**Exhibit 99**

 

**Boise Land & Timber Holdings Corp.**

**Consolidated Statements of Income (Loss)**

 
| ** **                                     | ** ** | **Timber Holdings**                     | ** ** | **Predecessor**                                                    | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **Year Ended  December 31,  2005** | ** ** | **October 29  (inception)  through  December 31,  2004** | ** ** | **January 1  through  October 28,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** |
| ** **                                     | ** ** | **(thousands)**                         | ** ** |
| **Sales**                                      |       |                                    |       |                                                               |       |   |   |   |   |
| Fiber                                          |       |                                    |       |                                                               |       |   |   |   |   |
| Trade                                          |       | $                                       | 5          |                                                               | $          | 16 |   | $ | 143 |   | $ | 136 |   |
| Related parties                                |       | 17,609                                  |       | 24,451                                                             |       | 95,537 |   | 113,818 |   |
| Timberlands                                    |       | —                                  |       | —                                                             |       | 101,009 |   | 12,747 |   |
|                                           |       | 17,614                                  |       | 24,467                                                             |       | 196,689 |   | 126,701 |   |
| **Costs and expenses**                         |       |                                    |       |                                                               |       |   |   |   |   |
| Materials, labor, and other operating expenses |       | 2,302                                   |       | 6,055                                                              |       | 38,149 |   | 46,092 |   |
| Depreciation, amortization, and depletion      |       | 10,854                                  |       | 16,639                                                             |       | 7,175 |   | 9,066 |   |
| Cost of timberlands sold                       |       | —                                  |       | —                                                             |       | 25,035 |   | 3,110 |   |
| General and administrative expenses            |       | 2,451                                   |       | 998                                                                |       | 6,269 |   | 8,279 |   |
| Other (income) expense, net                    |       | (174                                    | )          | (196                                                               | )          | (1,897 | ) | (3,441 | ) |
|                                           |       | 15,433                                  |       | 23,496                                                             |       | 74,731 |   | 63,106 |   |
|                                           |       |                                    |       |                                                               |       |   |   |   |   |
| Gain on sale of timberland assets              |       | 6,400                                   |       | —                                                             |       | — |   | — |   |
|                                           |       |                                    |       |                                                               |       |   |   |   |   |
| **Income from operations**                     |       | 8,581                                   |       | 971                                                                |       | 121,958 |   | 63,595 |   |
|                                           |       |                                    |       |                                                               |       |   |   |   |   |
| Equity in net income of affiliates             |       | 58                                      |       | —                                                             |       | — |   | — |   |
| Interest expense                               |       | (11,519                                 | )          | (21,222                                                            | )          | (4,609 | ) | (6,368 | ) |
| Related-party interest income                  |       | 18,909                                  |       | —                                                             |       | — |   | — |   |
|                                           |       | 7,448                                   |       | (21,222                                                            | )          | (4,609 | ) | (6,368 | ) |
|                                           |       |                                    |       |                                                               |       |   |   |   |   |
| **Income (loss) before income taxes**          |       | 16,029                                  |       | (20,251                                                            | )          | 117,349 |   | 57,227 |   |
| Income tax (provision) benefit                 |       | 1,507                                   |       | —                                                             |       | (45,680 | ) | (22,281 | ) |
| ** **                                     | ** ** | ** **                              | ** ** | ** **                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                          | ** ** | **$**                                   | **17,536** | ** **                                                         | **$**      | **(20,251** | **)** | **$** | **71,669** | ** ** | **$** | **34,946** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**Boise Land & TimberHoldings Corp.**

**Consolidated Balance Sheets**

 
| ** **                                  | ** ** | **December 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|---------------------------------------------|------------|------------------------|-------------|-----------------------------|------------|
| ** **                                  | ** ** | **(thousands)**        | ** **  |
| **ASSETS**                                  |       |                   |        |                        |       |
|                                        |       |                   |        |                        |       |
| **Current**                                 |       |                   |        |                        |       |
| Cash and cash equivalents                   |       | $                      | —      |                        | $          | 1 |   |
| Receivables                                 |       | —                 |        | 4                           |       |
| Inventories                                 |       | —                 |        | 828                         |       |
| Deferred income taxes                       |       | 1,638                  |        | —                      |       |
| Prepaid assets                              |       | —                 |        | 1,809                       |       |
|                                        |       | 1,638                  |        | 2,642                       |       |
|                                        |       |                   |        |                        |       |
| **Property**                                |       |                   |        |                        |       |
| Property and equipment                      |       |                   |        |                        |       |
| Land and land improvements                  |       | —                 |        | 4,744                       |       |
| Buildings and improvements                  |       | —                 |        | 715                         |       |
| Machinery and equipment                     |       | —                 |        | 949                         |       |
|                                        |       | —                 |        | 6,408                       |       |
|                                        |       |                   |        |                        |       |
| Accumulated depreciation                    |       | —                 |        | (138                        | )          |
|                                        |       | —                 |        | 6,270                       |       |
|                                        |       |                   |        |                        |       |
| Timber and timberlands                      |       | —                 |        | 1,628,426                   |       |
|                                        |       | —                 |        | 1,634,696                   |       |
|                                        |       |                   |        |                        |       |
| **Deferred financing costs**                |       | —                 |        | 4,833                       |       |
| **Investments in affiliates**               |       | 308                    |        | 250                         |       |
| **Note receivable from related party, net** |       | 270,854                |        | —                      |       |
| **Other assets**                            |       | —                 |        | 300                         |       |
| **Total assets**                            | ** ** | **$**                  | **272,800** | ** **                  | **$**      | **1,642,721** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**Boise Land & TimberHoldings Corp.**

**Consolidated Balance Sheets (continued)**

 

 
| ** **                                                                                                  | ** ** | **December 31,  2005**            | ** **  | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                  | ** ** | **(thousands, except for share data)** | ** **  |
| **LIABILITIES AND CAPITAL**                                                                                 |       |                                   |        |                        |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Current**                                                                                                 |       |                                   |        |                        |       |
| Current portion of long-term debt                                                                           |       | $                                      | —      |                        | $          | 12,250 |   |
| Accounts payable                                                                                            |       | —                                 |        | 2,500                       |       |
| Taxes payable                                                                                               |       | —                                 |        | 1,840                       |       |
|                                                                                                        |       | —                                 |        | 16,590                      |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Debt**                                                                                                    |       |                                   |        |                        |       |
| Long-term debt, less current portion                                                                        |       | —                                 |        | 1,212,750                   |       |
| Note payable to related party, net                                                                          |       | —                                 |        | 157,509                     |       |
|                                                                                                        |       | —                                 |        | 1,370,259                   |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Redeemable common stock**                                                                                 |       | 7,781                                  |        | 8,389                       |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Commitments and contingent liabilities**                                                                  |       |                                   |        |                        |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Capital**                                                                                                 |       |                                   |        |                        |       |
| Common stock – par value $.01;  65,317 shares authorized and 59,635 and 59,635 shares outstanding |       | 1                                      |        | 1                           |       |
| Additional paid-in capital                                                                                  |       | 267,733                                |        | 267,733                     |       |
| Accumulated losses                                                                                          |       | (2,715                                 | )           | (20,251                     | )          |
| **Total capital**                                                                                           |       | 265,019                                |        | 247,483                     |       |
|                                                                                                        |       |                                   |        |                        |       |
| **Total liabilities and capital**                                                                           | ** ** | **$**                                  | **272,800** | ** **                  | **$**      | **1,642,721** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**Boise Land & Timber Holdings Corp.**

### **ConsolidatedStatements of Cash Flows**

 
| ** **                                                                             | ** ** | **Timber Holdings**                     | ** ** | **Predecessor**                                                    | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **Year Ended  December 31,  2005** | ** ** | **October 29  (inception)  through  December 31,  2004** | ** ** | **January 1  through  October 28,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** |
| ** **                                                                             | ** ** | **(thousands)**                         | ** ** |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Cash provided by (used for) operations**                                             |       |                                    |       |                                                               |       |   |   |   |   |
| Net income (loss)                                                                      |       | $                                       | 17,536     |                                                               | $          | (20,251 | ) | $ | 71,669 |   | $ | 34,946 |   |
| Items in net income (loss) not using (providing) cash                                  |       |                                    |       |                                                               |       |   |   |   |   |
| Equity in net income of affiliates                                                     |       | (58                                     | )          | —                                                             |       | — |   | — |   |
| Depreciation, depletion, and amortization  of deferred financing costs and other costs |       | 15,853                                  |       | 26,636                                                             |       | 7,175 |   | 9,066 |   |
| Related-party interest income                                                          |       | (18,909                                 | )          | —                                                             |       | — |   | — |   |
| Deferred income tax provision (benefit)                                                |       | (1,507                                  | )          | —                                                             |       | 661 |   | 2,091 |   |
| Gain on sale of Louisiana timberlands                                                  |       | —                                  |       | —                                                             |       | (59,915 | ) | — |   |
| Gain on sale of timberland assets                                                      |       | (6,400                                  | )          | —                                                             |       | — |   | — |   |
| Decrease (increase) in working capital, net  of acquisitions Receivables               |       | 4                                       |       | (4                                                                 | )          | 8 |   | 58 |   |
| Inventories                                                                            |       | (118                                    | )          | 256                                                                |       | (250 | ) | 21 |   |
| Accounts payable and accrued liabilities                                               |       | (3,819                                  | )          | (3,020                                                             | )          | 3,163 |   | (968 | ) |
| Current and deferred income taxes                                                      |       | (131                                    | )          | —                                                             |       | (1,134 | ) | (1,968 | ) |
| Other                                                                                  |       | (170                                    | )          | 599                                                                |       | (375 | ) | (203 | ) |
| Cash provided by operations                                                            |       | 2,281                                   |       | 4,216                                                              |       | 21,002 |   | 43,043 |   |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Cash provided by (used for) investment**                                             |       |                                    |       |                                                               |       |   |   |   |   |
| Expenditures for property and equipment                                                |       | (25                                     | )          | (111                                                               | )          | (1,841 | ) | (1,584 | ) |
| Expenditures for timber and timberlands                                                |       | (540                                    | )          | (812                                                               | )          | (7,063 | ) | (9,083 | ) |
| Acquisitions of businesses and facilities                                              |       | —                                  |       | (1,661,557                                                         | )          | — |   | — |   |
| Proceeds from sale of Louisiana timberlands                                            |       | —                                  |       | —                                                             |       | 83,717 |   | — |   |
| Sale of timberland assets, net                                                         |       | 1,631,838                               |       | —                                                             |       | — |   | — |   |
| Note receivable from related party, net                                                |       | (250,272                                | )          | —                                                             |       | — |   | — |   |
| Other                                                                                  |       | —                                  |       | (367                                                               | )          | 2,654 |   | 3,385 |   |
| Cash provided by (used for) investment                                                 |       | 1,381,001                               |       | (1,662,847                                                         | )          | 77,467 |   | (7,282 | ) |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Cash provided by (used for) financing**                                              |       |                                    |       |                                                               |       |   |   |   |   |
| Issuances (payments) of long-term debt                                                 |       | (1,225,000                              | )          | 1,225,000                                                          |       | — |   | — |   |
| Note payable to related party, net                                                     |       | (157,509                                | )          | 157,509                                                            |       | — |   | — |   |
| Issuance of common stock                                                               |       | —                                  |       | 276,123                                                            |       | — |   | — |   |
| Net equity transactions with OfficeMax                                                 |       | —                                  |       | —                                                             |       | (93,851 | ) | (37,204 | ) |
| Net debt issuances (payments) to OfficeMax                                             |       | —                                  |       | —                                                             |       | (4,618 | ) | 1,443 |   |
| Other                                                                                  |       | (774                                    | )          | —                                                             |       | — |   | — |   |
| Cash provided by (used for) financing                                                  |       | (1,383,283                              | )          | 1,658,632                                                          |       | (98,469 | ) | (35,761 | ) |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Increase (decrease) in cash and cash equivalents**                                   | ** ** | **(1**                                  | **)**      | 1                                                                  |       | — |   | — |   |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Balance at beginning of the period**                                                 | ** ** | **1**                                   |       | —                                                             |       | — |   | — |   |
|                                                                                   |       |                                    |       |                                                               |       |   |   |   |   |
| **Balance at end of the period**                                                       | ** ** | **$**                                   | **—** | ** **                                                         | **$**      | **1** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**Boise Land& Timber Holdings Corp.**

**Consolidated Statements of Capital**

 
| ** **                             | ** ** | **Business  Unit  Equity** | ** **  |
|----------------------------------------|------------|----------------------------|-------------|
| ** **                             | ** ** | **(thousands)**            | ** **  |
|                                   |       |                       |        |
| **Predecessor**                        |       |                       |        |
| ** **                             | ** ** | ** **                 | ** **  |
| **Balance at December 31, 2002**       |       | $                          | 166,621     |   |
| ** **                             | ** ** | ** **                 | ** **  |
| Net equity transactions with OfficeMax |       | (37,204                    | )           |
| Net income                             |       | 34,946                     |        |
| ** **                             | ** ** | ** **                 | ** **  |
| **Balance at December 31, 2003**       | ** ** | **$**                      | **164,363** | ** ** |

 
| ** **                                    | ** ** | ** **        | ** ** | **Additional Paid-In Capital** | ** ** | ** **                 | ** ** | ** **      | ** ** |
|-----------------------------------------------|------------|-------------------|------------|--------------------------------|------------|----------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | ** **        | ** ** | **Series A  Common Stock**     | ** ** | **Series B  Common Stock** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Common  Stock** | ** ** | **Shares**                     | ** ** | **Amount**                 | ** ** | **Shares**      | ** ** | **Amount** | ** ** | **Income  (Losses)** | ** ** | **Total   Capital** | ** ** |
| ** **                                    | ** ** | **(thousands)**   | ** ** |
| ***Timber Holdings***                         |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
|                                          |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
| Balance at October 29, 2004  (inception) |       | $                 | —     |                           | —     |                       | $          | —          |       | — |   | $ | — |   | $ | — |   | $ | — |   |
|                                          |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
| Equity issued for acquisition                 |       | 1                 |       | 7                              |       | 29,633                     |       | 53              |       | 238,100 |   | — |   | 267,734 |   |
| Net loss                                      |       | —            |       | —                         |       | —                     |       | —          |       | — |   | (20,251 | ) | (20,251 | ) |
| Paid-in-kind dividend                         |       | —            |       | —                         |       | 407                        |       | —          |       | (407 | ) | — |   | — |   |
|                                          |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
| Balance at December 31, 2004             |       | $                 | 1          |                           | 7          |                       | $          | 30,040          |       | 53 |   | $ | 237,693 |   | $ | (20,251 | ) | $ | 247,483 |   |
|                                          |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
| Net income                                    |       | —            |       | —                         |       | —                     |       | —          |       | — |   | 17,536 |   | 17,536 |   |
| Paid-in-kind dividend                         |       | —            |       | —                         |       | 2,458                      |       | —          |       | (2,458 | ) | — |   | — |   |
|                                          |       |              |       |                           |       |                       |       |            |       |   |   |   |   |   |   |
| **Balance at December 31, 2005**         | ** ** | **$**             | **1**      | ** **                     | **7**      | ** **                 | **$**      | **32,498**      | ** ** | **53** | ** ** | **$** | **235,235** | ** ** | **$** | **(2,715** | **)** | **$** | **265,019** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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***Notes to Consolidated Financial Statements***

 

##### ***Discontinued Operations***

 

At December 31, 2004, our timberland assets were held for sale,and the operations of Boise Land & Timber Holdings Corp. (TimberHoldings) met the definition of discontinued operations. In the accompanyingconsolidated 2004 financial statements, we did not show our assets as “Assetsheld for sale” or our liabilities as “Liabilities related to assets held forsale” on our Consolidated Balance Sheet, nor did we collapse all of theoperations into “discontinued operations” on the Consolidated Statement ofIncome (Loss). Since almost all of the assets and liabilities were disposed of,we believe that we are providing more useful information by presenting theinformation as shown.

 

In February 2005, wesold all of our timberlands located across the Pacific Northwest, Louisiana,Alabama, and Minnesota to Forest Capital Partners, LLC (Forest Capital) for$1.65 billion in cash (Timberlands Sale). For the year endedDecember 31, 2005, we recorded a $6.4 million gain, net of$18.0 million of transaction costs related to the sale, in ourConsolidated Statement of Income. Proceeds from the sale were used to eliminateall of our debt, including a related-party loan from Boise Cascade, L.L.C. (Boise LLC),the wholly owned operating subsidiary of Boise Cascade Holdings, L.L.C. (BoiseHoldings), and to make a related-party loan to Boise LLC. AtDecember 31, 2005, our assets consisted of $1.6 million of deferredincome tax benefits, a $0.3 million investment in unconsolidatedaffiliates, and a related-party receivable of $270.9 million from BoiseHoldings. The amount of the receivable will fluctuate with related-partyactivity.

 

***1.******             Summaryof Significant Accounting Policies***

 

*Basis ofPresentation*

 

Asused in these consolidated financial statements, the terms “Timber Holdings”and “we” include Boise Land & Timber Holdings Corp. and its consolidatedsubsidiaries. The term “predecessor” refers to the results of the timberlandassets of OfficeMax Incorporated (OfficeMax) or Boise Timberlands. OfficeMaxwas formerly Boise Cascade Corporation, the company that owned the timberlandsthrough October 28, 2004; see Note 2, Purchase of OfficeMax’sTimberland Assets, below for additional information. In the predecessor periods,we refer to OfficeMax’s paper and forest products businesses as Boise ForestProducts Operations.

 

We haveprepared the annual consolidated financial statements and footnotes pursuant tothe rules and regulations of the Securities and Exchange Commission (SEC).

 

Theconsolidated financial statements present the operating results of TimberHoldings for the year ended December 31, 2005, and for the period ofOctober 29 (inception) through December 31, 2004, and the results ofOfficeMax’s timberland operations for the period of January 1 throughOctober 28, 2004, and the year ended December 31, 2003. OfficeMaxhistorically managed its timberlands as part of its Boise Building Solutionsand Boise Paper Solutions segments. These consolidated financial statementspresent the timberland operations as a separate entity.

 

Thepredecessor consolidated financial statements include accounts specificallyattributed to Boise Timberlands and a portion of OfficeMax’s shared corporategeneral and administrative expenses. The shared services included, but were notlimited to, finance, accounting, legal, information technology, and humanresource functions. OfficeMax’s corporate general and administrative expenseswere allocated to the predecessor periods based on specifically identifiableservices used by Boise Timberlands.

 

Thepredecessor consolidated financial statements also include an allocation ofOfficeMax’s total debt and related interest expense based on average assetbalances (see Note 6, Debt). The predecessor’s results were included inOfficeMax’s consolidated tax returns. Income taxes in the predecessor periodsof these consolidated financial statements have been calculated as if BoiseTimberlands were a separate taxable entity (see Note 4, Income Taxes).

 

6

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Information on the allocations and related-party transactions areincluded in Note 3, Transactions With Related Parties.

 

*Consolidationand Use of Estimates*

 

The consolidated financial statements include the accounts of TimberHoldings and all subsidiaries after elimination of intercompany balances andtransactions. The preparation of consolidated financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the consolidated financial statementsand the reported amounts of revenues and expenses during the reporting periods.Actual results may vary from those estimates.

 

*RevenueRecognition*

 

Most of our fiber sales were to Boise LLC. During the predecessorperiods, most of the sales were to Boise Forest Products Operations. Thesesales were recorded as sales to related parties in our Consolidated Statementsof Income (Loss). Most of the fiber was used by Boise LLC in itsmanufacturing operations. We recognized the sale when the timber was harvestedand scaled. We also sold a small amount of timber to third parties. These saleswere recorded as trade sales in the Consolidated Statements of Income (Loss).For these sales, revenue was recognized consistent with that described forsales to related parties, or revenue was recognized for timber deed agreementswhen the buyer purchased and took title to contractually designated timber on atract of land. When title passed, revenue was recognized for the full value oftimber designated for sale on the tract.

 

During theyear ended December 31, 2005, we sold all of our timberlands locatedacross the Pacific Northwest, Louisiana, Alabama, and Minnesota for$1.65 billion and recorded a $6.4 million gain, net of$18.0 million of transaction costs related to the sale. During the periodof January 1 through October 28, 2004, we sold approximately79,000 acres of timberland in western Louisiana for $83.9 million andrecorded $59.9 million of pretax income. In the same period, we alsorecorded $16.1 million of pretax income for the sale of timberlands thatwere mostly in Idaho.

 

*Other(Income) Expense, Net*

 

We receivedmiscellaneous income from a variety of activities related to managing ourtimberlands, including surface and subsurface mineral exploration androyalties, grazing leases, hunting leases, and campsite leases. This income wasreflected in “Other (income) expense, net.”

 

*InventoryValuation*

 

Inventoriesconsisted of seeds and supplies and were valued at the lower of cost or market.Cost was based on the average cost method.

 

*Propertyand Equipment*

 

Property andequipment were recorded at cost. Cost included expenditures for majorimprovements and replacements and the amount of interest cost associated withsignificant capital additions. For all periods presented, capitalized interestwas not material. Gains and losses from sales and retirements were included inincome as they occurred. We determined depreciation by the straight-line methodover the useful lives of the assets.

 

The estimateduseful lives of depreciable assets was generally as follows:  building and improvements, 15 to40 years, and machinery and equipment, 3 to 30 years.

 

*Timber andTimberlands*

 

Timber and timberlands were stated at cost, less the accumulated costof timber previously harvested. Our timberland rotations varied by tree speciesand geographic region, and their growing cycles averaged over 40 years. Costs for activitiesrelated to the establishment of a new crop of trees were capitalized. Thesecapitalized costs included activities such as site preparation, seeding, andplanting. Costs for activities conducted following new crop establishment wereexpensed as incurred.

 

7

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These included activities such as thinning, fertilizing, pest control,and herbicide applications. Operating lease payments for timberlands wereexpensed as incurred. Costs for administration, insurance, property taxes, andinterest were expensed. We charged capitalized costs, excluding land, to“Materials, labor, and other operating expenses” at the time the timber wassold, based on periodically determined depletion rates.

 

We determined timberland depletion rates for identifiable geographicareas. We calculated depletion rates at the end of each year based oncapitalized costs divided by the total estimated volume of timber that wasmature enough to be harvested and processed. We computed the estimated timberinventory volume by adding an estimate of current-year growth to the prior-yearending balance, less the current-year harvest. We tested the volume and growthestimates periodically, using statistical sampling techniques and data, and werevised them when appropriate. We used the depletion rate calculated at the endof the year to calculate the cost of timber harvested in the subsequent year.We did not change our accounting when the timber reached maturity or whenharvesting began. We amortized logging roads over their expected useful livesor as related timber was harvested.

 

Comparedwith the predecessor periods presented, the allocation of the purchase price ofthe assets acquired resulted in an increase in depletion expense attributableto our timberland assets because these assets had a higher basis uponcompletion of the acquisition of these assets (see Note 2, Purchase ofOfficeMax’s Timberland Assets).

 

*Investmentin Affiliates*

 

Weuse the equity method to account for investments that we do not control but inwhich we have significant influence. We periodically review the recoverabilityof investments in equity affiliates. The measurement of possible impairment isbased on the estimated fair value of our investment.

 

In conjunctionwith the Acquisition, we formed two special-purpose entities (SPEs) to issueinstallment notes to OfficeMax and an affiliate of OfficeMax as part of thetransaction consideration. The SPEs, Boise Land & Timber, L.L.C., andBoise Land & Timber II, L.L.C., were initially capitalized with $125,000each. We made additional cash contributions to the SPEs totaling$1,635.0 million. The SPEs issued notes totaling $1,635.0 millionsupported by guarantees issued by Wachovia Corporation and Lehman BrothersHoldings, Inc. The SPEs used the amounts contributed by us to purchasecollateral notes totaling $1,635.0 million from the guarantors and pledgedthe collateral notes in support of the guarantees. The notes issued by the SPEsare nonrecourse to Boise Land & and Timber Corp., and the SPEs havenot been consolidated under generally accepted accounting principles. Interestand principal payments received under the collateral notes have been, and areexpected to be, sufficient to service the SPE note obligations. As a result ofthis investment, we recorded $58,000 in “Equity in net income of affiliates” inour Consolidated Statement of Income for the year ended December 31, 2005.

 

*Long-LivedAsset Impairment*

 

We account for the impairment of long-lived assets in accordance withStatement of Financial Accounting Standards (SFAS) No. 144, Accounting forthe Impairment or Disposal of Long-Lived Assets. An impairment of a long-livedasset exists when the carrying value of an asset exceeds its fair value andwhen the carrying value is not recoverable through future operations. Wereviewed the carrying value of long-lived assets for impairment when events orchanges in circumstances indicated that the carrying amount of assets may notbe recoverable.

 

*Researchand Development Costs*

 

We expensed research and development costs as incurred. In all periodspresented, research and development costs were not material.

 

*RecentlyAdopted Accounting Standards*

 

In November2004, the Financial Accounting Standards Board (FASBs) Emerging Issues TaskForce (EITF) reached a consensus on EITF 03-13, Applying the Conditions inParagraph 42 of FASB Statement No. 144, Accounting for the Impairmentor Disposal of Long-Lived Assets, in Determining Whether to Report DiscontinuedOperations. We adopted EITF 03-13 on January 1, 2005, and it did not

 

8

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have amaterial impact on our financial position or results of operations.

 

In September 2004, the SEC staff made an announcement at the EITFmeeting prohibiting the use of the residual method to value acquired assetsother than goodwill. SEC Staff Announcement, Topic No. D-108, Use ofthe Residual Method to Value Acquired Assets Other Than Goodwill, requiresregistrants to apply the guidance to business combinations completed afterSeptember 29, 2004. We did not use the residual method to value the assetswe acquired from OfficeMax.

 

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities. In December 2003, the FASB issueda revised FASB Interpretation No. 46 (FIN 46R). FIN 46R requires somevariable-interest entities to be consolidated by the primary beneficiary of theentity if the equity investors in the entity do not have the characteristics ofa controlling financial interest or do not have sufficient equity at risk forthe entity to finance its activities without additional subordinated financialsupport from other parties. We evaluated the two SPEs mentioned above underFIN 46R and concluded that they were unconsolidated entities.

 

*Reclassifications*

 

Certainamounts in prior-period financial statements have been reclassified to conformwith the current-period presentation. These reclassifications did not affectnet income (loss).

 

***2.******             Purchaseof OfficeMax’s Timberland Assets***

 

On October 29, 2004, we acquired OfficeMax’s timberland assets for anaggregate consideration of $1,650.0 million, excluding fees and expenses(the Acquisition). We paid for the Acquisition with $15.0 million of cashand made contributions of $1,635.0 million to affiliates, who in turnissued $1,635.0 million of timber installment notes to OfficeMax and anaffiliate of OfficeMax. See Note 1, Summary of Significant AccountingPolicies, Investment in Affiliates, for more information. The $1,635.0 millionof installment notes issued to OfficeMax were nonrecourse with respect toForest Products Holdings, L.L.C. (Parent), a newly formed holding companycontrolled by Madison Dearborn Partners, LLC, and its consolidatedsubsidiaries, and mature on January 29, 2020. In addition, we incurred$14.8 million of deferred financing costs and assumed $3.3 million ofliabilities, net of assets acquired, for a net purchase price of$1,661.6 million.

 

On the Acquisition date, Parent and an affiliate of OfficeMax made anaggregate cash equity investment of $276.1 million in us. The equityinvestment consisted of $197.6 million invested by Parent in exchange for44,000 shares of Series B common stock and $78.5 million invested byan affiliate of OfficeMax in exchange for 7,000 and 11,000 shares ofSeries A common stock and Series B common stock, respectively. SeeNote 9, Capital, for a discussion of the rights and privileges of eachclass of common stock.

 

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The following table summarizes the estimated fair values of the assetsacquired and liabilities assumed on October 29, 2004. We had one year fromthe purchase date to record changes in estimates of the fair value of assetsacquired and liabilities assumed.

 
| ** **               | ** ** | **October 29,  2004** | ** **    |
|--------------------------|------------|----------------------------|---------------|
| ** **               | ** ** | **(thousands)**            | ** **    |
|                     |       |                       |          |
| Current assets           |       | $                          | 1,653         |   |
| Property and equipment   |       | 6,342                      |          |
| Timber and timberlands   |       | 1,643,703                  |          |
| Deferred financing costs |       | 14,829                     |          |
| Other assets             |       | 550                        |          |
| Assets acquired          |       | 1,667,077                  |          |
|                     |       |                       |          |
| Current liabilities      |       | 5,520                      |          |
| Liabilities assumed      |       | 5,520                      |          |
|                     |       |                       |          |
| Net assets acquired      | ** ** | **$**                      | **1,661,557** | ** ** |

 

Assuming the Acquisition occurred on January 1, 2004, ourunaudited pro forma sales and net loss would have been $221.2 million and$26.8 million, respectively. This unaudited pro forma financialinformation does not necessarily represent what would have occurred if thetransaction had taken place on the date presented and should not be taken asrepresentative of our future consolidated results of operations or financialposition.

 

**3.****             *TransactionsWith Related Parties***

 

For the year ended December 31, 2005, and for the period ofOctober 29 (inception) through December 31, 2004, we participated inBoise LLC’s centralized cash management system. During the predecessor periodspresented, we participated in OfficeMax’s centralized cash management system.Cash receipts attributable to our operations were collected by Boise LLC andOfficeMax, and cash disbursements were funded by Boise LLC and OfficeMax. Forthe year ended December 31, 2005, and for the period from October 29(inception) through December 31, 2004, the net effect of thesetransactions has been reflected in our Consolidated Statements of Cash Flows as“Note payable to related party, net” and “Note receivable from related party,net.” The net effect of these transactions has been reflected in ourpredecessor consolidated financial statements as “Net equity transactions withOfficeMax” in the Consolidated Statements of Cash Flows. The following tableincludes the components of these related-party transactions:

 

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| ** **                                        | ** ** | **Timber Holdings**                     | ** **   | **Predecessor**                                                    | ** ** |
|---------------------------------------------------|------------|-----------------------------------------|--------------|--------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **Year Ended  December 31,  2005** | ** **   | **October 29  (inception)  through  December 31,  2004** | ** ** | **January 1  through  October 28,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** |
| ** **                                        | ** ** | **(thousands)**                         | ** **   |
|                                              |       |                                    |         |                                                               |       |   |   |   |   |
| Cash collections                                  |       | $                                       | (17,792      | )                                                                  | $          | (24,675 | ) | $ | (198,889 | ) | $ | (129,829 | ) |
| Payment of accounts payable                       |       | 15,210                                  |         | 21,058                                                             |       | 46,173 |   | 61,040 |   |
| Capital expenditures and acquisitions             |       | 565                                     |         | 1,662,480                                                          |       | 8,904 |   | 10,667 |   |
| Income taxes                                      |       | —                                  |         | —                                                             |       | 45,681 |   | 20,190 |   |
| Net debt (issuances) payments to OfficeMax        |       | —                                  |         | —                                                             |       | 4,618 |   | (1,443 | ) |
| Net cash from sale of timberlands                 |       | (1,631,838                              | )            | —                                                             |       | — |   | — |   |
| (Issuances) payments of long-term debt            |       | 1,225,000                               |         | (1,225,000                                                         | )          | — |   | — |   |
| Note payable to related party, net                |       | 157,509                                 |         | —                                                             |       | — |   | — |   |
| Issuance of common stock                          |       | —                                  |         | (276,123                                                           | )          | — |   | — |   |
| Other                                             |       | 1,074                                   |         | (231                                                               | )          | (338 | ) | 2,171 |   |
|                                              |       |                                    |         |                                                               |       |   |   |   |   |
| Note payable (receivable) from related party, net | ** ** | **$**                                   | **(250,272** | **)**                                                              | **$**      | **157,509** |   |   |   |   |   |
|                                              |       |                                    |         |                                                               |       |   |   |   |   |
| Net equity transactions with OfficeMax            | ** ** | ** **                              | ** **   | ** **                                                         | ** ** | **$** | **(93,851** | **)** | **$** | **(37,204** | **)** |

 

During theyear ended December 31, 2005, and period of October 29 (inception) throughDecember 31, 2004, and the predecessor periods presented, we used servicesand administrative staff of Boise LLC and OfficeMax, respectively. Theseincluded, but were not limited to, finance, accounting, legal, informationtechnology, and human resource functions. The costs allocated to us and ourpredecessor were specifically identifiable as services used by us and ourpredecessor. These costs are included in “General and administrative expenses”in the Consolidated Statements of Income (Loss). All cash advances necessary tofund the lease and/or purchase of timberlands and other expenditures, to theextent not provided through internally generated funds, were provided by BoiseLLC during the year ended December 31, 2005, and the period ofOctober 29 (inception) through December 31, 2004, and by OfficeMax inthe predecessor periods. These amounts have been reflected in our ConsolidatedStatements of Cash Flows as “Note payable to related party, net” and “Notereceivable from related party, net” and in the predecessor ConsolidatedStatements of Cash Flows as “Net equity transactions with OfficeMax.”

 

Prior to theTimberlands Sale, we were a major supplier of fiber to Boise LLC and, in thepredecessor periods, were a major supplier of fiber to Boise Forest ProductsOperations. Sales of fiber to Boise LLC and Boise Forest Products Operationsare reported as fiber sales to related parties in the Consolidated Statementsof Income (Loss) and were based on prices that approximated market prices.

 

For the yearended December 31, 2005, essentially all of our sales were to Boise LLC.In 2004, including the predecessor period, 54% of our sales were to Boise LLC.This represents a concentration in the volume of business transacted and therevenue generated from transactions with Boise LLC and OfficeMax.

 

Concurrentwith the Timberlands Sale, we made a related-party loan of $264.8 millionto Boise LLC. The principal amount of this loan is subject to adjustmentbased on transactions between us and Boise LLC. The balance atDecember 31, 2005, was $270.9 million and was recorded in “Notereceivable from related party, net.” Included in “Note receivable from relatedparty, net” was $18.9 million of accrued interest income atDecember 31, 2005. This note bears interest of 8% per annum, compoundedsemiannually, and matures on February 4, 2015.

 

For the year ended December 31, 2005, and for the period ofOctober 29 (inception) through December 31, 2004, BoiseLand & Timber Corp., a wholly owned direct subsidiary of TimberHoldings, leased employees from Boise LLC. During this period, most of theleased employees participated in

 

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Boise LLC’s defined benefit plans, and most of the employees wereeligible for participation in Boise LLC’s defined contribution plans.During the predecessor periods, most of Boise Timberlands’ employeesparticipated in OfficeMax’s defined benefit pension plans, and most of theemployees were eligible for participation in OfficeMax’s defined contributionplans. We have included the costs associated with employees who participated inthe plans in the Consolidated Statements of Income (Loss). These costs were notmaterial in any of the periods presented.

 

***4.******             IncomeTaxes***

 

For federalincome tax purposes, the acquisition of Boise Timberlands was treated as anasset purchase, and we had a tax basis in the acquired assets equal to thepurchase price. As a result, we depleted assets with a higher tax basis afterthe date of the Acquisition. As a result of the sale of our timberlands and the resulting interestincome earned on the note receivable from Boise LLC during 2005, we released$7.7 million of valuation allowance, that existed at December 31,2004. In second quarter 2005, we released $1.5 million of the valuationallowance as a discrete item and recorded the benefit in “Deferred incometaxes” on our Consolidated Balance Sheet and “Income tax (provision) benefit”in our Consolidated Statement of Income. The majority of the remainingvaluation allowance reduced income tax expense on income earned during 2005. Asa result, during the year ended December 31, 2005, we recognized no incometax expense.

 

In thepredecessor periods presented, Boise Timberlands’ results have been included inthe consolidated income tax returns of OfficeMax. However, in the predecessorfinancial statements, income taxes have been provided based on a calculation ofthe income tax expense that would have been incurred if Boise Timberlands hadoperated as a separate taxpayer. Income taxes were provided for all itemsincluded in the Consolidated Statements of Income (Loss), regardless of whensuch items were reported for tax purposes or when the taxes were actually paid.Current tax liabilities were transferred to OfficeMax and are included in “Netequity transactions with OfficeMax.” During the period of January 1through October 28, 2004, the net current tax liability transferred toOfficeMax was $45.0 million. During 2003, the net current tax liabilitytransferred to OfficeMax was $20.2 million.

 

The income tax (provision) benefit shown in the Consolidated Statementsof Income (Loss) includes the following:

 
| ** **                                   | ** ** | **Timber Holdings**                    | ** ** | **Predecessor**                                                            | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Year Ended  December 31, 2005** | ** ** | **October 29********(inception)****through  December 31,  2004** | ** ** | **January 1  through  October 28,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** |
| ** **                                   | ** ** | **(thousands)**                        | ** ** |
|                                         |       |                                   |       |                                                                       |       |   |   |   |   |
| Current income tax provision                 |       |                                   |       |                                                                       |       |   |   |   |   |
| Federal                                      |       | $                                      | (132       | )                                                                          | $          | — |   | $ | (38,075 | ) | $ | (17,076 | ) |
| State                                        |       | —                                 |       | —                                                                     |       | (6,944 | ) | (3,114 | ) |
|                                         |       | (132                                   | )          | —                                                                     |       | (45,019 | ) | (20,190 | ) |
| Deferred income tax (provision) benefit |       |                                   |       |                                                                       |       |   |   |   |   |
| Federal                                      |       | 1,602                                  |       | —                                                                     |       | (559 | ) | (1,768 | ) |
| State                                        |       | 37                                     |       | —                                                                     |       | (102 | ) | (323 | ) |
|                                         |       | 1,639                                  |       | —                                                                     |       | (661 | ) | (2,091 | ) |
| ** **                                   | ** ** | **$**                                  | **1,507**  | ** **                                                                 | **$**      | **—** | ** ** | **$** | **(45,680** | **)** | **$** | **(22,281** | **)** |

 

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A reconciliation of the statutory U.S. federal tax (provision) benefitand the reported tax (provision) benefit is as follows:

 
| ** **                        | ** ** | **Timber Holdings**                     | ** ** | **Predecessor**                                            | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                        | ** ** | **Year Ended  December 31,  2005** | ** ** | **October  (inception)  through  December 31,  2004** | ** ** | **January 1  through  October 28,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** |
| ** **                        | ** ** | **(thousands)**                         | ** ** |
|                              |       |                                    |       |                                                       |       |   |   |   |   |
| Statutory tax (provision) benefit |       | $                                       | (5,610     | )                                                          | $          | 7,088 |   | $ | (41,072 | ) | $ | (20,029 | ) |
| State taxes                       |       | (625                                    | )          | 790                                                        |       | (4,580 | ) | (2,234 | ) |
| Valuation allowance               |       | 7,730                                   |       | (7,878                                                     | )          | — |   | — |   |
| Other, net                        |       | 12                                      |       | —                                                     |       | (28 | ) | (18 | ) |
| Reported tax (provision) benefit  | ** ** | **$**                                   | **1,507**  | ** **                                                 | **$**      | **—** | ** ** | **$** | **(45,680** | **)** | **$** | **(22,281** | **)** |

 

AtDecember 31, 2005, we had $1.6 million of net deferred tax assets, including$148,000 of valuation allowance, recorded on our Consolidated Balance Sheet.The deferred tax assets consist mainly of a federal net operating losscarryforward of approximately $4.2 million that expires in 2024.

 

In all periodspresented, all of our pretax income was from domestic sources.

 

***5.******             Leases***

 

As a result of the Timberlands Sale, we are no longer a party to anylease obligations and have no contingent liability for any leases that weresold to Forest Capital by our subsidiaries. During all of the periodspresented, we did not have any capital leases. Rental expenses for operatingleases, primarily timberland leases, amounted to $0.3 million for the yearended December 31, 2005, and $0.5 million during the period ofOctober 29 (inception) through December 31, 2004. Rental expenseswere $2.5 million during the period of January 1 throughOctober 28, 2004, and $3.1 million during 2003.

 

***6.******             Debt***

 

In October 2004, we entered into a six-year, $1,225.0 millionTranche C term loan. Borrowings under the term loan bore interest atfloating rates. At December 31, 2004, our borrowing rate for theTranche C term loan was 4.7%, and $1,225.0 million was outstanding.We paid approximately $14.8 million of fees and expenses associated withobtaining the term loan. The fees were amortized over three months, the periodthe debt was outstanding before being paid in full with the proceeds from theTimberlands Sale in February 2005. Accordingly, at December 31, 2005, wehad no “Deferred financing costs” recorded on our Consolidated Balance Sheet.

 

In October2004, we also obtained a $160.4 million, 6% related-party loan from BoiseCascade Holdings, L.L.C., that was due to mature in October 2015. Proceedsfrom the Timberlands Sale were used to repay this related-party loan. Due torelated-party activity (see Note 3, Transactions With Related Parties), thebalance on this loan was $157.5 million at December 31, 2004, and atthe time we repaid it in February 2005.

 

In the predecessorperiods presented, we participated in OfficeMax’s centralized cash managementsystem. Cash advances necessary to fund the purchase of timberlands and majorimprovements to and replacements of property, to the extent not providedthrough internally generated funds, were provided by OfficeMax’s cash or fundedwith debt. In the predecessor periods presented, interest cost was allocated tous based on our average asset balances. The interest expense attributable tothe debt allocated from OfficeMax is included in our predecessor ConsolidatedStatements of Income (Loss).

 

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For the year ended December 31, 2005, and the periods ofOctober 29 (inception) through December 31, 2004, and January 1through October 28, 2004, and the year ended December 31, 2003, cashpayments for interest, net of interest capitalized, were $5.6 million,$11.2 million, $4.1 million, and $6.2 million, respectively.

 

For the yearended December 31, 2005, and the periods of October 29 (inception)through December 31, 2004, and January 1 through October 28,2004, and the year ended December 31, 2003, our average interest rateswere 4.8%, 4.8%, 6.7%, and 7.3%, respectively. OfficeMax’s management believesthe allocation of interest in the predecessor periods was a reasonablereflection of Boise Timberlands’ interest costs.

 

***7.******             FinancialInstruments***

 

At December 31, 2005, we had no financial instruments includingitems such as receivables, payables, and debt.

 

Prior to theTimberlands Sale, changes in interest rates exposed us to financial marketrisk. For the year ended December 31, 2005, we did not use any derivativefinancial instruments, such as interest rate swaps, rate hedge agreements, orforward purchase contracts, to hedge underlying debt obligations or anticipatedtransactions. In the predecessor periods, OfficeMax allocated debt and interestcosts to us based on our average asset balances. OfficeMax occasionally usedderivative financial instruments, such as interest rate swaps, rate hedgeagreements, and forward exchange contracts, to hedge underlying debtobligations or anticipated transactions. The effects of these financialinstruments are not included in our predecessor consolidated financialstatements other than through OfficeMax’s allocations to us.

 

***8.******             RedeemableCommon Stock***

 

InDecember 2004, key managers of Boise Holdings purchased, pursuant to the termsof a Management Equity Agreement (Equity Plan), 18.6 million equity unitsin Forest Products Holdings, L.L.C. (FPH) at $1.00 per unit, which wasapproximately equal to the estimated fair value of $0.99 on the date ofpurchase. Those who purchased FPH’s Series B equity units received a grantof 35.6 million of FPH’s Series C equity units (profit interests)that represent the right to participate in profits after capital is returned tothe holders of FPH’s Series B equity units. FPH’s Series C equity unitshave no value to the holder until the equity value appreciates above aspecified level. Although management’sinvestment is in FPH, because of the capital structure of Boise Holdings andTimber Holdings, 55% of management’s investment (along with 55% of FPH’s andOfficeMax’s investments) is included in Boise Holdings’ Consolidated BalanceSheets, and 45% of the investment is included in our Consolidated BalanceSheets. In 2005, members of management did not purchase any Series Bequity units in FPH, and FPH did not grant any Series C equity units.Boise Holdings accounts for awards granted under the Equity Plan intheir consolidated financial statements in accordance with SFASNo. 123(R).

 

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FPH’sSeries B and Series C equity units are redeemable at FPH’s optionupon termination of the management investor’s employment and at the option ofthe holder in the event of death or disability or the sale of a divisionresulting in the termination of his or her employment. Except in the event ofdeath or disability, we believe that the redemption of these units is withinour control due to the interlocking boards of FPH and Boise and because FPH wasorganized solely for the purpose of establishing Boise to acquire the forestproducts and paper assets of OfficeMax. Should repurchases under the EquityPlan occur, it is expected that they would be funded by mirror-imageredemptions of B units/shares and C units/shares held by FPH in itssubsidiaries, Boise Holdings and Timber Holdings. Because the redemption ofFPH’s Series B and Series C equity units and the expected parallelredemptions of our Series B and Series C common stock are acontingent event outside the employee’s control and not currently deemedprobable of occurring, we account for the common stock using equity planaccounting in accordance with FASB Staff Position (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 mandatory redemption in anevent that is outside of our control (death or disability), we are required toclassify the common stock outside of permanent equity in our ConsolidatedBalance Sheets at grant-date fair value. Accordingly, we recorded 45% ofmanagement’s investment in us, or $7.8 million and $8.4 million in“Redeemable common stock” on our Consolidated Balance Sheets atDecember 31, 2005 and 2004, and Boise Holdings recorded 55% of theinvestment, or $12.4 million and $10.3 million, respectively, in“Redeemable equity units” on their consolidated financial statements. Underequity plan accounting, the carrying value of management’s investment will notbe adjusted to redemption value unless payment of redeemable amounts becomesprobable. At the date it becomes probable, we will adjust the carrying value toredemption value by marking the value of the equity units to market, whichcould result in additional compensation expense.

 

Boise Holdings and Timber Holdingsdid not recognize compensation expense on the date of grant for any of theSeries B units/stock purchased because the fair value of the units issuedby FPH was equal to or less than the amount each employee was required to pay.Boise Holdings accounts for the Series C equity units as restricted stockin their consolidated financial statements. Although Timber Holdings holdsshares of Series C common stock, Boise Holdings recognizes all of thecompensation expense related to the Series C units/stock grants in theirconsolidated financial statements because all of the employees granted units/commonstock were employees of Boise Holdings. Prior to the Timberlands Sale, weleased all of our employees from Boise Holdings. In 2005, Boise Holdingsrecognized $2.9 million of compensation expense for all of the Series Cunits/shares.

 

***9.******             Capital***

 

Excluding the Series B and Series C redeemable commonstock included in “Redeemable Common Stock” in our Consolidated Balance Sheetsat December 31, 2005 and 2004, we were capitalized with $1,000 of commonstock and $267.7 million of additional paid-in capital, allocated amongthe series of common stock shown in the table below. In addition, atDecember 31, 2005 and 2004, we had $2.7 million and$20.3 million of accumulated losses recorded in our ConsolidatedStatements of Capital.

 

| **Common** | ** ** | **Common Stock  Outstanding** | ** ** | **Amount** | ** ** |
|------------|------------|-------------------------------|------------|------------|------------|
| **Stock**  | ** ** | **2005**                      | ** ** | **2004**   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** ** | ** ** | **(thousands)**               | ** ** |
|       |       |                          |       |       |       |   |   |   |   |
| A          |       | 7                             |       | 7          |       | $ | 32,498 |   | $ | 30,040 |   |
| B          |       | 53                            |       | 53         |       | 235,235 |   | 237,693 |   |
|            |            |                               |            |            |            |  |  |  |  |  |  |

 

At December 31, 2005, an affiliate of OfficeMax owned all of theSeries A common stock. Parent and an affiliate of OfficeMax owned 42,000and 11,000 of the Series B common stock, reflecting$186.9 million and $48.3 million of additional paid-in capital. TheSeries C common stock was issued to Parent without additional capitalcontributions.

 

*Series A Common Stock. *The Series A commonstock has no voting rights. It accrues dividends daily at a rate of 8% perannum on the holder’s capital contributions (net of any distributionspreviously

 

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received by such holder) plus any accumulated dividends. Accrued andunpaid dividends accumulate on the Series A common stock on June 30 andDecember 31 of each year. At December 31, 2005 and 2004, $2.9 millionand $0.4 million, respectively, of dividends were accrued in our ConsolidatedBalance Sheets as an increase in the value of the Series A common stock.Series A common stock participates in distributions as described below.

 

*Series B Common Stock. *The Series B common stock entitleseach holder to one vote on matters to be voted on by the members of TimberHoldings. The Series B common stock participates in distributions asdescribed below.

 

*Series C Common Stock*.  The Series C common stock included in“Redeemable Common Stock” on our Consolidated Balance Sheets has no votingrights. Series C common stock was issued to Parent without capitalcontribution. The Series C common stock participates in distributions asdescribed below.

 

*Distributions*.  The allocation of distributions (liquidatingand otherwise) among the three series of common stock are made as follows:  first to Series A common stockholdersand Series B common stockholders ratably, based on the number of sharesoutstanding, until each has received distributions in an amount equal to itscapital contributions (plus in the case of Series A common stock, itsaccumulated dividends and accrued and unpaid dividends) and then toSeries B common stockholders and Series C common stockholdersratably, based on the number of units of each series outstanding.

 

Thecompany has no items of other comprehensive income (loss); therefore,comprehensive income (loss) and net income (loss) are the same.

 

***10.******          Commitmentsand Guarantees***

 

*Commitments*

 

As a result ofthe Timberlands Sale, we have no commitments, including no commitments forleases or debt.

 

*Guarantees*

 

Boise Cascade Holdings,L.L.C., and Timber Holdings (collectively The Companies) and their respectivedirect and indirect domestic subsidiaries, excluding foreign subsidiaries, areparties to an amended and restated Credit Agreement dated as of April 18,2005, with JPMorgan Chase Bank as Administrative Agent and certain Lendersnamed therein and a related Guarantee and Collateral Agreement of the same date(collectively the Bank Credit Agreements). Boise LLC, a wholly owned directsubsidiary of Boise Cascade Holdings, L.L.C., acts as borrower under the BankCredit Agreements for the $635.8 million Tranche D term loan and a$475.0 million revolving credit facility that had no outstanding balanceat December 31, 2005, other than contingent reimbursement obligations inrespect of $63.1 million of standby letters of credit issued under therevolving facility. In addition, Boise Land & Timber Corp., a whollyowned direct subsidiary of ours, acted as borrower under the Bank Credit Agreementsfor the Tranche C term loan in the amount of $1,225.0 million, whichwas paid in full in February 2005 with the proceeds of the Timberlands Sale.Boise LLC’s loans and reimbursement obligations are guaranteed by The Companiesand each of their domestic subsidiaries (other than Boise LLC). Prior tothe repayment by Boise Land & Timber Corp. of the Tranche C termloan, The Companies and each of their domestic subsidiaries (other than BoiseLand & Timber Corp.) also guaranteed such loan.

 

Boise LLC andits wholly owned subsidiary, Boise Cascade Finance Corporation, have jointlyissued $250.0 million of senior floating-rate notes due in 2012 and$400.0 million of 7.125% senior subordinated notes due in 2014. The seniornotes are guaranteed on a senior basis and the subordinated notes on asubordinated basis by The Companies and each of the domestic subsidiaries,excluding foreign subsidiaries, of The Companies, other than Boise LLC andBoise Cascade Finance Corporation, which are the issuers of the notes.

 

In connection with the TimberlandsSale, we, along with Boise Cascade Holdings, L.L.C., agreed to indemnify thepurchasers for any breach of representation, warranty, or covenant contained inthe purchase agreement. In all material respects, our indemnificationobligations survived until February 4,

 

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2006, and were subject to adeductible of $16.5 million and an aggregate cap of $100.0 million.Because we received no claims for indemnification before February 4, 2006, ourindemnification obligations with respect to the Timberlands Sale haveterminated.

 

***11.******          LegalProceedings and Contingencies***

 

We are not aware of any litigation or administrative proceedingsinvolving Timber Holdings.

 

***12.******          QuarterlyResults of Operations****(unaudited)*

 
| ** **                    | ** ** | **Timber Holdings**    | ** ** | ** **          | ** ** |
|-------------------------------|------------|------------------------|------------|---------------------|------------|
| ** **                    | ** ** | **2005**               | ** ** | ** **          | ** ** |
| ** **                    | ** ** | **First  Quarter (a)** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **(millions)**         | ** ** | ** **          | ** ** |
|                          |       |                   |       |                |       |   |   |   |   |   |   |
| Net sales                     |       | $                      | 17.6       |                | $          | — |   | $ | — |   | $ | — |   |   |   |
| Income (loss) from operations |       | 7.2                    |       | 1.7                 |       | (0.2 | ) | (0.1 | ) |   |   |
| Net income (loss)             |       | (1.2                   | )          | 8.3                 |       | 5.2 |   | 5.2 |   |   |   |
|                          |       |                   |       |                |       |   |   |   |   |   |   |
| ** **                    | ** ** | ** **             | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | **Timber  Holdings** | ** ** |
| ** **                    | ** ** | **Predecessor**        | ** ** | **October 29**      | ** ** |
| ** **                    | ** ** | **2004**               | ** ** | **(inception)**     | ** ** |
| ** **                    | ** ** | **First  Quarter (b)** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter (c)** | ** ** | **October 1  through  October 28** | ** ** | **through  December 31,  2004** | ** ** |
| ** **                    | ** ** | **(millions)**         | ** ** |
|                          |       |                   |       |                |       |   |   |   |   |   |   |
| Net sales                     |       | $                      | 113.4      |                | $          | 29.7 |   | $ | 44.5 |   | $ | 9.1 |   | $ | 24.5 |   |
| Income from operations        |       | 74.9                   |       | 18.7                |       | 27.2 |   | 1.2 |   | 1.0 |   |
| Net income (loss)             |       | 44.9                   |       | 10.6                |       | 15.8 |   | 0.4 |   | (20.3 | ) |
|                          |       |                   |       |                |       |   |   |   |   |   |   |
| ** **                    | ** ** | **Predecessor**        | ** ** | ** **          | ** ** |
| ** **                    | ** ** | **2003**               | ** ** | ** **          | ** ** |
| ** **                    | ** ** | **First  Quarter**     | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **(millions)**         | ** ** | ** **          | ** ** |
|                          |       |                   |       |                |       |   |   |   |   |   |   |
| Net sales                     |       | $                      | 28.8       |                | $          | 23.6 |   | $ | 37.1 |   | $ | 37.2 |   |   |   |
| Income from operations        |       | 12.5                   |       | 12.8                |       | 18.8 |   | 19.5 |   |   |   |
| Net income                    |       | 6.7                    |       | 6.8                 |       | 10.4 |   | 11.0 |   |   |   |
|                               |            |                        |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)                                  Included$6.4 million of pretax income for the sale of all our timberlands locatedacross the Pacific Northwest, Louisiana, Alabama, and Minnesota.

 

(b)                                 Included$59.9 million of pretax income for the sale of approximately79,000 acres of timberland located in western Louisiana.

 

(c)                                  Included $13.2 million of pretax incomefor the sale of approximately 6,000 acres of timberland, mostly in Idaho.

 

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***Report of Independent Registered PublicAccounting Firm***

 

To the Board of Directors of Boise Land & Timber Holdings Corp.:

 

We have audited the accompanying consolidatedbalance sheets of Boise Land & Timber Holdings Corp. and subsidiaries as ofDecember 31, 2005 and 2004, and the related consolidated statements ofincome (loss), capital, and cash flows for the year ended December 31,2005, and the period from October 29, 2004 (inception) throughDecember 31, 2004. We have also audited the accompanying statements ofincome and cash flows of Boise Timberlands (the predecessor) for the periodfrom January 1, 2004 through October 28, 2004, and for the year endedDecember 31, 2003, and the related statement of capital for the year endedDecember 31, 2003. 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 auditsin accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of Boise Land & Timber Holdings Corp. andsubsidiaries as of December 31, 2005 and 2004, and the results of theiroperations and their cash flows for the year ended December 31, 2005, andthe period from October 29, 2004 (inception) through December 31,2004, as well as the results of operations of Boise Timberlands (thepredecessor) and its cash flows for the period from January 1, 2004through October 28, 2004, and for the year ended December 31, 2003,in conformity with U.S. generally accepted accounting principles.

 
|              | /s/ KPMG LLP |   |
|-------------------|--------------|--------|
|              |         |
|              |         |
| Boise, Idaho      |         |
| February 17, 2006 |         |

 

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