation.

**Thomas A.Lovlien, 51, Senior Vice President, Wood Products.**Mr. Lovlien became our senior vice president, Wood Products, in connectionwith the Forest Products Acquisition. From 2000 to 

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2004, Mr. Lovlienserved as vice president of operations, Boise Building Solutions,Manufacturing, of Boise Cascade Corporation.

**Samuel K.Cotterell, 55, Vice President and Controller.**Mr. Cotterell became our vice president and controller in connection withthe Forest Products Acquisition. From 1999 to 2004, Mr. Cotterell servedas director of financial reporting of Boise Cascade Corporation.

Messrs. Alsikafi,McGowan, Mencoff, and Souleles serve on our board of directors as designees ofFPH pursuant to the Securityholders Agreement dated October 29, 2004, asamended on November 10, 2006, among FPH, OfficeMax, and us (theSecurityholders Agreement). Mr. Broad serves on our board of directors asa designee of OfficeMax pursuant to the Securityholders Agreement.Mr. Stephens serves on our board of directors as our chief executiveofficer pursuant to the Securityholders Agreement. We have further describedthe Securityholders Agreement in “Item 13.  Certain Relationships andRelated Transactions, and Director Independence” of this Form 10-K.There are no other arrangements or understandings between any member of theboard of directors or executive officer and any other person pursuant to whichthat person was elected or appointed to his or her position.

Each of ourdirectors will serve until such person’s successor is elected and qualified oruntil such person’s death, resignation, or removal. Our board of directors hasthe power to appoint our officers. Each officer will hold office for the termdetermined by the board of directors and until such person’s successor ischosen and qualified or until such person’s death, resignation, or removal.

We paid $10,000 toMr. McDougall for consulting services in 2006 in connection with the evaluationof the Central Texas Corrugated acquisition and the label and releaseproject at our Wallula, Washington, paper mill. In 2006, we purchased a varietyof other goods and services from companies for which our directors serve asofficers or directors. None of these purchases were material to the sellingentity or to our business. In 2006, we also sold a variety of goods andservices to companies for which our directors serve as officers or directors.Except for our sale of paper to OfficeMax under the paper supply agreement,described in “Item 13. Certain Relationships and Related Transactions, andDirector Independence” of this Form 10-K, none of these sales were material tothe purchasing entity or to our business.

There are nofamily relationships among any of our directors or executive officers.

***Committeesof the Board of Directors***

Our board ofdirectors currently has an audit committee, a compensation committee, and agovernance and nominating committee. The composition, duties, andresponsibilities of these committees are set forth below.

*Audit Committee*

Our auditcommittee currently consists of Messrs. Souleles (chair), Alsikafi, Madigan,McDougall, McGowan, and Mencoff. Mr. Souleles is an “audit committeefinancial expert” as such term is defined in Item 407(d)(5) of Regulation S-K.

The auditcommittee is responsible for selecting the independent auditor; approving theoverall scope of the audit; discussing the annual audited financial statementsand quarterly financial statements, including matters required to be reviewedunder applicable legal and regulatory requirements, with management and theindependent auditor; discussing earnings press releases and other financialinformation provided to the public with management and the independent auditor,as appropriate; discussing with management and the independent auditor, asappropriate, any audit problems or difficulties and management’s response;discussing the company’s risk assessment and risk management policies;reviewing the company’s financial reporting and accounting standards andprinciples, significant changes in such standards or principles, and the keyaccounting decisions affecting the company’s financial statements; reviewingand approving the internal corporate audit staff functions; reviewing thecompany’s internal system of audit, financial, and disclosure controls and theresults of internal audits; annually reviewing the independent auditor’swritten report describing the auditing firm’s internal quality-controlprocedures and any material issues raised by the auditing firm’s internalquality-control review or peer reviews of the auditing firm; reviewing andinvestigating matters pertaining to the integrity of management; establishingprocedures concerning the treatment of complaints and concerns regardingaccounting, internal accounting controls, or audit matters; meeting separatelywith management, the corporate audit staff, and the independent auditor;handling such other matters that are specifically 

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delegated to the auditcommittee by the board of directors from time to time; and reporting regularlyto the full board of directors.

*Compensation Committee*

Our compensationcommittee currently consists of Messrs. Mencoff (chair), Kirsch, Madigan,McDougall, and Souleles.

The compensationcommittee is responsible for reviewing and approving corporate goals andobjectives relevant to the compensation of our chief executive officer andannually evaluating the chief executive officer’s performance in light of thesegoals; reviewing and approving the compensation and incentive opportunities ofour executive officers; reviewing and approving employment contracts, severancearrangements, incentive arrangements, change-in-control arrangements, and othersimilar arrangements between us and our executive officers; receiving periodicreports on the company’s compensation programs as they affect all employees;reviewing executive succession plans for business and staff organizations; andhandling such other matters that are specifically delegated to the compensationcommittee by the board of directors from time to time.

*Governance and NominatingCommittee*

Our governance andnominating committee currently consists of Messrs. Mencoff (chair), Brown,Kirsch, McGowan, and Souleles.

The governance andnominating committee’s purpose is to assist our board in identifyingindividuals qualified to become members of our board of directors. Thiscommittee is responsible for identifying and recommending for electionindividuals who meet the criteria the board has established for boardmembership; reviewing the board’s committee structure and recommending to theboard the composition of each committee; and annually reviewing directorcompensation and benefits.

*Other Committees*

Our board ofdirectors may establish other committees as it deems necessary or appropriatefrom time to time.

***Codeof Ethics***

We have adopted aCode of Ethics that applies to all employees, including our chief executiveofficer, chief financial officer, and principal accounting officer. Copies ofour Code of Ethics are available, free of charge, on our website at www.bc.comby clicking on About Boise and then Code of Ethics. You may also obtain copiesof our Code of Ethics by contacting our Investor Relations Department,1111 West Jefferson Street, Boise, Idaho, 83728, or by calling208/384-4803. If we amend or grant a waiver of one or more of the provisions ofour Code of Ethics, we intend to disclose such amendments or waivers by postingthe required information on our website at the above address.

***ITEM11.              EXECUTIVE COMPENSATION***

***CompensationDiscussion and Analysis***

The compensationcommittee of our board of directors operates under a written charter. The boardestablished this committee to discharge the board’s responsibilities relatingto compensation of the company’s chief executive officer and each of thecompany’s executive officers. The committee has overall responsibility fordecisions relating to all compensation plans, policies, and benefit programs asthey affect the chief executive officer and executive officers. The followingdiscussion and analysis explains the basis for the committee’s compensationdecisions during 2006.

*Executive Compensation ProgramObjectives*

As part of the Forest Products Acquisition, we agreedto maintain executive compensation and benefits at levels that weresubstantially comparable, in the aggregate, to the levels of compensation andbenefits that OfficeMax had maintained. This agreement has defined thestandards for the company’s

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compensation and benefits since its inception in late2004. Because the maintenance period has now expired, the committee will embarkon a fresh review of executive compensation and benefits in the year to come.Although we anticipate executive compensation and benefits may be altered toreflect the company’s business strategies, the objectives of such compensationand benefits should remain substantially the same over time. Those objectivesare:

·      Closelyalign compensation with the performance of the company on both a short-term andlong-term basis;

·      Linkeach executive officer’s compensation to his or her performance and the areasof the company for which he or she is responsible;

·      Attract,motivate, reward, and retain the broad-based management talent critical toachieving the company’s business goals; and

·      Encourageexecutive officers to own company management equity units.

To ensure thatcompensation levels remain competitive, the committee surveys and analyzesinformation on executive compensation practices and data from a wide variety ofsources, including compensation practices and data for executives holdingcomparable positions throughout general industry and in the forest productsindustry.

The committee andmanagement use information, surveys, and data compiled by outside humanresource consulting firms to assist them in structuring the company’scompensation programs. In 2006, we used services provided by the ForestProducts Industry Compensation Association (FPICA) and Hewitt Associates.

We target totalcompensation for executive officers (the sum of base salary, annual variableincentive compensation, and long-term incentive compensation) at the 50th percentile of our surveyed companies. Webelieve our annual variable incentive compensation component links executivecompensation directly to the company’s financial performance, and the long-termincentive compensation component links executive compensation to changes in thecompany’s equity value.

*Executive Compensation ProgramElements*

The four elementsof the company’s executive compensation program are:

·      Basesalary;

·      Annualvariable incentive compensation (Incentive and Performance Plan);

·      Long-termincentive compensation (Management Equity Plan); and

·      Othercompensation and benefit plans.

The company’scompensation plans reflect the committee’s intent and general practice to paycompensation that the company can deduct for purposes of federal income tax.Executive compensation decisions, however, necessarily involve some subjectivejudgment. From time to time, we may pay amounts that are not tax-deductible tomeet the design goals of our executive compensation program.

*Base Salary*

The committeereviews base salaries for executive officers annually and at the time ofpromotions or other increases in responsibilities. Almost all salariedpositions within the company, including each executive officer position, havean established salary guideline. The midpoint of each salary guidelineapproximates the median salary, adjusted for company size (in sales), ofequivalent positions at our surveyed companies. While the salary target rangefor our executive officers is the midpoint of the salary guideline, anindividual’s salary may fall above or below the midpoint based on a subjectiveevaluation of factors such as the individual’s level of responsibility,individual performance, and years of experience with the company.

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The company ispaying Mr. Stephens pursuant to an Employment Agreement dated October 29, 2004.For a description of the material terms of Mr. Stephens’ Employment Agreement,please refer to the *Agreements With, andPotential Payments to, Named Executive Officers* section of this *Compensation Discussion and Analysis*. The committee reviewsMr. Stephens’ performance against a performance plan.

*Annual Variable IncentiveCompensation (Incentive and Performance Plan)*

For 2006, each ofour named executive officers earned a cash bonus pursuant to our Incentive andPerformance Plan. These awards were based on the attainment of annual financialgoals at corporate and business unit levels and for achieving individual annualperformance objectives. Awards were calculated as a percentage of base salary,based on the extent to which the financial goals and performance objectiveswere met during the year. The 2006 target bonus awards forMessrs. Carlile, Stephens, and Toeldte were 65% of the base salary theyreceived from us. The 2006 target bonus awards for Messrs. Bell andLovlien were 55% of the base salary they received from us. These target bonuspercentages are the same as their 2005 target bonus percentages. Depending onthe achievement of their predetermined financial goals and performanceobjectives, the annual bonus amounts for our named executive officers may beless than or greater than the target bonus amounts.

*Long-Term Incentive Compensation(ManagementEquity Plan)*

Pursuant to anequity incentive program established shortly after the closing of the ForestProducts Acquisition, approximately 170 of our management-level employeespurchased, at fair market value, Series B equity units for approximately$18.6 million. Purchasers of Series B equity units in this program alsoreceived, at no additional cost, Series C equity units (2004 Series Cequity units), representing the right to participate in the company’s profitsafter the holders of the Series B equity units have received a return ofall of their invested capital. The 2004 Series C equity units have novalue to the holder until FPH’s equity value appreciates above a specifiedlevel.

On April 3, 2006, shortlyafter joining the company, Mr. Toeldte purchased, at fair market value, SeriesB equity units for $560,000 and also received, at no additional cost, a newseries of Series C equity units (2006 Series C equity units). The 2006 Series Cequity units have a higher threshold for participation in the company’s profitsthan did the 2004 Series C equity units.

Set forth below are the numbers of shares ofSeries B equity units, 2004 Series C equity units, and 2006 Series Cequity units held by our named executive officers as of December 31, 2006:
| **Name**                 | ** ** | **Series B  Equity Units** | ** ** | **2004  Series C  Equity Units** | ** ** | **2006   Series C  Equity Units** | ** ** |
|--------------------------|------------|--------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------------|------------|
|                     |       |                                 |       |                                       |       |                                             |       |
| W. Thomas  Stephens |       | 4,000,000                            |       | 11,183,000                                 |       | —                                           |       |
| Thomas E.  Carlile  |       | 850,000                              |       | 2,396,000                                  |       | —                                           |       |
| Alexander  Toeldte       |       | 280,000                              |       | —                                     |       | 4,500,000                                        |       |
| Stanley R.  Bell    |       | 740,000                              |       | 1,917,000                                  |       | —                                           |       |
| Thomas A. Lovlien        |       | 400,000                              |       | 851,000                                    |       | —                                           |       |

 

*Other Compensation and BenefitPlans*

The company’sexecutive officers receive additional compensation in the form of payments,allocations, or accruals under various other compensation and benefit plans.Among these plans and benefits are supplemental pension plans, a deferredcompensation plan, agreements that formalize each executive officer’s severancebenefits if the officer is terminated following a change in control, and asupplemental life plan. These plans are further described below and are anintegral part of the company’s executive compensation program.

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***Summary Compensation Table***

Thefollowing table presents compensation information for the fiscal year endedDecember 31, 2006, for Mr. Stephens, our chairman of the board and chiefexecutive officer, Mr. Carlile, our senior vice president and chief financialofficer, and Messrs. Toeldte, Bell, and Lovlien, our three most highlycompensated executive officers other than Messrs. Stephens and Carlile. Werefer to these executives as “named executive officers” elsewhere in this Form10-K.
| **Name and  Principal Position**                                                           | ** ** | **Year** | ** ** | **Salary  ($) (1)** | ** ** | **Bonus  ($) (2)** | ** ** | **Stock  Awards  ($) (3)** | ** ** | **Non-Equity  Incentive  Plan  Compen-  sation  ($) (4)** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compen-  sation  Earnings  ($) (5)** | ** ** | **All Other  Compen-  sation  ($) (6)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------|------------|---------------------|------------|--------------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------|------------|
|                                                                                                 |       |     |       |                |       |               |       |                       |       |                                                      |       |                                                                                                    |       |                                         |       |           |       |
| W. Thomas Stephens  Chairman of the Board  and Chief Executive Officer |       | 2006     |       | $                   | 1,000,000  |               | $          | —                     |       | $                                                         | 1,621,535  |                                                                                                    | $          | 560,000                                      |       | $              | —     |   | $ | 9,741 |   | $ | 3,191,276 |   |
|                                                                                                 |       |     |       |                |       |               |       |                       |       |                                                      |       |                                                                                                    |       |                                         |       |           |       |
| Thomas E. Carlile  Senior Vice President and Chief Financial Officer                                 |       | 2006     |       | 425,000             |       | —             |       | 146,156                    |       | 240,000                                                   |       | 579,687                                                                                                 |       | 47,316                                       |       | 1,438,159      |       |
|                                                                                                 |       |     |       |                |       |               |       |                       |       |                                                      |       |                                                                                                    |       |                                         |       |           |       |
| Alexander Toeldte  Executive Vice President, Paper and Packaging & Newsprint                     |       | 2006     |       | 500,000             |       | —             |       | 171,000                    |       | 410,000                                                   |       | 634                                                                                                     |       | 128,658                                      |       | 1,210,292      |       |
|                                                                                                 |       |     |       |                |       |               |       |                       |       |                                                      |       |                                                                                                    |       |                                         |       |           |       |
| Stanley R. Bell  Senior Vice President, Building Materials Distribution                              |       | 2006     |       | 370,000             |       | —             |       | 116,937                    |       | 286,528                                                   |       | 659,985                                                                                                 |       | 63,806                                       |       | 1,497,256      |       |
|                                                                                                 |       |     |       |                |       |               |       |                       |       |                                                      |       |                                                                                                    |       |                                         |       |           |       |
| Thomas A. Lovlien  Senior Vice President, Wood Products                                    |       | 2006     |       | 341,667             |       | 69,910             |       | 51,911                     |       | 90,090                                                    |       | 375,728                                                                                                 |       | 42,556                                       |       | 971,862        |       |
|                                                                                                      |            |          |            |                     |            |                    |            |                            |            |                                                           |            |                                                                                                         |            |                                              |            |                |            |  |  |  |  |  |  |  |

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(1)             Includesamounts deferred under our Savings Plan and Deferred Compensation Plan. TheSavings Plan is a defined contribution plan intended to be qualified underSection 401(a) of the Internal Revenue Code that contains a cash or deferredarrangement meeting the requirements of Section 401(k) of the code. TheDeferred Compensation Plan is a nonqualified savings plan offered to a selectgroup of management and key employees.

(2)             Theamount reported represents a discretionary bonus to Mr. Lovlien for hisexemplary work in exploring strategic alternatives for the Wood Productsbusiness and support on intracompany log supply issues.

(3)             Inconnection with the purchase of their Series B equity units on November29, 2004, Messrs. Stephens, Carlile, Bell, and Lovlien were granted, at noadditional cost, 11,183,000, 2,396,000, 1,917,000, and 851,000 2004Series C equity units, respectively. The 2004 Series C equity unitsrepresent the right to participate in the company’s profits after the holdersof the Series B equity units have received a return of all of their invested capital.The terms of these grants are further described in the Management EquityAgreement dated November 29, 2004, and filed with the SEC on May 2, 2005, asExhibit 10.25 to Amendment No. 3 to the company’s registration statement onForm S-1.

                           In connection with thepurchase of his Series B equity units on April 3, 2006, Mr. Toeldte wasgranted, at no additional cost, 4,500,000 2006 Series C equity units. The 2006Series C equity units represent the right to participate in the company’sprofits after the holders of the Series B equity units and 2004 Series C equityunits have received a specified threshold return on their invested capital. Theterms of this grant are further described in the Management Equity Agreementdated April 3, 2006, and filed with the SEC on April 6, 2006, as Exhibit 99.1to the company’s report on Form 8-K.

                           The amounts reported for the2004 Series C equity units and 2006 Series C equity units reflect the dollaramount recognized for financial statement reporting purposes for the fiscal yearended December 31, 2006, in accordance with SFAS No. 123(R). Assumptionsused in the calculation of these amounts are described in Note 16,Redeemable Equity Units, of the Notes to Consolidated Financial Statements in“Item 8.  Consolidated Financial Statements”of this Form 10-K.

(4)             Represents2006 payments awarded under our annual variable Incentive and Performance Plan.The specific financial goals and performance objectives at corporate andbusiness unit levels used to calculate these payments are as follows:

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| W. Thomas Stephens | 100% corporate incentive cash flow  Less 10% safety adjustment if corporate recorded incident rate (RIR) not met                                                                       |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                   |
| Thomas E.  Carlile | 100% corporate incentive cash flow  Less 10% safety adjustment if corporate RIR not met                                                                                                |
|               |                                                                                                                                                                                   |
| Alexander  Toeldte | 25% corporate incentive cash flow  32.5% Paper cash flow  19.5% Packaging & Newsprint cash flow  13% Central Texas Corrugated EBITDA and volume  10% safety based on corporate RIR |
|               |                                                                                                                                                                                   |
| Stanley R. Bell    | 20% corporate incentive cash flow  40% division Pre-Tax Return on Net Working Capital (PRONWC)  40% division EBITDA  Less 10% safety adjustment if corporate RIR not met               |
|               |                                                                                                                                                                                   |
| Thomas A.  Lovlien | 20% corporate incentive cash flow  Less 10% safety adjustment if corporate RIR not met  80% division cash flow  Less 10% safety adjustment if division RIR not met                     |

 

(5)             Amounts disclosed in this column include the following:
| **Name**            | ** ** | **Year** | ** ** | **Change in  Pension Value (a)** | ** ** | **Nonqualified Deferred  Compensation  Earnings (b)** | ** ** |
|---------------------|------------|----------|------------|--------------------------------------------|------------|------------------------------------------------------------|------------|
|                |       |     |       |                                       |       |                                                       |       |
| W. Thomas  Stephens |       | 2006     |       | $                                          | —     |                                                       | $          | — |   |
| Thomas E.  Carlile  |       | 2006     |       | 577,978                                    |       | 1,709                                                      |       |
| Alexander  Toeldte  |       | 2006     |       | —                                     |       | 634                                                        |       |
| Stanley R. Bell     |       | 2006     |       | 655,796                                    |       | 4,189                                                      |       |
| Thomas A. Lovlien   |       | 2006     |       | 373,684                                    |       | 2,044                                                      |       |
|                     |            |          |            |                                            |            |                                                            |            |  |  |

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(a)            The amounts reportedfor Messrs. Carlile, Bell, and Lovlien reflect the actuarial increase in thepresent value of their benefits under all pension plans established by thecompany using interest rate and mortality rate assumptions consistent withthose used in the company’s financial statements and include amounts that suchofficers may not currently be entitled to receive because such amounts are notvested. Messrs. Stephens and Toeldte are not eligible to participate in thecompany’s pension plans.

(b)           The amounts reportedfor Messrs. Carlile, Toeldte, Bell, and Lovlien reflect the above-marketportion of the interest they earned on their 2006 deferred compensation. Mr.Stephens did not participate in the company’s Deferred Compensation Plan during2006.

(6)             Amountsdisclosed in this column include the following:
| **Name**            | ** ** | **Year** | ** ** | **Company-Matching  Contributions  to Savings and  Deferred  Compensation  Plans (a)** | ** ** | **Company-Paid  Portion of  Executive  Officer  Life Insurance** | ** ** | **Reportable  Perquisites (b)** | ** ** |
|---------------------|------------|----------|------------|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------------------|------------|
|                |       |     |       |                                                                                             |       |                                                                       |       |                            |       |
| W. Thomas  Stephens |       | 2006     |       | $                                                                                                | 4,620      |                                                                       | $          | —                          |       | $ | 5,121 |   |
| Thomas E.  Carlile  |       | 2006     |       | 29,400                                                                                           |       | 12,425                                                                     |       | 5,491                           |       |
| Alexander  Toeldte  |       | 2006     |       | 31,535                                                                                           |       | 360                                                                        |       | 96,763                          |       |
| Stanley R. Bell     |       | 2006     |       | 32,592                                                                                           |       | 18,553                                                                     |       | 12,661                          |       |
| Thomas A. Lovlien   |       | 2006     |       | 26,950                                                                                           |       | 15,606                                                                     |       | —                          |       |
|                     |            |          |            |                                                                                                  |            |                                                                            |            |                                 |            |  |  |  |

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(a)            The company’s SavingsPlan is a defined contribution plan intended to be qualified under Section401(a) of the Internal Revenue Code that contains a cash or deferredarrangement meeting the requirements of Section 401(k) of the code. TheDeferred Compensation Plan is a nonqualified savings plan offered to a selectgroup of management and key employees. Participants in the DeferredCompensation Plan may choose to have matching contributions made under theDeferred Compensation Plan in lieu of receiving matching contributions underthe Savings Plan.

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(b)           The cost incurred by the company for various perquisites provided toMr. Lovlien is not reflected because the amount did not exceed $10,000. Amountsdisclosed in this column for various other perquisites provided to Messrs.Stephens, Carlile, Toeldte, and Bell including thefollowing:
| Name                | ** ** | **Nonbusiness  Memberships** | ** ** | **Supplemental  Healthcare** | ** ** | **Financial  Counseling** | ** ** | **Legal Fees** | ** ** | **Relocation  Expenses** | ** ** |
|---------------------|------------|------------------------------|------------|------------------------------|------------|---------------------------|------------|---------------------|------------|--------------------------|------------|
| ** **          | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **                | ** ** | ** **          | ** ** | ** **               | ** ** |
| W. Thomas  Stephens |       | $                            | 5,121      |                         | $          | *                         |       | $                   | —     |                     | $          | — |   | $ | — |   |
| Thomas E.  Carlile  |       | —                       |       | *                            |       | 5,491                     |       | —              |       | —                   |       |
| Alexander  Toeldte  |       | 20,160                       |       | *                            |       | —                    |       | 14,621              |       | 61,982                   |       |
| Stanley R. Bell     |       | 4,471                        |       | *                            |       | 8,190                     |       | —              |       | —                   |       |
|                |       |                         |       |                         |       |                      |       |                |       |                     |       |
|                     |            |                              |            |                              |            |                           |            |                     |            |                          |            |  |  |  |  |  |

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*                    Pursuant to federal healthcareprivacy regulations, we have not reflected any amounts incurred by the namedexecutive officers under the company’s Supplemental Healthcare Plan for ExecutiveOfficers. None of our named executive officers incurred costs under the plan inexcess of $10,000.

***Grants of Plan-Based Awards***

Mr. Toeldte wasour only named executive officer who was granted a plan-based award during2006. In connection with the purchase of his Series B equity units onApril 3, 2006, Mr. Toeldte was granted, at no additional cost, 4,500,0002006 Series C equity units. The 2006 Series C equity units representthe right to participate in the company’s profits after the holders of theSeries B equity units and 2004 Series C equity units have received aspecified threshold return on their invested capital. The terms of this grantare further described in the Management Equity Agreement dated April 3,2006, and filed with the SEC on April 6, 2006, as Exhibit 99.1 to thecompany’s report on Form 8-K.
| ** **

**Name** | ** ** | **Grant Date** | ** ** | **All Other Stock Awards:  Number of Shares of Stock or Units  (#)** | ** ** | **Grant Date Fair Value  of Stock and Option Awards  ($)** | ** ** |
|----------------------|------------|---------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
|                 |       |                |       |                                                                                                              |       |                                                                                          |       |
| W. Thomas  Stephens  |       | —              |       | —                                                                                                            |       | $                                                                                             | —     |   |
| Thomas E.  Carlile   |       | —              |       | —                                                                                                            |       | —                                                                                        |       |
| Alexander  Toeldte   |       | 4/3/06              |       | 4,500,000                                                                                                         |       | 427,500                                                                                       |       |
| Stanley R. Bell      |       | —              |       | —                                                                                                            |       | —                                                                                        |       |
| Thomas A. Lovlien    |       | —              |       | —                                                                                                            |       | —                                                                                        |       |
|                      |            |                     |            |                                                                                                                   |            |                                                                                               |            |  |

 

***OutstandingEquity Awards at Fiscal Year-End***

The following table reflects the number of our namedexecutive officers’ 2004 Series C equity units and 2006 Series C equity unitsthat have not vested as of December 31, 2006:
| ** **          | ** ** | **Stock Awards**                                                                                          | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| **Name**            | ** ** | **Number of Shares or Units of  Stock That Have Not Vested  (#)** | ** ** | **Value of Shares or Units of Stock  That Have Not Vested  ($) (1)** | ** ** |
|                |       |                                                                                                           |       |   |   |
| W. Thomas  Stephens |       | 7,455,333                                                                                                      |       | $ | 3,149,878 |   |
| Thomas E.  Carlile  |       | 1,916,800                                                                                                      |       | 510,348 |   |
| Alexander  Toeldte  |       | 3,600,000                                                                                                      |       | 328,500 |   |
| Stanley R. Bell     |       | 1,533,600                                                                                                      |       | 408,321 |   |
| Thomas A. Lovlien   |       | 680,800                                                                                                        |       | 181,263 |   |
|                     |            |                                                                                                                |            |  |  |  |

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(1)             Becausethese units are not publicly traded, there was no ascertainable value for theunits. Accordingly, the values shown reflect the fair value of these units onthe grant date. The actual value, if any, realized by a participant may varysignificantly from the grant date fair value.

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***OptionExercises and Stock Vested***

The following table reflectsthe number of our named executive officers’ 2004 Series C equity units and 2006Series C equity units that vested during 2006:
| ** **          | ** ** | **Stock Awards**                                              | ** ** |
|---------------------|------------|--------------------------------------------------------------------|------------|
| **Name**            | ** ** | **Number of Shares Acquired  on Vesting  (#)** | ** ** | **Value Realized  on Vesting  ($) (1)** | ** ** |
|                |       |                                                               |       |   |   |
| W. Thomas  Stephens |       | 3,727,667                                                          |       | $ | 1,714,727 |   |
| Thomas E.  Carlile  |       | 479,200                                                            |       | 220,432 |   |
| Alexander  Toeldte  |       | 900,000                                                            |       | 99,000 |   |
| Stanley R. Bell     |       | 383,400                                                            |       | 176,364 |   |
| Thomas A. Lovlien   |       | 170,200                                                            |       | 78,292 |   |
|                     |            |                                                                    |            |  |  |  |

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(1)             Becausethese units are not publicly traded, there was no ascertainable value for theunits on the vesting date. Accordingly, the values shown reflect the fair valueof these units on the grant date. The actual value, if any, realized by aparticipant may vary significantly from the grant date fair value.

***Pension Benefits***

We maintain a definedbenefit pension plan, which we refer to as the Salaried Pension Plan, as wellas supplemental pension plans for certain salaried employees, including threeof our named executive officers — Messrs. Carlile, Bell, and Lovlien. TheSalaried Pension Plan is available only to employees who were formerly employedby OfficeMax before November 2003. Accordingly, Messrs. Stephens and Toeldteare not eligible to participate in the company’s pension plans.

Our Salaried Pension Planentitles each vested employee to receive a pension benefit at normal retirementequal to 1.25% of the average of the highest five consecutive years ofcompensation out of the last ten years of employment multiplied by theparticipant’s years of service through December 31, 2003, plus 1% of theaverage of the highest five consecutive years of compensation out of the lastten years of employment multiplied by the participant’s years of serviceafter December 31, 2003. Under the Salaried Pension Plan, “compensation”is defined as the employee’s base salary plus any amounts earned under ourvariable incentive compensation programs. Benefits are computed on a straight-lifeannuity basis and are not offset by Social Security or other retirement-typebenefits. An employee is 100% vested in his or her pension benefit after fiveyears of service, except for breaks in service.

If an employee is entitled to a greater benefitunder the Salaried Pension Plan formula than the Internal Revenue Code allowsfor tax-qualified plans, the excess benefits will be paid from the company’sgeneral assets under our unfunded Supplemental Pension Plan (SUPP). The SUPPwill also provide payments to the extent that participation in the deferredcompensation plans has the effect of reducing an individual’s pension benefitunder the qualified plan.

Under our Supplemental Early Retirement Plan(SERP), an officer who was an officer of OfficeMax immediately prior to theForest Products Acquisition, who is 55 years old or older, has ten or moreyears of service, has served as an officer for at least five full years, andretires before the age of 65 is eligible for benefits under the plan. Eligibleofficers receive an early retirement benefit prior to the age of 65 equal tothe benefit calculated under the Salaried Pension Plan without reduction due tothe officer’s early retirement. Benefits payable under the SERP are offset bybenefits payable under a similar plan maintained by OfficeMax. Messrs. Carlileand Bell are currently eligible for early retirement under this plan.

 

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The following tablereflects the present value of accumulated benefits payable to Messrs. Carlile,Bell, and Lovlien, including the number of years of service credited to each ofthem, under the Salaried Pension Plan, the SUPP, and the SERP. Assumptions usedin the calculation of these amounts are described in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”**and in Note 15, Retirement and Benefit Plans, of theNotes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K.Messrs. Carlile, Bell, and Lovlien did not receive any payments under any ofour pension plans during 2006.
| Name               | ** ** | **Plan Name**     | ** ** | **Number of  Years Credited  Service  (#) (1)** | ** ** | **Present Value  of Accumulated  Benefit  ($)** | ** ** |
|--------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|               |       |                   |       |                                                      |       |                                                      |       |
| W. Thomas Stephens |       | Salaried  Pension Plan |       | —                                                    |       | $                                                         | —     |   |
|                    |       | SUPP                   |       | —                                                    |       | —                                                    |       |
|                    |       | SERP                   |       | —                                                    |       | —                                                    |       |
|               |       |                   |       |                                                      |       |                                                      |       |
| Thomas E. Carlile  |       | Salaried  Pension Plan |       | 34                                                        |       | 864,027                                                   |       |
|                    |       | SUPP                   |       | 34                                                        |       | 466,172                                                   |       |
|                    |       | SERP                   |       | 34                                                        |       | 456,955                                                   |       |
|               |       |                   |       |                                                      |       |                                                      |       |
| Alexander Toeldte  |       | Salaried  Pension Plan |       | —                                                    |       | —                                                    |       |
|                    |       | SUPP                   |       | —                                                    |       | —                                                    |       |
|                    |       | SERP                   |       | —                                                    |       | —                                                    |       |
|               |       |                   |       |                                                      |       |                                                      |       |
| Stanley R. Bell    |       | Salaried  Pension Plan |       | 36                                                        |       | 1,198,215                                                 |       |
|                    |       | SUPP                   |       | 36                                                        |       | 555,335                                                   |       |
|                    |       | SERP                   |       | 36                                                        |       | 276,939                                                   |       |
|               |       |                   |       |                                                      |       |                                                      |       |
| Thomas A. Lovlien  |       | Salaried  Pension Plan |       | 28                                                        |       | 432,824                                                   |       |
|                    |       | SUPP                   |       | 28                                                        |       | 236,907                                                   |       |
|                    | ** ** | SERP (2)               |       | 28                                                        |       | 272,181                                                   |       |
|                    |            |                        |            |                                                           |            |                                                           |            |  |

----

(1)             Numberof years credited service for Messrs. Carlile, Bell, and Lovlien includeamounts attributable to employment with OfficeMax prior to the Forest ProductsAcquisition.

(2)             AssumesMr. Lovlien remains employed with the company until age 55 and becomes vestedin the SERP.

***Nonqualified DeferredCompensation***

With the exception of Mr. Stephens, allof our named executive officers participated in our Deferred Compensation Planduring 2006. Our Deferred Compensation Plan is an unfunded plan. Under theplan, officers may irrevocably elect to defer receipt of a portion of theirbase salary and bonus. A participant’s account is credited with imputedinterest at a rate equal to 130% of Moody’s Composite Average of Yields onCorporate Bonds. In addition, participants may elect to receive theircompany-matching contribution in our Deferred Compensation Plan in lieu of anymatching contribution in our 401(k) Savings Plan. For Messrs. Carlile,Bell, and Lovlien (who participate in our defined benefit pension plan), thematching contribution is equal to $0.70 on the dollar up to the first 6% ofeligible compensation. For Mr. Toeldte (who does not participate in ourdefined benefit pension plan), the matching contribution is equal to $0.70 onthe dollar up to the first 6% of eligible compensation, plus an additionaldiscretionary match that may vary from year to year. In 2006, the discretionarymatch was equal to $0.30 on the dollar up to the first 6% of eligiblecompensation. Participants elect the form and timing of distributions of theirdeferred compensation balances. Participants may receive payment in cash in alump sum or in annual installments following the termination of theiremployment with the company.

None of our named executive officers hadwithdrawals or distributions under our Deferred Compensation Plan during 2006.

132

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| **Name**           | ** ** | ** ** | ** ** | **Executive  Contributions in  Last FY  ($) (1)** | ** ** | **Registrant  Contributions in  Last FY  ($) (2)** | ** ** | **Aggregate  Earnings  in Last FY  ($) (3)** | ** ** | **Aggregate  Balance  at Last FYE  ($)** | ** ** |
|--------------------|------------|------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------|------------|
|               |       |       |       |                                                        |       |                                                         |       |                                                   |       |
| W. Thomas Stephens |       | $          | —     |                                                        | $          | —                                                       |       | $                                                      | —     |                                               | $          | — |   |
| Thomas E. Carlile  |       | 42,000     |       | 29,400                                                      |       | 6,725                                                        |       | 122,906                                                |       |
| Alexander Toeldte  |       | 30,000     |       | 21,000                                                      |       | 2,506                                                        |       | 62,229                                                 |       |
| Stanley R. Bell    |       | 184,695    |       | 32,592                                                      |       | 16,313                                                       |       | 295,520                                                |       |
| Thomas A. Lovlien  |       | 64,167     |       | 26,950                                                      |       | 8,027                                                        |       | 147,551                                                |       |
|                    |            |            |            |                                                             |            |                                                              |            |                                                        |            |                                                    |            |  |  |  |  |

----

(1)             Theseamounts were included in the “Salary” column of the Summary Compensation Table.

(2)             Theseamounts were included in the “All Other Compensation” column of the SummaryCompensation Table.

(3)             Theabove-market portion of these amounts was reported in the “Change in PensionValue and Nonqualified Deferred Compensation Earnings” column of the SummaryCompensation Table.

***Agreements With, and Potential Payments to, Named ExecutiveOfficers***

The following summaries provide a description of theagreements the company has entered into with our named executive officers. Thetables following each summary reflect an estimate of the compensation thecompany would be required to pay each named executive officer in the event oftermination of such officer’s employment with the company due to:

·                  Voluntarytermination with good reason;

·                  Involuntarytermination without cause;

·                  For causetermination or voluntary termination without good reason;

·                  Involuntary terminationdue to employment agreement not being renewed;

·                  Death; or

·                  Disability.

The amounts shown assume that such termination waseffective as of December 31, 2006, and thus include amounts earned through thattime. The actual amounts the company would be required to pay can only bedetermined at the time of such officer’s separation from the company.

*W. Thomas Stephens*

The company entered intoan Employment Agreement with Mr. Stephens on October 29, 2004, pursuant towhich he serves as our chairman and chief executive officer. Pursuant to thisagreement, Mr. Stephens received an initial annual base salary of$1,000,000, which is subject to adjustment at the discretion of our board ofdirectors. In addition to base salary, Mr. Stephens is eligible to receive anannual performance bonus up to a maximum of 146% of his annual salary, basedupon the achievement of financial and other objective targets as determined bythe compensation committee of our board of directors or the board itself. Thisagreement is scheduled to expire on October 29, 2007, and will be automaticallyextended each year thereafter unless either party gives the other party60 days’ written notice prior to the extension date. If the companychooses not to extend this agreement, Mr. Stephens will be entitled to receivehis base salary through the date of expiration, the value of any unused andaccrued time off less any advanced time off, and severance in accordance withthe company’s Executive Officer Severance Pay Policy.

If Mr. Stephens voluntarily terminates employment withgood reason or if he is involuntarily terminated without cause, and subject tohis execution of a valid release of employment-related claims, he will beentitled to receive a lump sum payment equal to two times the sum of his annualbase salary and annual target bonus and will remain eligible to participate inour benefit plans for a period of two years, including our financial counselingservices. We will also be required to increase Mr. Stephens’ totalpayments under the agreement to cover any excise taxes imposed by the InternalRevenue Service as a result of such payments. Additionally, if Mr. Stephens isinvoluntarily terminated without cause, we will be required to purchase realproperty in Boise, Idaho, from Mr. Stephens for its appraised fair marketvalue, which as of July 2005 was estimated to be $850,000. We also maintain aterm life insurance policy on 

133

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Mr. Stephens’ life with a $2,000,000 face amount,which policy is payable to Mr. Stephens’ designated beneficiaries.

Mr. Stephens has the right under the agreement tohold a position on our board of directors for so long as he is employed underthe terms of the agreement. The agreement also imposes on Mr. Stephens apermanent confidentiality obligation and a noncompete and nonsolicitationobligation that will continue to be in effect for two years after hisemployment terminates.

**W. Thomas Stephens**
| **Benefit**                                                             | ** ** | **Voluntary  Termination**With Good  Reason (1) | ** **    | **Involuntary  Termination  Without  Cause (1)** | ** ** | **For Cause  Termination  or  Voluntary  Termination  Without  Good  Reason (1)** | ** ** | **Involuntary  Termination  Due to  Employment  Agreement  Not Being  Renewed (1)** | ** **  | **Death (1)** | ** ** | **Disability (1)** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|---------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|-------------|---------------|------------|--------------------|------------|
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Base salary  (2 x base salary of $1,000,000)                            |       | $                                                    | 2,000,000     |                                             | $          | 2,000,000                                                                              |       | $                                                                                             | —      |          | $          | —             |       | $ | — |   | $ | — |   |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Incentive and  Performance Plan  (2 x target 65% award)                 |       | 1,300,000                                            |          | 1,300,000                                        |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Insurance Premiums—Term  Life  (for 24 months)                     |       | 20,510                                               |          | 20,510                                           |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Insurance—Healthcare,  Disability, & Accident

(for 24 months) |       | 14,073                                               |          | 14,073                                           |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Financial Counseling  (for 24 months)                                   |       | 10,000                                               |          | 10,000                                           |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Real Property (2)                                                       |       | —                                               |          | 75,324                                           |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Unused vacation time—208  hours                                    |       | 100,000                                              |          | 100,000                                          |       | 100,000                                                                                |       | 100,000                                                                                       |        | 100,000       |       | 100,000            |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Severance—one year  (per Executive Officer Severance  Pay Policy)  |       | —                                               |          | —                                           |       | —                                                                                 |       | 1,000,000                                                                                     |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| Excise Tax and Gross-Up                                                 |       | —                                               |          | —                                           |       | —                                                                                 |       | —                                                                                        |        | —        |       | —             |       |
|                                                                    |       |                                                 |          |                                             |       |                                                                                   |       |                                                                                          |        |          |       |               |       |
| **TOTAL (3)**                                                           |       | **$**                                                | **3,444,583** | ** **                                       | **$**      | **3,519,907**                                                                          | ** ** | **$**                                                                                         | **100,000** | ** **    | **$**      | **1,100,000**      | ** ** | **$** | **100,000** | ** ** | **$** | **100,000** |   |

----

| (1)    |   | Receives base salary through date of termination.                                                                                                                                                                                 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                              |
| (2)    |   | Incremental cost to the company based on a purchase  from Mr. Stephens for $850,000 (appraised fair market value as of July 2005)  and a resale to an independent third-party purchaser within six months, minus  brokerage fees. |
|   |   |                                                                                                                                                                                                                              |
| (3)    |   | Total amounts shown are in addition to payments Mr.  Stephens is entitled to receive under the company’s Management Equity Plan  and Savings Plan.                                                                           |

 

134

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*Alexander Toeldte*

Thecompany entered into an Offer of Future Employment with Mr. Toeldte on October1, 2005. Pursuant to the terms of the agreement, Mr. Toeldte is subject toregular performance reviews and is eligible to receive an annual bonus with atarget value of 65% of his base pay. Mr. Toeldte is also eligible for standardbenefits offered to officers, which include an annual financial counselingallowance of $5,000 and participation in the company’s Deferred CompensationPlan. Mr. Toeldte is eligible to receive the maximum paid time off available toour salaried employees, which is currently 31 days annually. If Mr. Toeldte isinvoluntarily terminated (other than for disciplinary reasons), he will beeligible to receive the severance benefits set forth in his severance agreementdescribed below.

Thecompany also entered into a Foreign Service Policy (Relocation) Agreement withMr. Toeldte on October 1, 2005, pursuant to which we assisted him in theprocess of obtaining permanent residency and paid his legal expenses associatedwith that process. For 2006, we will protect Mr. Toeldte from any adverse taximpact resulting from his relocation. Additionally, we will pay reasonablecosts associated with the services of a tax advisor, to be chosen by thecompany, for the preparation of his personal income tax returns in New Zealand,the United States, and any third country. If, due to immigration requirements,Mr. Toeldte or members of his family cannot continue to reside in the UnitedStates, we will provide for his repatriation to New Zealand.

The company entered into a severance agreement withMr. Toeldte on October 1, 2005. Pursuant to the terms of the agreement, ifMr. Toeldte’s employment is involuntarily terminated without cause or ifhe voluntarily terminates employment with good reason, as defined in theagreement, and subject to his execution of a valid release ofemployment-related claims, he will be entitled to severance pay equal to twotimes his annual base salary plus his target annual incentive for the year inwhich the termination occurs. To the extent not already paid, he will receive alump sum amount equal to the value of his unused and accrued time off, less anyadvanced time off. He will also be eligible for continuation for two years ofall life, disability, accident, and healthcare insurance plans and financialcounseling services, or a lump sum payment equal to (a) 36 times themonthly group premium for such insurance plans plus (b) three times theannual allowance for such financial counseling services. The agreement alsoimposes on Mr. Toeldte confidentiality and nondisparagement provisions, aswell as a nonsolicitation provision that applies for a period of one yearfollowing the termination date.

135

----

**Alexander Toeldte**
| **Benefit**                                                                    | ** ** | **Voluntary  Terminationw**ith Good  Reason (1) | ** **    | **Involuntary  Termination  Without  Cause (1)** | ** ** | **For Cause  Termination  or Voluntary  Termination  Without Good  Reason (1)** | ** ** | **Death (1)** | ** ** | **Disability (1)** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|---------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------|------------|
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Base salary  (2 x base salary of $500,000)                           |       | $                                                    | 1,000,000     |                                             | $          | 1,000,000                                                                                      |       | $             | —     |               | $          | — |   | $ | — |   |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Incentive and  Performance Plan  (2 x target 65% award)              |       | 650,000                                              |          | 650,000                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance Premiums  (for 24 months)                                       |       | —                                               |          | —                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance — Healthcare,  Disability, & Accident  (for 24 months) |       | 21,741                                               |          | 21,741                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Financial Counseling  (for 24 months)                                     |       | 10,000                                               |          | 10,000                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Unused vacation time —  178 hours                                         |       | 42,788                                               |          | 42,788                                           |       | 42,788                                                                                         |       | 42,788        |       | 42,788             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Excise Tax and Gross-Up                                                        |       | —                                               |          | —                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                           |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| **TOTAL (2)**                                                                  |       | **$**                                                | **1,724,529** | ** **                                       | **$**      | **1,724,529**                                                                                  | ** ** | **$**         | **42,788** | ** **         | **$**      | **42,788** | ** ** | **$** | **42,788** |   |

----

(1)             Receivesbase salary through date of termination.

(2)             Totalamounts shown are in addition to payments Mr. Toeldte is entitled to receiveunder the company’s Management Equity Plan, Savings Plan, and DeferredCompensation Plan.

136

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*Thomas E. Carlile, Stanley R. Bell, Thomas A.Lovlien*

Prior to the Forest Products Acquisition, OfficeMaxentered into agreements with most of our current executive officers to providefor severance benefits if we terminated the officer after the Forest ProductsAcquisition. In connection with the Forest Products Acquisition, we assumedthese agreements and agreed to perform these agreements following the closingof the Forest Products Acquisition. These agreements generally expire inOctober 2007. Pursuant to the terms of these severance agreements, Messrs.Carlile, Bell, and Lovlien are each entitled to the following benefits subjectto his execution of a valid release of employment-related claims:  if the officer’s employment is involuntarilyterminated without cause or if the officer voluntarily terminates employmentwith good reason, as defined in the agreements, the officer will be entitled toseverance pay equal to the following: two times the officer’s annual base salary plus the greater of(1) the officer’s annual target incentive bonus for the year in which thetermination occurs or (2) the officer’s incentive bonus for 2004; accruedand unpaid vacation; continuation for two years of all life, disability,accident, and healthcare insurance plans and financial counseling services; ora lump sum payment equal to (a) 24 times 150% of the monthly premiumfor such insurance plans plus (b) two times the annual allowance for suchfinancial counseling services and the premium under our Supplemental Life Planfor 24 months following the officer’s termination date. We will also berequired to increase the officer’s total payments under the agreement to coverany excise taxes imposed by the Internal Revenue Service as a result of suchpayments.

Such officer will also be entitled to additionalspecial pension benefits. For purposes of calculating the amount of the specialpension benefit, the officer will be deemed to have accrued at least twoadditional years of service credit at a salary equal to the officer’s basesalary and target bonus at the time of termination. The officer will also beentitled to legal fees incurred to enforce the agreement.

The agreements also impose on the officersconfidentiality and nondisparagement provisions, as well as a nonsolicitationprovision that applies for a period of one year following the officer’stermination date.

137

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**Thomas E. Carlile**
| **Benefit**                                                                                                                      | ** ** | **Voluntary  Termination**With Good  Reason (1) | ** **    | **Involuntary  Termination  Without  Cause (1)** | ** ** | **For Cause  Termination  or Voluntary  Termination  Without Good  Reason (1)** | ** ** | **Death (1)** | ** ** | **Disability (1)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|---------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------|------------|
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Base salary  (2 x base salary of $425,000)                                                                                       |       | $                                                    | 850,000       |                                             | $          | 850,000                                                                                        |       | $             | —     |               | $          | — |   | $ | — |   |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Incentive and  Performance Plan  (2 x target 65% award)                                                                          |       | 552,500                                              |          | 552,500                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Enhanced Pension  Benefits (2)  (enhanced present value, includes full vesting and additional 2 years  compensation and service) |       | 872,275                                              |          | 872,275                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance  Premiums —  Supplemental Life Plan  (for 24 months)                                                              |       | 24,850                                               |          | 24,850                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance —  Healthcare, Disability, & Accident  (for 24 months)                                                        |       | 14,469                                               |          | 14,469                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Financial  Counseling  (for 24 months)                                                                                           |       | 10,000                                               |          | 10,000                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Unused vacation  time — 220 hours                                                                                           |       | 44,952                                               |          | 44,952                                           |       | 44,952                                                                                         |       | 44,952        |       | 44,952             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Excise Tax and  Gross-Up (3)                                                                                                     |       | 906,931                                              |          | 906,931                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| **TOTAL (4)**                                                                                                                    |       | **$**                                                | **3,275,977** | ** **                                       | **$**      | **3,275,977**                                                                                  | ** ** | **$**         | **44,952** | ** **         | **$**      | **44,952** | ** ** | **$** | **44,952** |   |

----

(1)             Receivesbase salary through date of termination.

(2)             Theamount shown reflects the enhanced pension value, discounted at a rate of 5.9%,under the company’s nonqualified pension plans. 

(3)    Reflectsadditional payments required to cover excise taxes imposed by the InternalRevenue Service, assuming hypothetical termination on December 31, 2006.

(4)             Totalamounts shown are in addition to payments Mr. Carlile is entitled to receiveunder the company’s Management Equity Plan, Salaried Pension Plan, SUPP,Savings Plan, and Deferred Compensation Plan.

138

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**Stanley R. Bell**
| **Benefit**                                                                                                                      | ** ** | **Voluntary  Terminationw**ith Good  Reason (1) | ** **    | **Involuntary  Termination  Without  Cause (1)** | ** ** | **For Cause  Termination  or Voluntary  Termination  Without Good  Reason (1)** | ** ** | **Death (1)** | ** ** | **Disability (1)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|---------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------|------------|
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Base salary  (2 x base salary of $370,000)                                                                                       |       | $                                                    | 740,000       |                                             | $          | 740,000                                                                                        |       | $             | —     |               | $          | — |   | $ | — |   |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Incentive and  Performance Plan  (2 x target 55% award)                                                                          |       | 407,000                                              |          | 407,000                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Enhanced Pension  Benefits (2)  (enhanced present value, includes full vesting and additional 2 years  compensation and service) |       | 501,179                                              |          | 501,179                                          |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance  Premiums —  Supplemental Life Plan  (for 24 months)                                                              |       | 37,106                                               |          | 37,106                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Insurance —  Health, Disability, & Accident  (for 24 months)                                                            |       | 14,469                                               |          | 14,469                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Financial  Counseling  (for 24 months)                                                                                           |       | 10,000                                               |          | 10,000                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Unused vacation  time — 252 hours                                                                                           |       | 44,827                                               |          | 44,827                                           |       | 44,827                                                                                         |       | 44,827        |       | 44,827             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| Excise Tax and  Gross-Up                                                                                                         |       | —                                               |          | —                                           |       | —                                                                                         |       | —        |       | —             |       |
|                                                                                                                             |       |                                                 |          |                                             |       |                                                                                           |       |          |       |               |       |
| **TOTAL (3)**                                                                                                                    |       | **$**                                                | **1,754,581** | ** **                                       | **$**      | **1,754,581**                                                                                  | ** ** | **$**         | **44,827** | ** **         | **$**      | **44,827** | ** ** | **$** | **44,827** |   |

----

(1)             Receivesbase salary through date of termination.

(2)             Theamount shown reflects the enhanced pension value, discounted at a rate of 5.9%,under the company’s nonqualified pension plans.

(3)             Totalamounts shown are in addition to payments Mr. Bell is entitled to receive underthe company’s Management Equity Plan, Salaried Pension Plan, SUPP, SavingsPlan, and Deferred Compensation Plan.

139

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**Thomas A. Lovlien**
| **Benefit**                                                                                                                       | ** ** | **Voluntary  Terminationw**ith Good  Reason (1) | ** **    | **Involuntary  Termination  Without  Cause (1)** | ** ** | **For Cause  Termination  or Voluntary  Termination  Without Good  Reason (1)** | ** ** | **Death (1)** | ** ** | **Disability (1)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|---------------|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Base salary  (2 x base salary of $350,000)                                                                                        |       | $                                                         | 700,000       |                                                  | $          | 700,000                                                                                             |       | $                  | —     |                    | $          | — |   | $ | — |   |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Incentive and  Performance Plan  (2 x target 55% award)                                                                           |       | 385,000                                                   |          | 385,000                                               |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Enhanced Pension  Benefits (2)  (enhanced present value, includes full vesting and   additional 2 years compensation and service) |       | 1,065,057                                                 |          | 1,065,057                                             |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Insurance Premiums —   Supplemental Life Plan   (for 24 months)                                                              |       | 31,212                                                    |          | 31,212                                                |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Insurance — Healthcare,  Disability, & Accident  (for 24 months)                                                         |       | 13,308                                                    |          | 13,308                                                |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Financial Counseling  (for 24 months)                                                                                             |       | 10,000                                                    |          | 10,000                                                |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Unused vacation time —  276 hours                                                                                            |       | 46,442                                                    |          | 46,442                                                |       | 46,442                                                                                              |       | 46,442             |       | 46,442                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| Excise Tax and Gross-Up  (3)                                                                                                      |       | 945,210                                                   |          | 945,210                                               |       | —                                                                                              |       | —             |       | —                  |       |
|                                                                                                                              |       |                                                      |          |                                                  |       |                                                                                                |       |               |       |                    |       |
| **TOTAL (4)**                                                                                                                     |       | **$**                                                     | **3,196,229** | ** **                                            | **$**      | **3,196,229**                                                                                       | ** ** | **$**              | **46,442** | ** **              | **$**      | **46,442** | ** ** | **$** | **46,442** |   |

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(1)             Receivesbase salary through date of termination.

(2)             Theamount shown reflects the enhanced pension value, discounted at a rate of 5.9%,under the company’s nonqualified pension plans.

(3)    Reflectsadditional payments required to cover excise taxes imposed by the InternalRevenue Service, assuming hypothetical termination on December 31, 2006.

(4)             Totalamounts shown are in addition to payments Mr. Lovlien is entitled to receiveunder the company’s Management Equity Plan, Salaried Pension Plan, SUPP,Savings Plan, and Deferred Compensation Plan.

*Other Elected Officers*

Prior to the Forest Products Acquisition, OfficeMaxalso entered into severance agreements with certain of our other electedofficers, with terms similar to those described above, but which generallyprovide for one year of compensation and other benefits instead of two yearsand for at least one year of service credit for the special pension benefitrather than two years.

***Supplemental LifePlan***

Messrs. Carlile, Bell, and Lovlien participate in thecompany’s Supplemental Life Plan, which provides them with an insured deathbenefit during their employment with Boise. Officers who participate in theplan may purchase a life insurance policy from a designated insurance carrier,with policy premiums to be paid by Boise as described in the plan. The planprovides the officer with a target death benefit equal to two times his or herbase salary while employed at Boise and a target postretirement death benefitequal to one times his or her final base salary, both of which are less anyamount payable under Boise’s group term life insurance policy.

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***SupplementalHealthcare Plan for Executive Officers***

During 2006, thecompany’s Supplemental Healthcare Plan for Executive Officers provided electedofficers with additional medical coverage. This plan provided benefits forservices not available under the medical, dental, and vision programs availableunder our healthcare plan for all salaried employees. While these officersshared in the cost of their medical care by paying a monthly contribution, adeductible, and a percentage of the remaining expenses, the combination of theplans paid most of the major charges for covered healthcare expenses. Afterreviewing competitive plans of our surveyed companies and as a result of recentchanges in our salaried healthcare plan, we terminated the SupplementalHealthcare Plan for Executive Officers on December 31, 2006.

***Compensation ofDirectors***

EffectiveJuly 28, 2005, directors who are neither employees of the company norrepresentatives of the company’s two investors, FPH and OfficeMax, receivecompensation for their board service. In 2006, that compensation included:
| Annual Retainer:         | $50,000                                                                                                                           |
|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                     |                                                                                                                              |
| Committee Chair Stipend: | $15,000 annually for audit committee chair                                                                                        |
|                     | $10,000 annually for all other committee chairs                                                                                   |
|                     |                                                                                                                              |
| Attendance Fees:         | $1,500 for each board and committee meeting  (attended in person, conducted by telephone, or written consent in lieu of  meeting) |
|                     |                                                                                                                              |
|                     | Expenses related to attendance                                                                                                    |

 

The following table reflects the fees our four paid directors earned fortheir service on our board during 2006. None of our four paid directors servedas committee chairs during 2006.
| **Name**           | ** ** | **Fees Earned or  Paid in Cash  ($)** | ** ** | **Stock Awards  ($) (1)** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings  ($) (2)** | ** ** | **All Other  Compensation  ($) (3)** | ** ** | **Total  ($)** | ** ** |
|--------------------|------------|-----------------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------|------------|
|               |       |                                                      |       |                           |       |                                                                                                 |       |                                      |       |           |       |
| Hank Brown         |       | $                                                         | 63,500     |                           | $          | 29,333                                                                                               |       | $                                         | —     |           | $          | — |   | $ | 92,833 |   |
|               |       |                                                      |       |                           |       |                                                                                                 |       |                                      |       |           |       |
| William S.  Kirsch |       | 68,000                                                    |       | 15,200                         |       | —                                                                                               |       | —                                    |       | 83,200         |       |
|               |       |                                                      |       |                           |       |                                                                                                 |       |                                      |       |           |       |
| John W. Madigan    |       | 71,000                                                    |       | 29,333                         |       | 549                                                                                                  |       | —                                    |       | 100,882        |       |
|               |       |                                                      |       |                           |       |                                                                                                 |       |                                      |       |           |       |
| Duane C. McDougall |       | 74,000                                                    |       | 15,200                         |       | —                                                                                               |       | 10,000                                    |       | 99,200         |       |
|                    |            |                                                           |            |                                |            |                                                                                                      |            |                                           |            |                |            |  |  |  |  |  |

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(1)             OnApril 3, 2006, Messrs. Brown, Kirsch, Madigan, and McDougall were each granted,at no cost, 400,000 2006 Series C equity units. The 2006 Series C equity unitsrepresent the right to participate in the company’s profits after the holdersof the Series B equity units and 2004 Series C equity units have received aspecified threshold return on their investment capital. The terms of thesegrants are further described in the Director Equity Agreement dated April 3,2006, and filed with the SEC on April 6, 2006, as Exhibit 99.2 to the company’sreport on Form 8-K. The amounts shown for Messrs. Brown and Madigan are higherbecause they were age 65 or older as of December 31, 2006, which resulted indifferent vesting provisions being applied to their units. In addition, becauseof this, their performance units were valued at $.11/unit while the performanceunits of Messrs. Kirsch and McDougall were valued at $.08/unit. The amountsreported for these 2006 Series C equity units reflect the dollar amountrecognized for financial statement reporting purposes for the fiscal year endedDecember 31, 2006, in accordance with SFAS No. 123(R). Assumptions used in thecalculation of these amounts are included in Note 16, Redeemable EquityUnits, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of thisForm 10-K. As calculated under SFAS No. 123(R), the grant date fair valuesof these units were:  Hank Brown -$44,000; William S. Kirsch - $38,000; John W. Madigan - $44,000; and Duane C.McDougall - $38,000.

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(2)             Wedo not provide our directors with pension benefits. The amount reported in thiscolumn reflects the above-market portion of the interest Mr. Madigan earned onhis 2006 deferred compensation.

(3)             OnJanuary 4, 2006, we paid Mr. McDougall $10,000 as a consulting fee forassisting us in our evaluation of the Central Texas Corrugated acquisition andthe label and release project at our Wallula, Washington, paper mill.

*Directors Deferred Compensation Plan*

OnOctober 28, 2005, our board of directors approved the Directors DeferredCompensation Plan, which became effective on January 1, 2006. The planallows each director who receives compensation for board service to defer allor a portion of such compensation in a calendar year. Amounts deferred arecredited with imputed interest at a rate equal to 130% of Moody’s CompositeAverage of Yields on Corporate Bonds. Participants elect the form and timing ofdistributions of their deferred compensation balances. Participants may receivepayment in cash in a lump sum or in annual installments following their serviceon the board. Mr. Madigandeferred 100% of his 2006 fees under this plan, and he is the only director whohas elected to participate in the program in 2007.

***CompensationCommittee Interlocks and Insider Participation***

Nomember of our compensation committee was an officer or employee of the companyduring 2006. Messrs. Mencoff and Souleles each served as initial officers ofthe company when it was formed in 2004. None of our executive officers serve asa member of the board of directors or compensation committee of any entity thathas one or more executive officers serving on our board of directors orcompensation committee.

Messrs.Mencoff and Souleles, both members of our compensation committee, haverelationships with our equity sponsor, Madison Dearborn Partners, LLC (MDP).From time to time, we may pay fees to MDP for providing management, consulting,or other advisory services. As such, Messrs. Mencoff and Souleles may beindirect beneficiaries of the relationship between MDP and us. For moreinformation about these relationships, please refer to “Item 13.  Certain Relationships and RelatedTransactions, and Director Independence” of this Form 10-K.

***CompensationCommittee Report***

Thecompensation committee has reviewed and discussed the *Compensation Discussion and Analysis* withthe company’s management. Based on the review and discussions, the compensationcommittee has recommended to the board of directors that the *Compensation Discussion and Analysis*  be included in the company’s annual report onForm 10-K.

Thecurrent members of the company’s compensation committee are:

SamuelM. Mencoff, Chair

WilliamS. Kirsch

JohnW. Madigan

DuaneC. McDougall

ThomasS. Souleles

***ITEM 12.******                       ******SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS***

The following table sets forth information as ofJanuary 31, 2007, regarding the beneficial ownership of our equity unitsheld by:

·                  Each person thatis a beneficial owner of more than 5% of each series of our equity units;

·                  Each of ournamed executive officers;

·                  Each of ourdirectors; and

·                  All executiveofficers and directors as a group.

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Beneficial ownership of the equity units listed in thetable for Madison Dearborn Partners and members of our management representssuch person’s proportional interest in our total outstanding equity units ofthe series shown. Except as noted in the preceding sentence, beneficialownership of the equity units listed in the table has been determined inaccordance with the applicable rules and regulations promulgated under the ExchangeAct and generally includes voting or investment power over securities. Exceptin cases where community property laws apply or as indicated in the footnotesto the table, we believe that each equity holder identified in the tablepossesses sole voting and investment power over all equity units shown asbeneficially owned by such equity holder. Percentage of beneficial ownership isbased on our total equity units outstanding of each series as follows:

·                  Series B equityunits — 547,464,490

·                  2004 Series Cequity units — 31,676,540

·                  2006 Series Cequity units — 7,900,000

Unless indicated otherwise in the footnotes, theaddress of each individual listed in the table is c/o Boise Cascade Holdings,L.L.C., 1111 West Jefferson Street, Boise, Idaho 83728.

None of the equity units listed in the table arepledged as security pursuant to any pledge arrangement or agreement.Additionally, there are no arrangements with respect to the equity units, theoperation of which may result in a change in control of the company.
| ** **                                                     | ** ** | **Series B  Equity Units** | ** ** | **2004 Series C  Equity Units** | ** ** | **2006 Series C  Equity Units** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| **Name of Beneficial Owner**                    | ** ** | **Number**                           | ** ** | **Percent  of Series**                    | ** ** | **Number**                                     | ** ** | **Percent  of Series** | ** ** | **Number** | ** ** | **Percent  of Series** | ** ** |
| ** **                                                     | ** ** | ** **                           | ** ** | ** **                                     | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Principal  Equity Holders:**                                 | ** ** | ** **                           | ** ** | ** **                                     | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Forest Products Holdings, L.L.C. (1)                           |       | 438,464,490                          |       | 80.1                                           | %          | 31,676,540                                     |       | 100 | % | 7,900,000 |   | 100 | % |
| Madison Dearborn Partners (1)                                  |       | 419,556,601                          |       | 76.6                                           |       | —                                         |       | — |   | — |   | — |   |
| OfficeMax Incorporated (2)                                     |       | 109,000,000                          |       | 19.9                                           |       | —                                         |       | — |   | — |   | — |   |
|                                                           |       |                                 |       |                                           |       |                                           |       |   |   |   |   |   |   |
| **Named  Executive Officers and Directors:**                   | ** ** | ** **                           | ** ** | ** **                                     | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| W. Thomas Stephens                                             |       | 4,000,000                            |       | *                                              |       | 11,183,000                                     |       | 35.3 |   | — |   | — |   |
| Thomas E. Carlile                                              |       | 850,000                              |       | *                                              |       | 2,396,000                                      |       | 7.6 |   | — |   | — |   |
| Alexander Toeldte                                              |       | 280,000                              |       | *                                              |       | —                                         |       | — |   | 4,500,000 |   | 57.0 |   |
| Stanley R. Bell                                                |       | 740,000                              |       | *                                              |       | 1,917,000                                      |       | 6.1 |   | — |   | — |   |
| Thomas A. Lovlien                                              |       | 400,000                              |       | *                                              |       | 851,000                                        |       | 2.7 |   | — |   | — |   |
| Zaid F. Alsikafi (3)                                           |       | —                               |       | —                                         |       | —                                         |       | — |   | — |   | — |   |
| Matthew R. Broad (2)                                           |       | —                               |       | —                                         |       | —                                         |       | — |   | — |   | — |   |
| Hank Brown (4)                                                 |       | —                               |       | —                                         |       | —                                         |       | — |   | 400,000 |   | 5.1 |   |
| William S. Kirsch (5)                                          |       | 250,000                              |       | *                                              |       | —                                         |       | — |   | 400,000 |   | 5.1 |   |
| John W. Madigan (6)                                            |       | 1,000,000                            |       | *                                              |       | —                                         |       | — |   | 400,000 |   | 5.1 |   |
| Duane C. McDougall (7)                                         |       | —                               |       | —                                         |       | —                                         |       | — |   | 400,000 |   | 5.1 |   |
| Christopher J. McGowan (3)                                     |       | —                               |       | —                                         |       | —                                         |       | — |   | — |   | — |   |
| Samuel M. Mencoff (8)                                          |       | 419,556,601                          |       | 76.6                                           |       | —                                         |       | — |   | — |   | — |   |
| Thomas S. Souleles (8)                                         |       | 419,556,601                          |       | 76.6                                           |       | —                                         |       | — |   | — |   | — |   |
| All Executive  Officers and Directors as a Group  (16 Persons) |       | 427,886,601                          |       | 78.2                                           |       | 18,256,000                                     |       | 57.6 |   | 6,100,000 |   | 77.2 |   |

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*                    Lessthan 1%.

(1)             ForestProducts Holdings, L.L.C. (FPH) is controlled by Madison Dearborn Partners IV,L.P. (MDP IV). Madison Dearborn Partners, LLC (MDP) is the ultimate solegeneral partner of MDP IV and, as a result, may be deemed to have voting andinvestment power over the units held by FPH. The board of directors of FPH iscomprised of Messrs. Alsikafi, McGowan, Mencoff, Souleles, and Stephens. The addressfor FPH is c/o Boise Cascade Holdings, L.L.C., 1111 West Jefferson Street,Boise, Idaho 83728. The address for MDP IV and MDP is c/o Madison DearbornPartners, LLC, Three First National Plaza, Suite 3800, 70 West Madison Street,Chicago, Illinois 60602.

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(2)             Theaddress for OfficeMax Incorporated and Mr. Broad is 263 Shuman Boulevard,Naperville, Illinois 60563.

(3)             Messrs.Alsikafi and McGowan are employed by MDP LLC, and each has a pecuniary interestin the units held by FPH. Messrs. Alsikafi and McGowan expressly disclaimbeneficial ownership except to the extent of their pecuniary interest therein.The address of Messrs. Alsikafi and McGowan is c/o Madison Dearborn Partners,LLC, Three First National Plaza, Suite 3800, 70 West Madison Street, Chicago,Illinois 60602.

(4)             Theaddress for Mr. Brown is c/o University of Colorado, 1800 Grant Street, 35 UCA,Denver, Colorado 80203.

(5)             Mr. Kirschholds the Series B equity units through Provident Mortgage Partners, L.L.C., inwhich Mr. Kirsch and other family members are the controlling shareholder.Mr. Kirsch’s address is c/o Paul, Hastings, Janofsky & Walker, LLP, 191North Wacker Drive, 30th Floor, Chicago, Illinois 60606.

(6)             Mr.Madigan is an investor in FPH, and the Series B equity units listed in thetable represent Mr. Madigan’s proportionate ownership interest in the unitsheld by FPH. Mr. Madigan does not exercise voting or investment power over anyof the units held by FPH. Mr. Madigan’s address is 435 North Michigan Avenue,Suite 702, Chicago, Illinois 60611.

(7)             Theaddress for Mr. McDougall is 876 Northshore Road, Lake Oswego, Oregon 97034.

(8)             Mr.Mencoff is a co-president and Mr. Souleles is a managing director of MDP, whichis the ultimate sole general partner of MDP IV, which controls FPH. As aresult, Messrs. Mencoff and Souleles may be deemed to share beneficialownership of the units owned by FPH. Messrs. Mencoff and Souleles expresslydisclaim beneficial ownership of the units owned by FPH except to the extent oftheir pecuniary interest therein. The address of Messrs. Mencoff and Soulelesis c/o Madison Dearborn Partners, LLC, Three First National Plaza, Suite 3800,70 West Madison Street, Chicago, Illinois 60602.

***ITEM******13.******                       ******CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE***

***OurPolicies***

Wehave established procedures for the review of transactions and relationshipsbetween us, our directors, our executive officers, and other affiliates. Ourboard of directors has charged the audit committee with the responsibility ofreviewing and investigating any conflicts of interest involving management andour board of directors. Further, the audit committee reviews and investigatesadherence to our Code of Ethics, which requires that our employees, officers,and agents be free from actual or apparent conflicts of interest with thecompany. The code also prohibits employees, officers, and agents from competingwith the company, using their positions for personal gain, or appropriatingbusiness opportunities presented to the company.

***Securitiesand Exchange Commission (SEC) Disclosure***

TheSEC has specific disclosure requirements regarding transactions andrelationships between us and our directors, executive officers, or otherspecified parties. We have several relationships that require disclosure underthese SEC rules. These disclosures involve our relationships and transactionswith our affiliates, such as OfficeMax, and we describe those relationships infurther detail below.

# ***OfficeMax and theForest Products Acquisition***

In 2004, our parent company, Forest Products Holdings(FPH), acquired the forest products and timberland operations from OfficeMax(the Forest Products Acquisition) for an aggregate purchase price of $3.9billion. In connection with the Forest Products Acquisition, FPH and/or itssubsidiaries entered into an Asset Purchase Agreement, a Paper SupplyAgreement, an Additional Consideration Agreement, a Securityholders Agreement,and a Registration Rights Agreement with OfficeMax and/or its subsidiaries.

Under the Asset Purchase Agreement, OfficeMaxindemnifies us for specified pre-Forest Products Acquisition liabilities,including environmental, asbestos, tax, benefits, and other legacy liabilities.The agreement also contains customary representations, warranties, andcovenants, including an obligation by OfficeMax to indemnify us for anybreaches of its representations, warranties, and covenants. OfficeMax’sindemnification obligations with respect to such breaches generally surviveduntil April 29, 2006, with indemnification obligations with respect tobreaches relating to employee and environmental law matters surviving untilOctober 29, 2009. OfficeMax’s indemnification obligations for 

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breaches of representations, warranties, and covenantsare, with certain exceptions, subject to a deductible of $20.7 million andan aggregate cap of $248.9 million. To date, neither the deductible northe aggregate cap has been depleted materially.

For five years after the closing of the ForestProducts Acquisition, OfficeMax may not compete with us anywhere in the UnitedStates in the businesses purchased in the Forest Products Acquisition, nor mayOfficeMax induce or attempt to induce any customer to terminate or reduce itsrelationship with us.

***Paper Supply Agreement With OfficeMax***

Under this agreement,OfficeMax will purchase from us all of its North American requirements forcut-size office paper, to the extent we choose to supply such paper to them,through December 2012 at prices approximating market prices. Theagreement renews automatically for additional one-year terms unless eitherparty gives notice of termination. If the agreement terminates, OfficeMax willbe required to ratably phase out its purchases of our paper over a four-yearperiod beginning on January 1 following the last year of the agreement.The earliest the four-year phase out period could begin is January 1,2013.

***Additional Consideration Agreement With OfficeMax***

In connection with theForest Products Acquisition, we entered into a six-year agreement withOfficeMax. Under the agreement, OfficeMax will pay us $710,000 for each dollarby which the average market price per ton of a specified benchmark grade ofcut-size office paper during each 12-month period ending on theanniversary of the closing of the Forest Products Acquisition, or the annualpaper price, is less than $800 per ton. In addition, we will pay $710,000 toOfficeMax for each dollar by which the annual paper price exceeds $920 perton. Neither party will be obligated to make payments under the agreement (i)in excess of $45.0 million in any one year or (ii) in excess of$125.0 million in the aggregate during the first four years following theclosing, $115.0 million in the aggregate if the determination is madeduring the fifth year following the closing, and $105.0 million in theaggregate if the determination is made during the sixth year following theclosing, in each case net of payments received (the Maximum AggregateConsideration). If a party has paid the Maximum Aggregate Consideration duringthe first four years following the closing, the party will not be entitled torecoup in years five or six the amount previously paid in excess of the MaximumAggregate Consideration applicable in years five and six. This agreement willexpire as of the earliest of (i) six years after the closing, (ii) the sale of50% or more of the outstanding common equity (as measured on October 29, 2004)of Boise Cascade, L.L.C., our subsidiary, in an underwritten public offering,(iii) the sale or transfer by Boise Cascade, L.L.C., of more than 50% of itscommon equity in Boise White Paper, L.L.C. (the subsidiary that operates ourPaper business), and (iv) termination by either party upon a paymentdefault by the other party not cured within 30 days.

After each anniversary of the closing, we review paperprices with the provisions of the Additional Consideration Agreement todetermine whether any amounts are owed or receivable under the agreement. Forthe first and second anniversary periods, which ended October 29, 2005 and2006, neither Boise nor OfficeMax owed additional consideration for thepurchase price. 

***SecurityholdersAgreement With OfficeMax***

In connection with the Forest Products Acquisition,we entered into a Securityholders Agreement with OfficeMax. This agreementdescribes the rights and responsibilities regarding OfficeMax’s equityownership in Boise Cascade Holdings, L.L.C.. Specifically, under the agreement,OfficeMax has the right to appoint one director to our board of directors. Theagreement also requires that OfficeMax obtain our consent before transferringits equity interest in our company. The agreement grants “tag-along” rights,which entitle OfficeMax to participate in sales of equity interests to thirdparties. In addition, the agreement grants “drag-along” rights, which entitleOfficeMax to require the other equity holders to participate in sales of all orsubstantially all of the equity interests in our company. If we propose toissue additional equity securities, we will generally be required to offerOfficeMax a pro rata portion of the securities issued in such a transaction.The agreement will terminate in a liquidation or dissolution of the 

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company, in an initial public offering, or in a sale of all orsubstantially all of the company’s stock or assets.

***Registration Rights Agreement With FPH and OfficeMax***

In connection with theForest Products Acquisition, we entered into a registration rights agreementwith FPH and OfficeMax with respect to the equity interests they own in us.Under the Registration Rights Agreement, (i) FPH has the right to demandthat we effect an unlimited number of registrations of its equity interests,whether pursuant to a long-form registration statement or a short-formregistration, and pay all expenses, other than underwriting discounts andcommissions, related to such registrations and (ii) after the earlier ofthe fifth anniversary of the completion of the Forest Products Acquisition orcompletion of an initial public offering by us, OfficeMax has the right todemand that we effect (a) seven registrations of its equity interests on along-form registration statement and pay all expenses, other than underwritingdiscounts and commissions, related to any two of such registrations (withOfficeMax paying all expenses relating to the other five of such registrations)and (b) an unlimited number of registrations of its equity interests on ashort-form registration statement and pay all expenses, other than underwritingdiscounts and commissions, related to such registrations. In addition, FPH andOfficeMax have the right to participate in registrations of our equityinterests effected by us, whether such registrations relate to an offering byus or by our stockholders. FPH and OfficeMax have agreed not to effect anypublic sale or private placement of any of our equity interests during theperiod beginning seven days prior to and ending 180 days after theeffective date of the registration statement for any underwritten publicoffering of our equity interests in which FPH and OfficeMax participate.

***Relationship With Boise Land & Timber Companies***

As part of the Forest Products Acquisition, a subsidiary of FPH, Boise Land& Timber Holdings Corp. (Timber Holdings), acquired the timberlandspreviously owned by OfficeMax. At the time of the timberlands acquisition, ourmajority owner, FPH, held an 80.1% majority interest in Timber Holdings, andOfficeMax (through its subsidiary, Kooskia Investment Corporation) held theremaining 19.9% interest.

In February 2005, Timber Holdings sold the timberlands to an unrelatedparty for an aggregate purchase price of $1.65 billion. Concurrently with thatsale, Timber Corp. made a $264.8 million loan to us. The amount of therelated-party loan was subject to adjustment based on transactions betweenTimber Corp. and us. In November 2006, we repaid the $281.3 millionbalance of the loan to Timber Corp. Immediately thereafter, Timber Holdingsmerged with and into us, which effectively transferred the loan repaymentproceeds to us. In the merger, Timber Holdings transferred all of its ownershipin Timber Corp. to FPH and a subsidiary of OfficeMax.

As a result of the merger transaction, FPH and OfficeMax were deemed tohave used the loan repayment proceeds to make an additional investment in theequity of our company. OfficeMax, the sole holder of our Series A equityunits, used approximately $34.8 million to make an additional investmentin our Series A equity units. FPH and OfficeMax used an aggregate of$245.6 million to make an additional investment in our Series B equityunits. After the purchase, FPH and OfficeMax continued to hold 80.1% and 19.9%,respectively, of our Series B equity units and the number of equity unitsheld remained the same.

***Amounts Paid to Madison Dearborn***

At the closing of theForest Products Acquisition, Madison Dearborn received a fee of$40 million. Madison Dearborn may be paid additional fees from time totime in the future for providing management, consulting or advisory servicesand will be reimbursed for all future expenses incurred in connection with itsinvestment in us. During 2006, we paid FPH $16.1 million, and they in turnpaid MDP $14.2 million. These payments represented cash paid to fund MDP’sobligations related to their investment in us.

***Other***

For a description ofother relationships the company has with its directors and executive officers,refer to “Item 10.  Directors,Executive Officers, and Corporate Governance” of this Form 10-K.

146

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***ITEM 14.****                    PRINCIPAL ACCOUNTING FEES AND SERVICES*

KPMGLLP (KPMG) provides our audit committee with an engagement letter outlining thescope of proposed audit services for the fiscal year. The audit committeereviews the engagement letter and, if agreed to by the committee members,accepts it at the committee’s February meeting.

In addition to itsaudit services for the annual financial statements, KPMG provides the companywith other audit-related and tax-related services (such as audits of thecompany’s employee benefit plans and technical accounting research andconsultation). Management submits to the audit committee a list of proposedaudit-related and other nonaudit services and associated fees that itrecommends be provided by KPMG for the fiscal year. Management and KPMG eachconfirm to the committee that all the services on the list are permissibleunder applicable legal requirements. The committee reviews the proposedservices and fees and, if agreed to by committee members, approves thoseservices and associated fees. KPMG periodically informs the audit committee ofthe services it provides pursuant to this approval process.

KPMG must ensurethat the audit committee has preapproved all audit and nonaudit services.  Our vice president and controller isresponsible for tracking KPMG’s audit fees against the budget for such servicesand reports at least annually to the audit committee.

The company hasnever used KPMG for any of the following nonaudit services:

·                  Bookkeepingor other services related to our accounting records or financial statements;

·                  Financialinformation systems design and implementation;

·                  Appraisalor valuation services, fairness opinions, or contribution-in-kind reports;

·                  Actuarialservices;

·                  Internalaudit outsourcing services;

·                  Managementfunctions or human resources;

·                  Brokeror dealer, investment advisor, or investment banking services; or

·                  Legalservices and expert services unrelated to the audit.

Based on thisreview, the committee believes that KPMG’s provision of nonaudit services iscompatible with maintaining its independence.

Thefollowing table sets out the various fees for services provided by KPMG.  The audit committee preapproved all of theseservices.

##### ***Fees Paid to theIndependent Accountant***

|                        | ** ** | **Amounts** | ** ** |
|------------------------|------------|-------------|------------|
| **Description**        | ** ** | **2006**    | ** ** | **2005** | ** ** |
|                   |       |        |       |   |   |
| Audit fees (a)         |       | $           | 2,430,000  |   | $ | 2,370,000 |   |
| Audit-related fees (b) |       | 323,000     |       | 3,600 |   |
| Tax fees (c)           |       | —      |       | 32,000 |   |
| All other fees (d)     |       | —      |       | — |   |
|                        |            |             |            |  |  |  |  |

----

(a)                                  Professional audit services include KPMG’s audit of the company’s annualconsolidated financial statements for 2005 and 2006; its review of theconsolidated financial statements included in the company’s Forms 10-Qs; itsaudit of the company’s subsidiary annual consolidated financial statements;assistance with registration statements, comfort letters, consents, and otherservices pertaining to SEC matters; and consultation on accounting standards.

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(b)                                 Audit-related feesinclude attestation and other services traditionally performed by theregistrants’ independent accountants (such as audits of employee benefit plansof the company and certain agreed-upon procedures reports for environmentalassurance letters).

(c)                                  Fees for tax compliance services relate to facts already in existence andtransactions that have already occurred. We use these services to assist ourU.S. employees working in other countries.

(d)           None.

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**PART IV**

***ITEM 15.****                    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*

(a)           The following documents are filed asa part of this Form 10-K:

(1)                                  ConsolidatedFinancial Statements

The Consolidated Financial Statements, the Notes toConsolidated Financial Statements, and the Report of Independent RegisteredPublic Accounting Firm are presented in “Item 8.  Consolidated Financial Statements” of thisForm 10-K.

-                                            ConsolidatedBalance Sheets as of December 31, 2006 and 2005.

-                                            ConsolidatedStatements of Income for the years ended December 31, 2006 and 2005, and theperiods of October 29 (inception) through December 31, 2004, and January 1through October 28, 2004. 

-                                            ConsolidatedStatements of Cash Flows for the years ended December 31, 2006 and 2005, andthe periods of October 29 (inception) through December 31, 2004, and January 1through October 28, 2004. 

-                                            ConsolidatedStatements of Capital for the years ended December 31, 2006 and 2005, and theperiods of October 29 (inception) through December 31, 2004, and December 31,2003 through October 28, 2004.

-                                            Notesto Consolidated Financial Statements.

-                                            Reportof Independent Registered Public Accounting Firm.

(2)                                  FinancialStatement Schedules

All financialstatement schedules have been omitted because they are inapplicable, notrequired, or shown in the consolidated financial statements and notes in “Item8.  Consolidated Financial Statements” ofthis Form 10-K.  

(3)                                  Exhibits

A list of theexhibits required to be filed as part of this report is set forth in the Indexto Exhibits and is incorporated by reference.

(b)                                 SeeIndex to Exhibits.

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|                             | Boise Cascade Holdings, L.L.C. |
|-----------------------------|--------------------------------|
|                        |                           |   |
|                        | By                             | /s/ W. Thomas Stephens |
|                        |                           | W. Thomas Stephens |
|                        |                           | Chief Executive Officer |
|                        |                           |   |
| Dated:  March  1, 2007 |                           |   |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below on March 1, 2007, by the following persons on behalf of theregistrant and in the capacities indicated.
|           | ** ** | Signature                         | ** ** | **Capacity**                                      |
|-----------|------------|-----------------------------------|------------|---------------------------------------------------|
|      |       |                              |       |                                              |
| **(i)**   | ** ** | **Principal Executive Officer:**  |       |                                              |
|      |       |                              |       |                                              |
|      |       | /s/ W. Thomas Stephens            |       | Chief Executive Officer                           |
|      |       | W. Thomas Stephens                |       |                                              |
|      |       |                              |       |                                              |
| **(ii)**  | ** ** | **Principal Financial Officer:**  |       |                                              |
|      |       |                              |       |                                              |
|      |       | /s/ Thomas E. Carlile             |       | Senior Vice President and Chief Financial Officer |
|      |       | Thomas E. Carlile                 |       |                                              |
|      |       |                              |       |                                              |
| **(iii)** | ** ** | **Principal Accounting Officer:** |       |                                              |
|      |       |                              |       |                                              |
|      |       | /s/ Samuel K. Cotterell           |       | Vice President and Controller                     |
|      |       | Samuel K. Cotterell               |       |                                              |
|      |       |                              |       |                                              |
| **(iv)**  | ** ** | **Directors:**                    |       |                                              |
|      |       |                              |       |                                              |
|      |       | /s/ W. Thomas Stephens            |       | /s/ John W. Madigan                               |
|      |       | W. Thomas Stephens                |       | John W. Madigan                                   |
|      |       |                              |       |                                              |
|      |       | /s/ Zaid F. Alsikafi              |       | /s/ Duane C. McDougall                            |
|      |       | Zaid F. Alsikafi                  |       | Duane C. McDougall                                |
|      |       |                              |       |                                              |
|      |       | /s/ Matthew R. Broad              |       | /s/ Christopher J. McGowan                        |
|      |       | Matthew R. Broad                  |       | Christopher J. McGowan                            |
|      |       |                              |       |                                              |
|      |       | /s/ Hank Brown                    |       | /s/ Samuel M. Mencoff                             |
|      |       | Hank Brown                        |       | Samuel M. Mencoff                                 |
|      |       |                              |       |                                              |
|      |       | /s/ William S. Kirsch             |       | /s/ Thomas S. Souleles                            |
|      |       | William S. Kirsch                 |       | Thomas S. Souleles                                |

 

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**BOISECASCADE HOLDINGS, L.L.C.**

**INDEX TO EXHIBITS**

Filed or FurnishedWith the Annual Report on Form 10-K for the Year Ended December 31, 2006
|                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 2.1                 |       | Asset Purchase  Agreement dated July 26, 2004, between Boise Cascade Corporation (now  OfficeMax Incorporated), Boise Southern Company, Minidoka Paper Company,  Forest Products Holdings, L.L.C., and Boise Land & Timber Corp., as  amended by First Amendment to Asset Purchase Agreement dated October 23,  2004, and as further amended by Second Amendment to Asset Purchase Agreement  dated October 28, 2004 |       | S-1  Amend.  No. 3                      |       | 333-122770           |       | 2.1 |   | 5/2/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 2.2                 |       | Purchase and Sale  Agreement dated December 21, 2004, between Boise Land & Timber Corp.,  Boise Cascade, Meriwether Investments LLC, Forest Products Holdings, L.L.C.,  and Forest Capital Partners, LLC                                                                                                                                                                                                             |       | S-1  Amend.  No. 3                      |       | 333-122770           |       | 2.2 |   | 5/2/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 2.3                 |       | Certificate of  Conversion from a Domestic Corporation to a Limited Liability Company                                                                                                                                                                                                                                                                                                                                    |       | 8-K                                     |       | 333-122770           |       | 2.1 |   | 12/27/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.1                 |       | Certificate of  Formation of Boise Cascade Holdings, L.L.C., dated December 20, 2005                                                                                                                                                                                                                                                                                                                                     |       | 8-K                                     |       | 333-122770           |       | 3.1 |   | 12/27/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.2                 |       | Second Amended and  Restated Operating Agreement of Boise Cascade Holdings, L.L.C., dated as of  November 10, 2006                                                                                                                                                                                                                                                                                                       |       | 8-K                                     |       | 333-122770           |       | 3.1 |   | 11/16/06 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.3                 |       | Certificate of  Formation of Boise Cascade, L.L.C., dated July 26, 2004                                                                                                                                                                                                                                                                                                                                             |       | S-4                                     |       | 333-125768           |       | 3.3 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.4                 |       | Operating Agreement of  Boise Cascade, L.L.C., effective September 20, 2004                                                                                                                                                                                                                                                                                                                                              |       | S-4                                     |       | 333-125768           |       | 3.4 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.5                 |       | Certificate of  Incorporation of Boise Cascade Finance Corporation dated September 15, 2004                                                                                                                                                                                                                                                                                                                              |       | S-4                                     |       | 333-125768           |       | 3.5 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.6                 |       | Bylaws of Boise Cascade  Finance Corporation                                                                                                                                                                                                                                                                                                                                                                             |       | S-4                                     |       | 333-125768           |       | 3.6 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.7                 |       | Certificate of  Incorporation of Boise Land & Timber Corp. dated July 26, 2004                                                                                                                                                                                                                                                                                                                                       |       | S-4                                     |       | 333-125768           |       | 3.9 |   | 6/13/05 |   |   |   |

 

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|                     | ** ** | ** **                                                                                                                                                                                         | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                                       | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.8                 |       | Bylaws of Boise Land  & Timber Corp.                                                                                                                                                           |       | S-4                                     |       | 333-125768           |       | 3.10 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.9                 |       | Certificate of  Formation of Boise White Paper, L.L.C.                                                                                                                                             |       | S-4                                     |       | 333-125768           |       | 3.11 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.10                |       | Operating Agreement of  Boise White Paper, L.L.C., effective September 20, 2004                                                                                                                    |       | S-4                                     |       | 333-125768           |       | 3.12 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.11                |       | Certificate of  Formation of Boise Packaging & Newsprint, L.L.C., dated August 6, 2004                                                                                                         |       | S-4                                     |       | 333-125768           |       | 3.13 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.12                |       | Operating Agreement of  Boise Packaging & Newsprint, L.L.C., effective September 20, 2004                                                                                                      |       | S-4                                     |       | 333-125768           |       | 3.14 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.13                |       | Certificate of  Formation of Boise Building Solutions Manufacturing, L.L.C., dated August 6,  2004                                                                                                 |       | S-4                                     |       | 333-125768           |       | 3.15 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.14                |       | Operating Agreement of  Boise Building Solutions Manufacturing, L.L.C., effective September 20, 2004                                                                                               |       | S-4                                     |       | 333-125768           |       | 3.16 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.15                |       | Certificate of  Formation of Boise Building Solutions Distribution, L.L.C., dated August 26,  2004                                                                                                 |       | S-4                                     |       | 333-125768           |       | 3.17 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.16                |       | Operating Agreement of  Boise Building Solutions Distribution, L.L.C., effective September 20, 2004                                                                                                |       | S-4                                     |       | 333-125768           |       | 3.18 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.17                |       | Certificate of  Amendment to the Certificate of Incorporation of Boise Aviation Holdings,  Inc., dated September 8, 2004 (changing name to Boise Building Solutions  Manufacturing Holdings Corp.) |       | S-4                                     |       | 333-125768           |       | 3.19 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.18                |       | Bylaws of Boise  Building Solutions Manufacturing Holdings Corp.                                                                                                                                   |       | S-4                                     |       | 333-125768           |       | 3.20 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.19                |       | Amended and Restated  Certificate of Incorporation of BC Chile Investment Corporation dated October  27, 2004                                                                                      |       | S-4                                     |       | 333-125768           |       | 3.21 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.20                |       | Amended and Restated  Bylaws of BC Chile Investment Corporation                                                                                                                                    |       | S-4                                     |       | 333-125768           |       | 3.22 |   | 6/13/05 |   |   |   |

 

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|                     | ** ** | ** **                                                                                                                                                                         | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                       | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.21                |       | Amended and Restated  Certificate of Incorporation of BC Brazil Investment Corporation dated  October 27, 2004                                                                     |       | S-4                                     |       | 333-125768           |       | 3.23 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.22                |       | Amended and Restated  Bylaws of BC Brazil Investment Corporation                                                                                                                   |       | S-4                                     |       | 333-125768           |       | 3.24 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.23                |       | Certificate of  Amendment to the Certificate of Incorporation of Boise Cascade  Transportation, Inc., dated September 8, 2004 (changing name to Boise White  Paper Holdings Corp.) |       | S-4                                     |       | 333-125768           |       | 3.25 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.24                |       | Bylaws of Boise White  Paper Holdings Corp.                                                                                                                                        |       | S-4                                     |       | 333-125768           |       | 3.26 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.25                |       | Amended and Restated  Articles of Incorporation to the Certificate of Amendment of Minnesota,  Dakota & Western Railway Company dated October 27, 2004                         |       | S-4                                     |       | 333-125768           |       | 3.27 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.26                |       | Amended and Restated  Bylaws of Minnesota, Dakota & Western Railway Company                                                                                                    |       | S-4                                     |       | 333-125768           |       | 3.28 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.27                |       | Amended and Restated  Certificate of Incorporation of International Falls Power Company dated  October 27, 2004                                                                    |       | S-4                                     |       | 333-125768           |       | 3.29 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.28                |       | Amended and Restated  Bylaws of International Falls Power Company                                                                                                                  |       | S-4                                     |       | 333-125768           |       | 3.30 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.29                |       | Amended and Restated  Certificate of Incorporation of BC China Corporation dated October 27, 2004                                                                                  |       | S-4                                     |       | 333-125768           |       | 3.31 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.30                |       | Amended and Restated  Bylaws of BC China Corporation                                                                                                                               |       | S-4                                     |       | 333-125768           |       | 3.32 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.31                |       | Certificate of  Incorporation of Boise Cascade Transportation Holdings Corp. dated September  1, 2004                                                                              |       | S-4                                     |       | 333-125768           |       | 3.33 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.32                |       | Bylaws of Boise Cascade  Transportation Holdings Corp.                                                                                                                             |       | S-4                                     |       | 333-125768           |       | 3.34 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.33                |       | Amended and Restated  Certificate of Incorporation of BCT, Inc., dated October 27, 2004                                                                                            |       | S-4                                     |       | 333-125768           |       | 3.35 |   | 6/13/05 |   |   |   |
|                |       |                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.34                |       | Amended and Restated  Bylaws of BCT, Inc.                                                                                                                                          |       | S-4                                     |       | 333-125768           |       | 3.36 |   | 6/13/05 |   |   |   |

 

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|                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.35                |       | Certificate of  Incorporation of Bemis Corporation dated July 25, 2006                                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.36                |       | Bylaws of Bemis  Corporation                                                                                                                                                                                                                                                                                                                                                                                               |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.37                |       | Certificate of  Amendment to the Certificate of Incorporation of Birch Creek Funding  Corporation dated December 12, 2006 (changing name to Boise White Paper Sales  Corp.)                                                                                                                                                                                                                                                |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 3.38                |       | Bylaws of Boise White  Paper Sales Corp. (formerly Birch Creek Funding Corporation)                                                                                                                                                                                                                                                                                                                                        |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 4                   |       | Indenture dated October  29, 2004, between Boise Cascade, L.L.C., Boise Cascade Finance Corporation,  Boise Cascade Holdings, L.L.C., as Guarantor, the other Guarantors named  therein, and U.S. Bank National Association, as Trustee                                                                                                                                                                                    |       | S-1                                     |       | 333-122770           |       | 4.3 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 9                   |       | None                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.1                |       | Additional  Consideration Agreement dated October 29, 2004, between Boise Cascade  Corporation (now OfficeMax Incorporated) and Boise Cascade                                                                                                                                                                                                                                                                              |       | S-1                                     |       | 333-122770           |       | 10.1 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.2 (a)            |       | Amended and Restated  Paper Purchase Agreement dated April 28, 2004, between Boise White  Paper, L.L.C., and Boise Cascade Corporation (now OfficeMax Incorporated),  together with the Assignment Assumption and Consent Agreement dated October  29, 2004, between Boise Cascade Corporation (now OfficeMax Incorporated),  Boise White Paper, L.L.C., OfficeMax Contract, Inc., and OfficeMax North  America, Inc. |       | S-1  Amend.  No. 1                      |       | 333-122770           |       | 10.2 |   | 4/4/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.3                |       | Registration Rights  Agreement dated October 29, 2004, between Boise Cascade Corporation (now  OfficeMax Incorporated), Forest Products Holdings, L.L.C., and Boise Cascade                                                                                                                                                                                                                                                |       | S-1                                     |       | 333-122770           |       | 10.5 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.4                |       | Rescission Agreement  dated December 20, 2005, between Boise Cascade, Boise Land & Timber  Holdings Corp., OfficeMax Incorporated, Kooskia Investment Corporation, and  Forest Products Holdings, L.L.C.                                                                                                                                                                                                          |       | 8-K                                     |       | 333-122770           |       | 99.1 |   | 12/27/05 |   |   |   |

 

154

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|                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.5                |       | Waiver, Amendment and  Restatement Agreement dated as of November 3, 2006, and effective as of  November 10, 2006, between Boise Cascade Holdings, L.L.C., Boise  Cascade, L.L.C., Boise Land & Timber Holdings Corp., Boise Land &  Timber Corp., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as  Administrative Agent; including form of Second Amended and Restated Credit  Agreement dated as of November 3, 2006, between Boise Cascade Holdings,  L.L.C., Boise Cascade, L.L.C., the Lenders party thereto, and JPMorgan Chase  Bank, N.A., as Administrative Agent |       | 8-K                                     |       | 333-122770           |       | 99.2 |   | 11/16/06 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.6                |       | Guarantee and  Collateral Agreement dated October 29, 2004, between Boise Cascade Holdings,  L.L.C., Boise Land & Timber Holdings Corp., Boise Cascade, L.L.C., Boise  Land & Timber Corp., certain of the subsidiaries of Boise Cascade,  L.L.C., and Boise Land & Timber Corp. as identified therein, and JPMorgan  Chase Bank, as Collateral Agent                                                                                                                                                                                                                                         |       | S-1                                     |       | 333-122770           |       | 10.7 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.7                |       | Intercompany Promissory  Note dated February 4, 2005, in the original principal amount of  $264,798,660.05 made by Boise Cascade in favor of Boise Land & Timber  Corp.                                                                                                                                                                                                                                                                                                                                                                                                                               |       | S-1                                     |       | 333-122770           |       | 10.9 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.8                |       | Installment Notes dated  October 29, 2004, in original principal amounts totaling $1,635,000,000 made  by Boise Land & Timber, L.L.C., and Boise Land & Timber II, L.L.C.,  each a wholly owned subsidiary of Boise Land & Timber Corp., in favor of  each of Boise Cascade Corporation (now OfficeMax Incorporated) and Boise Southern  Company                                                                                                                                                                                                                                              |       | S-1                                     |       | 333-122770           |       | 10.10 |   | 2/11/05 |   |   |   |

 

155

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|                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                      | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                    | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.9                |       | Securityholders  Agreement dated October 29, 2004, between Boise Cascade Corporation (now  OfficeMax Incorporated), Forest Products Holdings, L.L.C., and Boise Cascade                                                                                                                                                                         |       | 8-K                                     |       | 333-122770           |       | 10.2 |   | 8/2/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.10               |       | Restructuring Agreement  and Amendment No. 1 to Securityholders Agreement dated as of November 10,  2006, between Boise Cascade Holdings, L.L.C., Boise Cascade, L.L.C., Boise  Land & Timber Holdings Corp., Boise Land & Timber Corp., OfficeMax  Incorporated, Kooskia Investment Corporation, and Forest Products Holdings,  L.L.C. |       | 8-K                                     |       | 333-122770           |       | 99.1 |   | 11/16/06 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.11               |       | Transfer and  Administration Agreement (for securitization of receivables) dated October  26, 2005, between Boise Cascade, several of its subsidiaries including Birch  Creek Investments, L.L.C., Bank of America National Association, Calyon New  York Branch, and certain other investors named in such Agreement                           |       | 8-K                                     |       | 333-122770           |       | 10.1 |   | 11/1/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.12 +             |       | Employment Agreement  dated October 29, 2004, between Boise Cascade and W. Thomas Stephens                                                                                                                                                                                                                                                      |       | S-1                                     |       | 333-122770           |       | 10.11 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.13 +             |       | Form of Executive  Officer Severance Agreement by and between Boise Cascade Corporation (now  OfficeMax Incorporated) and Miles A. Hewitt                                                                                                                                                                                                       |       | S-1                                     |       | 333-122770           |       | 10.12 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.14 +             |       | Form of Executive  Officer Severance Agreement by and between Boise Cascade Corporation (now  OfficeMax Incorporated) and each of Stanley R. Bell, Thomas E. Carlile, and  Thomas A. Lovlien                                                                                                                                                    |       | S-1                                     |       | 333-122770           |       | 10.13 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.15 +             |       | Offer of Future  Employment dated October 1, 2005, by Boise Cascade to Alexander Toeldte                                                                                                                                                                                                                                                        |       | 8-K                                     |       | 333-122770           |       | 10.1 |   | 10/6/05 |   |   |   |
|                |       |                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.16 +             |       | Foreign Service Policy  (Relocation) Agreement dated October 1, 2005, between Boise Cascade and  Alexander Toeldte                                                                                                                                                                                                                         |       | 8-K                                     |       | 333-122770           |       | 10.2 |   | 10/6/05 |   |   |   |

 

156

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|                     | ** ** | ** **                                                                                                                                                     | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                                                                                                   | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.17 +             |       | Severance Agreement  dated October 1, 2005, between Boise Cascade and Alexander Toeldte                                                                        |       | 8-K                                     |       | 333-122770           |       | 10.3 |   | 10/6/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.18 +             |       | Boise Cascade  Supplemental Pension Plan, as adopted on October 29, 2004                                                                                       |       | S-1                                     |       | 333-122770           |       | 10.14 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.19 +             |       | Boise Cascade  Supplemental Early Retirement Plan for Executive Officers, as adopted on  October 29, 2004                                                 |       | S-1                                     |       | 333-122770           |       | 10.15 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.20 +             |       | Boise Cascade  Supplemental Life Plan, as amended       December  19, 2006                                                       |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.21 +             |       | Boise Cascade  Supplemental Healthcare Plan for Executive Officers, effective October 29,  2004                                                                |       | S-1                                     |       | 333-122770           |       | 10.19 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.22 +             |       | Boise Cascade Incentive  and Performance Plan, effective October 29, 2004                                                                                      |       | S-1                                     |       | 333-122770           |       | 10.16 |   | 2/11/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.23 +             |       | 2006 Annual Incentive  Award Notifications with respect to Boise Cascade Incentive and Performance  Plan                                                       |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.24 +             |       | Boise Cascade Deferred  Compensation Plan, as amended through October 28, 2005                                                                                 |       | 8-K                                     |       | 333-122770           |       | 99.2 |   | 11/2/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.25 +             |       | Boise Cascade Directors  Deferred Compensation Plan, effective January 1, 2006                                                                                 |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.26 +             |       | Management Equity  Agreement dated November 29, 2004, between Forest Products Holdings, L.L.C.,  and each of the persons listed on the signature pages thereto |       | S-1  Amend.  No. 3                      |       | 333-122770           |       | 10.25 |   | 5/2/05 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.27 +             |       | Management Equity  Agreement dated April 3, 2006, between Forest Products Holdings, L.L.C., and  each of the persons listed on the signature pages thereto     |       | 8-K                                     |       | 333-122770           |       | 99.1 |   | 4/6/06 |   |   |   |
|                |       |                                                                                                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.28 +             |       | Director Equity  Agreement dated April 3, 2006, between Forest Products Holdings, L.L.C., and  each of the persons listed on the signature pages thereto       |       | 8-K                                     |       | 333-122770           |       | 99.2 |   | 4/6/06 |   |   |   |

 

157

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|                     | ** ** | ** **                                                                     | ** ** | **Incorporated by Reference** | ** ** | ** **           | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|
| **Exhibit  Number** | ** ** | **Exhibit Description**                                                   | ** ** | **Form**                                | ** ** | **File Number** | ** ** | **Exhibit  Number** | ** ** | **Filing  Date** | ** ** | **Filed  Herewith** | ** ** |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 10.29 +             |       | Directors Compensation  Summary Sheet                                          |       | 8-K                                     |       | 333-122770           |       | 10.1 |   | 8/2/05 |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 11                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 12                  |       | Ratio of Earnings to  Fixed Charges                                            |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 13                  |       | None                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 14 (b)              |       | Boise Cascade Code of  Ethics                                                  |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 16                  |       | None                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 18                  |       | None                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 21                  |       | Boise Cascade  Subsidiaries                                                    |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 22                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 23                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 24                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 31.1                |       | CEO Certification  Pursuant to Section 302 of the   Sarbanes-Oxley Act of 2002 |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 31.2                |       | CFO Certification  Pursuant to Section 302 of the   Sarbanes-Oxley Act of 2002 |       |                                    |       |                 |       |   |   |   |   | X |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 32                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 33                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 34                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 35                  |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 99                  |       | None                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
|                |       |                                                                           |       |                                    |       |                 |       |   |   |   |   |   |   |
| 100                 |       | Inapplicable                                                                   |       |                                    |       |                 |       |   |   |   |   |   |   |

----

+                                           Indicatesexhibits that constitute management contracts or compensatory plans orarrangements.

(a)                                Confidentialinformation in this exhibit has been omitted and filed separately with theSecurities and Exchange Commission pursuant to a confidential treatment requestunder Rule 406 of the Securities Act of 1933, as amended.

(b)                                   OurCode of Ethics can be found on our website (www.bc.com) by clicking on AboutBoise and then Code of Ethics.

158

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