UNITED
STATES
 SECURITIES AND
EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
      quarterly period ended March 31,
2009
  OR
 
  ̈
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
      transition period from _________ to
_________
 
 Commission file
number 001-33192
  
 
 www.bmhc.com
 
 Building
      Materials Holding Corporation
 
 Delaware
                
                91-1834269(State of
      incorporation)
                
                (I.R.S.
      Employer Identification No.)
 
 720 Park Boulevard, Suite
200,Boise,Idaho83712
 
 (208) 331-4300
 
 N/A
 (Former name,
former address and former fiscal year, if changed since last
report)
 
 Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
  Yes  x No   ̈
 
 Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
  Yes   ̈ No   ̈
 
 Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company.  See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer  ̈
                Non-accelerated
      filer  ̈Accelerated
      filer  ̈
                Smaller
      reporting company x
 
 Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
  Yes   ̈ No  x
 
 The number of
shares outstanding of the registrant’s common stock as of May 14, 2009 was
29,856,508.
 
 
 
 BUILDING MATERIALS
HOLDING CORPORATION
 
 FORM
10-Q
 
 For the Period
Ended March 31, 2009
 
 INDEX
 
 Page
                                                                  NumberPART
      I – FINANCIAL INFORMATIONItem
      1– Financial Statements (unaudited)
                                                                2Consolidated
      Statements of Operations for the Three Months Ended
                                                                  March
      31, 2009 and 2008
                                                                2Consolidated
      Balance Sheets as of March 31, 2009 and December 31, 2008
                                                                3Consolidated
      Statements of (Deficit) Equity for the Three Months Ended
                                                                  March 31,
      2009 and 2008
                                                                4Consolidated
      Statements of Comprehensive Loss for Three Months Ended
                                                                  March 31,
      2009 and 2008
                                                                5Consolidated
      Statements of Cash Flows for the Three Months Ended
                                                                  March 31,
      2009 and 2008
                                                                6Notes to
      Consolidated Financial Statements
                                                                7Item
      2 – Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                                                                43Item
      3 – Quantitative and Qualitative Disclosures about Market
      Risk
                                                                66Item
      4 – Controls and Procedures
                                                                67PART
      II – OTHER INFORMATIONItem
      1 – Legal Proceedings
                                                                68Item
      1A – Risk Factors
                                                                69Item
      2 – Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                                77Item
      3 – Defaults Upon Senior Securities
                                                                78Item
      4 – Submission of Matters to a Vote of Security
      Holders
                                                                79Item
      5 – Other Information
                                                                80Item
      6 – Exhibits
                                                                81SIGNATURES
                                                                82
  1
  Item 1. Financial Statements
 
 Building
Materials Holding Corporation
 Consolidated
Statements of Operations
 (thousands,
except per share data)
 (unaudited)
 
 Three
      Months Ended
                                        March
      31
                                      
                                      
                                      Year
      Ended
                                        December
      312009
                                      
                                      
                                      2008
                                      
                                      
                                      2008SalesBuilding
      products
                                      
                                      $
                                      99,174
                                      
                                      
                                      $
                                      179,886
                                      
                                      
                                      $
                                      693,664Construction
      services
                                      
                                      
                                      68,325
                                      
                                      
                                      
                                      163,062
                                      
                                      
                                      
                                      631,015Total
      sales
                                      
                                      
                                      167,499
                                      
                                      
                                      
                                      342,948
                                      
                                      
                                      
                                      1,324,679Costs
      and operating expensesCost
      of goods soldBuilding
      products
                                      
                                      
                                      77,267
                                      
                                      
                                      
                                      130,683
                                      
                                      
                                      
                                      514,222Construction
      services
                                      
                                      
                                      66,839
                                      
                                      
                                      
                                      150,795
                                      
                                      
                                      
                                      576,087Impairment
      of assets
                                      
                                      
                                      365
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      53,015Selling,
      general and administrative
                                        expenses
                                      
                                      
                                      61,952
                                      
                                      
                                      
                                      84,256
                                      
                                      
                                      
                                      349,417Other
      income, net
                                      
                                      
                                      (5,999
                                      )
                                      
                                      
                                      (4,430
                                      )
                                      
                                      
                                      (5,059
                                      )Total
      costs and operating expenses
                                      
                                      
                                      200,424
                                      
                                      
                                      
                                      361,304
                                      
                                      
                                      
                                      1,487,682Loss
      from operations
                                      
                                      
                                      (32,925
                                      )
                                      
                                      
                                      (18,356
                                      )
                                      
                                      
                                      (163,003
                                      )Interest
      expense
                                      
                                      
                                      12,155
                                      
                                      
                                      
                                      11,638
                                      
                                      
                                      
                                      52,925Lossfrom
      continuing operations
                                        before
      income taxes
                                      
                                      
                                      (45,080
                                      )
                                      
                                      
                                      (29,994
                                      )
                                      
                                      
                                      (215,928
                                      )Income
      tax benefit (expense)
                                      
                                      
                                      12
                                      
                                      
                                      
                                      (3,849
                                      )
                                      
                                      
                                      23,409Lossfrom
      continuing operations
                                      
                                      
                                      (45,068
                                      )
                                      
                                      
                                      (33,843
                                      )
                                      
                                      
                                      (192,519
                                      )Loss
      from discontinued operations
                                      
                                      
                                      (152
                                      )
                                      
                                      
                                      (3,513
                                      )
                                      
                                      
                                      (12,680
                                      )Impairment
      of assets
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (7,813
                                      )Income
      tax benefit (expense)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      3,456
                                      
                                      
                                      
                                      (1,860
                                      )Lossfrom
      discontinued operations
                                      
                                      
                                      (152
                                      )
                                      
                                      
                                      (57
                                      )
                                      
                                      
                                      (22,353
                                      )Netloss
                                      
                                      
                                      (45,220
                                      )
                                      
                                      
                                      (33,900
                                      )
                                      
                                      
                                      (214,872
                                      )Noncontrolling
      interests loss
                                      
                                      
                                      —
                                      
                                      
                                      
                                      39
                                      
                                      
                                      
                                      63Net
      lossattributable
      to common
                                        shareholders
                                      
                                      $
                                      (45,220
                                      )
                                      
                                      $
                                      (33,861
                                      )
                                      
                                      $
                                      (214,809
                                      )Net
      loss per share:Continuing
      operations
                                      
                                      $
                                      (1.53
                                      )
                                      
                                      $
                                      (1.17
                                      )
                                      
                                      $
                                      (6.62
                                      )Discontinued
      operations
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (0.77
                                      )Basic
                                      
                                      $
                                      (1.53
                                      )
                                      
                                      $
                                      (1.17
                                      )
                                      
                                      $
                                      (7.39
                                      )Continuing
      operations
                                      
                                      $
                                      (1.53
                                      )
                                      
                                      $
                                      (1.17
                                      )
                                      
                                      $
                                      (6.62
                                      )Discontinued
      operations
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (0.77
                                      )Diluted
                                      
                                      $
                                      (1.53
                                      )
                                      
                                      $
                                      (1.17
                                      )
                                      
                                      $
                                      (7.39
                                      )
 
 The accompanying
notes are an integral part of these consolidated financial
statements.
  2
  Building
Materials Holding Corporation
 Consolidated
Balance Sheets
 (thousands)
 (unaudited)
 
 March
      31
                                
                                
                                December
      31
                                
                                
                                
                                March
      31
                                December
      312009
                                
                                
                                2008
                                
                                
                                
                                2009
                                
                                2008Assets
                                
                                
                                
                                
                                
                                
                                Liabilities
      and (Deficit) EquityCash and cash
      equivalents
                                
                                $
                                6,323
                                
                                
                                $
                                11,484Receivables,
      net of allowances
                                
                                
                                
                                
                                
                                
                                
                                
                                Accounts
      payable
                                
                                $
                                26,189
                                
                                
                                $
                                19,021of
      $14,487 and $12,091
                                
                                
                                89,703
                                
                                
                                
                                118,245
                                
                                Accrued
      compensation
                                
                                
                                19,452
                                
                                
                                
                                17,274Inventory
                                
                                
                                70,605
                                
                                
                                
                                78,676
                                
                                Insurance
      deductible reserves
                                
                                
                                16,788
                                
                                
                                
                                17,527Unbilled
      receivables
                                
                                
                                10,571
                                
                                
                                
                                13,112
                                
                                Other accrued
      liabilities
                                
                                
                                24,524
                                
                                
                                
                                26,981Income tax
      receivable
                                
                                
                                49,977
                                
                                
                                
                                50,304
                                
                                Billings in
      excess of costs and estimatedDeferred
      income taxes
                                
                                
                                —
                                
                                
                                
                                —
                                
                                earnings
                                
                                
                                19,696
                                
                                
                                
                                24,054Prepaid
      expenses and other
                                
                                
                                4,940
                                
                                
                                
                                4,864
                                
                                Current
      portion of long-term debt
                                
                                
                                316,309
                                
                                
                                
                                39,443Assets of
      discontinued operations
                                
                                
                                5,073
                                
                                
                                
                                5,659
                                
                                Liabilities of
      discontinued operations
                                
                                
                                502
                                
                                
                                
                                773Current
      assets
                                
                                
                                237,192
                                
                                
                                
                                282,344
                                
                                Current
      liabilities
                                
                                
                                423,460
                                
                                
                                
                                145,073Property and
      equipment
                                
                                
                                
                                
                                
                                
                                
                                
                                Insurance
      deductible reserves
                                
                                
                                25,466
                                
                                
                                
                                26,208Land
                                
                                
                                34,188
                                
                                
                                
                                33,996
                                
                                Long-term
      debt
                                
                                
                                381
                                
                                
                                
                                287,009Buildings
      and improvements
                                
                                
                                120,727
                                
                                
                                
                                120,814
                                
                                Other
      long-term liabilities
                                
                                
                                32,007
                                
                                
                                
                                37,163Equipment
                                
                                
                                144,385
                                
                                
                                
                                153,843
                                
                                Total
      liabilities
                                
                                
                                481,314
                                
                                
                                
                                495,453Construction
      in progress
                                
                                
                                3,444
                                
                                
                                
                                3,440Accumulated
      depreciation
                                
                                
                                (144,460
                                )
                                
                                
                                (148,032
                                )
                                Commitments
      and contingent liabilities
                                
                                
                                —
                                
                                
                                
                                —Assets held
      for sale
                                
                                
                                41,451
                                
                                
                                
                                46,300Deferred
      income taxes
                                
                                
                                —
                                
                                
                                
                                —
                                
                                (Deficit)
      equityDeferred loan
      costs
                                
                                
                                4,100
                                
                                
                                
                                4,485
                                
                                Common shares,
      $0.001 par value:Other
      long-term assets
                                
                                
                                20,696
                                
                                
                                
                                23,303
                                
                                authorized 50
      million shares; issued andOther
      intangibles, net
                                
                                
                                18,425
                                
                                
                                
                                19,222
                                
                                outstanding
      29.7 and 29.7 million shares
                                
                                
                                29
                                
                                
                                
                                29Goodwill
                                
                                
                                —
                                
                                
                                
                                —
                                
                                Additional
      paid-in capital
                                
                                
                                168,545
                                
                                
                                
                                169,146$
                                480,148
                                
                                
                                $
                                539,715
                                
                                Deferred
      compensation common shares obligation
                                
                                
                                80
                                
                                
                                
                                878Deferred
      compensation common shares held
                                
                                
                                (80
                                )
                                
                                
                                (878
                                )Accumulated
      deficit
                                
                                
                                (165,547
                                )
                                
                                
                                (120,327
                                )Accumulated
      other comprehensive loss, net
                                
                                
                                (4,193
                                )
                                
                                
                                (4,586
                                )Shareholders’(deficit)equity
                                
                                
                                (1,166
                                )
                                
                                
                                44,262Noncontrolling
      interests
                                
                                
                                —
                                
                                
                                
                                —Total(deficit)equity
                                
                                
                                (1,166
                                )
                                
                                
                                44,262$
                                480,148
                                
                                
                                $
                                539,715
   The accompanying
notes are an integral part of these consolidated financial
statements.
  3
  Building
Materials Holding Corporation
 Consolidated
Statements of (Deficit) Equity
 (thousands)
 (unaudited)
 
 Three
      Months Ended
                                    March
      31
                                  
                                  
                                  Year
      Ended December 312009
                                  
                                  
                                  2008
                                  
                                  
                                  2008Common
      shares – beginning balance
                                  
                                  $
                                  29
                                  
                                  
                                  $
                                  29
                                  
                                  
                                  $
                                  29Shares
      issued from Incentive and Performance Plans
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Shares
      issued upon exercise of warrants
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Commonshares
                                  
                                  $
                                  29
                                  
                                  
                                  $
                                  29
                                  
                                  
                                  $
                                  29Additional
      paid-in capital – beginning balance
                                  
                                  $
                                  169,146
                                  
                                  
                                  $
                                  164,043
                                  
                                  
                                  $
                                  164,043Shares
      issued from Incentive and Performance PlansOptions
      exercised – Management
                                  
                                  
                                  —
                                  
                                  
                                  
                                  9
                                  
                                  
                                  
                                  9Tax
      benefit for share options exercised
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (27
                                  )
                                  
                                  
                                  —Restricted
      shares – Management
                                  
                                  
                                  (377
                                  )
                                  
                                  
                                  (106
                                  )
                                  
                                  
                                  (2,119
                                  )Unearned
      compensation
                                  
                                  
                                  377
                                  
                                  
                                  
                                  106
                                  
                                  
                                  
                                  2,119Shares
      – Directors
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  402Earned
      compensationOptions
      – Management
                                  
                                  
                                  154
                                  
                                  
                                  
                                  998
                                  
                                  
                                  
                                  2,780Restricted
      shares – Management
                                  
                                  
                                  (19
                                  )
                                  
                                  
                                  694
                                  
                                  
                                  
                                  1,044Tax
      benefit for vested restricted shares
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (704
                                  )
                                  
                                  
                                  —Shares
      issued from Employee Stock Purchase Plan
                                  
                                  
                                  46
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  86WarrantsFair
      value of warrants issued
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  782Warrants
      exercised
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Reclassified
      to other accrued liabilities
                                  
                                  
                                  (782
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Additional
      paid-in capital
                                  
                                  $
                                  168,545
                                  
                                  
                                  $
                                  165,013
                                  
                                  
                                  $
                                  169,146Deferred
      compensation common shares obligation –
                                    beginning
      balance
                                  
                                  $
                                  878
                                  
                                  
                                  $
                                  1,427
                                  
                                  
                                  $
                                  1,427Deferred
      compensation
                                  
                                  
                                  —
                                  
                                  
                                  
                                  45
                                  
                                  
                                  
                                  292Dividends
      on common shares held
                                  
                                  
                                  —
                                  
                                  
                                  
                                  11
                                  
                                  
                                  
                                  11Distributions
                                  
                                  
                                  (798
                                  )
                                  
                                  
                                  (262
                                  )
                                  
                                  
                                  (852
                                  )Deferred
      compensationcommon
      sharesobligation
                                  
                                  $
                                  80
                                  
                                  
                                  $
                                  1,221
                                  
                                  
                                  $
                                  878Deferred
      compensation common shares held –
                                    beginning
      balance
                                  
                                  $
                                  (878
                                  )
                                  
                                  $
                                  (1,427
                                  )
                                  
                                  $
                                  (1,427
                                  )Cost
      of shares purchased with deferred
      compensation
                                    and
      dividends
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (56
                                  )
                                  
                                  
                                  (303
                                  )Cost
      of shares distributed
                                  
                                  
                                  798
                                  
                                  
                                  
                                  262
                                  
                                  
                                  
                                  852Deferred
      compensation common shares held
                                  
                                  $
                                  (80
                                  )
                                  
                                  $
                                  (1,221
                                  )
                                  
                                  $
                                  (878
                                  )(Accumulated
      deficit) retained earnings – beginning balance
                                  
                                  $
                                  (120,327
                                  )
                                  
                                  $
                                  94,482
                                  
                                  
                                  $
                                  94,482Net
      loss attributable to common shareholders
                                  
                                  
                                  (45,220
                                  )
                                  
                                  
                                  (33,861
                                  )
                                  
                                  
                                  (214,809
                                  )Cash
      dividends on common shares
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —(Accumulated
      deficit) retained
      earnings
                                  
                                  $
                                  (165,547
                                  )
                                  
                                  $
                                  60,621
                                  
                                  
                                  $
                                  (120,327
                                  )Accumulated
      other comprehensive loss, net – beginningbalance
                                  
                                  $
                                  (4,586
                                  )
                                  
                                  $
                                  (4,812
                                  )
                                  
                                  $
                                  (4,812
                                  )Interest
      rate swap contracts – active:Amortization
      of unrealized loss
                                  
                                  
                                  384
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Unrealized
      (loss) gain
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (8,419
                                  )
                                  
                                  
                                  226Notional
      reduction settlement payments
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  3,835Tax
      benefit for unrealized loss
                                  
                                  
                                  (146
                                  )
                                  
                                  
                                  (3,266
                                  )
                                  
                                  
                                  (1,556
                                  )Interest
      rate swap contracts – terminated:Notional
      reduction settlement payments
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (3,835
                                  )Amortization
      of payments
                                  
                                  
                                  250
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  926(Tax
      benefit) taxes for unamortized payments
                                  
                                  
                                  (95
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,106Marketable
      securities:Unrealized
      gain (loss)
                                  
                                  
                                  —
                                  
                                  
                                  
                                  700
                                  
                                  
                                  
                                  (721
                                  )(Tax
      benefit) taxes for unrealized (loss) gain
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (238
                                  )
                                  
                                  
                                  245Accumulated
      other comprehensive loss, net
                                  
                                  $
                                  (4,193
                                  )
                                  
                                  $
                                  (16,035
                                  )
                                  
                                  $
                                  (4,586
                                  )Noncontrolling
      interests – beginning balance
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  8,591
                                  
                                  
                                  $
                                  8,591Noncontrolling
      interests loss
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (39
                                  )
                                  
                                  
                                  (63
                                  )Purchase
      of noncontrolling interests
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (8,407
                                  )
                                  
                                  
                                  (8,528
                                  )Noncontrolling
      interests
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  145
                                  
                                  
                                  $
                                  —Total
      (deficit) equity
                                  
                                  $
                                  (1,166
                                  )
                                  
                                  $
                                  209,773
                                  
                                  
                                  $
                                  44,262
 
 The accompanying
notes are an integral part of these consolidated financial
statements.
  4
  Building
Materials Holding Corporation
 Consolidated
Statements of Comprehensive Loss
 (thousands)
 (unaudited)
  Three
      Months Ended
                          March
      31
                        
                        
                        Year
      Ended
                          December
      312009
                        
                        
                        2008
                        
                        
                        2008Net
      loss
                        
                        $
                        (45,220
                        )
                        
                        $
                        (33,900
                        )
                        
                        $
                        (214,872
                        )Less:
      Reclassifications from Accumulated other comprehensive loss, net
      for:Unrealized
      gain (loss) on interest rate swap contracts:Interest rate
      swap contracts – active:Amortization
      of unrealized loss
                        
                        $
                        384
                        
                        
                        $
                        —
                        
                        
                        $
                        —Unrealized
      (loss) gian
                        
                        
                        —
                        
                        
                        
                        (8,419
                        )
                        
                        
                        226Notional
      reduction settlement payments
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        3,835(Taxes) tax
      benefit for unrealized gain (loss)
                        
                        
                        (146
                        )
                        
                        
                        (3,266
                        )
                        
                        
                        (1,556
                        )Interest rate
      swap contracts – terminated:Notional
      reduction settlement payments
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (3,835
                        )Amortization
      of payments
                        
                        
                        250
                        
                        
                        
                        —
                        
                        
                        
                        926(Taxes) tax
      benefit for unamortized payments
                        
                        
                        (95
                        )
                        
                        
                        —
                        
                        
                        
                        1,106$
                        393
                        
                        
                        $
                        (11,685
                        )
                        
                        $
                        702Unrealized
      gain (loss) on marketable securities:Unrealized
      gain (loss)
                        
                        $
                        —
                        
                        
                        $
                        700
                        
                        
                        $
                        (721
                        )(Taxes)
      tax benefit for unrealized gain (loss)
                        
                        
                        —
                        
                        
                        
                        (238
                        )
                        
                        
                        245$
                        —
                        
                        
                        $
                        462
                        
                        
                        $
                        (476
                        )Comprehensive
      loss
                        
                        $
                        (44,827
                        )
                        
                        $
                        (45,123
                        )
                        
                        $
                        (214,646
                        )Noncontrolling
      interests loss
                        
                        $
                        —
                        
                        
                        $
                        39
                        
                        
                        $
                        63Comprehensive
      lossattributable
      to common
                          shareholders
                        
                        $
                        (44,827
                        )
                        
                        $
                        (45,084
                        )
                        
                        $
                        (214,583
                        )
 
 The accompanying
notes are an integral part of these consolidated financial
statements.
  5
  Building
Materials Holding Corporation
 Consolidated
Statements of Cash Flows
 (thousands)
 (unaudited)
 
 Three
      Months Ended
                                March
      31
                              
                              
                              Year
      Ended December 312009
                              
                              
                              2008
                              
                              
                              2008Operating
      ActivitiesNet
      loss attributable to common shareholders
                              
                              $
                              (45,220
                              )
                              
                              $
                              (33,861
                              )
                              
                              $
                              (214,809
                              )Noncontrolling
      interests loss, net
                              
                              
                              —
                              
                              
                              
                              (39
                              )
                              
                              
                              (63
                              )Net
      loss
                              
                              
                              (45,220
                              )
                              
                              
                              (33,900
                              )
                              
                              
                              (214,872
                              )Items
      in net loss not using (providing) cash:Depreciation
      and amortization
                              
                              
                              6,141
                              
                              
                              
                              10,522
                              
                              
                              
                              37,611Deferred
      loan cost amortization
                              
                              
                              385
                              
                              
                              
                              2,739
                              
                              
                              
                              1,621Deferred
      loan cost write off
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              7,099Amortization
      of unrealized loss related to interest rate swap contracts
                                previously
      accounted for as cash flow hedge
                              
                              
                              384
                              
                              
                              
                              —
                              
                              
                              
                              —Amortization
      of terminated interest rate swap contracts notional reduction
                                settlement
      payments
                              
                              
                              250
                              
                              
                              
                              —
                              
                              
                              
                              926Unrealized
      ineffective portion of interest rate swap contracts
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              3,022Amortization
      of warrant discount
                              
                              
                              62
                              
                              
                              
                              —
                              
                              
                              
                              62Impairment
      of assets
                              
                              
                              365
                              
                              
                              
                              —
                              
                              
                              
                              60,828Share-based
      compensation
                              
                              
                              249
                              
                              
                              
                              1,846
                              
                              
                              
                              4,276Gain
      on sale of assets, net
                              
                              
                              (5,338
                              )
                              
                              
                              (3,435
                              )
                              
                              
                              (2,225
                              )Realized
      gain on marketable securities
                              
                              
                              —
                              
                              
                              
                              (186
                              )
                              
                              
                              (542
                              )Deferred
      income tax (benefit) expense
                              
                              
                              (241
                              )
                              
                              
                              13,896
                              
                              
                              
                              22,534Changes
      in assets and liabilities, net of effects of acquisitions and
                                divestitures
      of business units:Receivables,
      net
                              
                              
                              29,155
                              
                              
                              
                              15,435
                              
                              
                              
                              85,424Inventory
                              
                              
                              8,042
                              
                              
                              
                              7,670
                              
                              
                              
                              38,190Unbilled
      receivables
                              
                              
                              2,541
                              
                              
                              
                              8,271
                              
                              
                              
                              26,804Income
      tax receivable
                              
                              
                              327
                              
                              
                              
                              —
                              
                              
                              
                              (40,492
                              )Prepaid
      expenses and other current assets
                              
                              
                              (73
                              )
                              
                              
                              (7,276
                              )
                              
                              
                              4,298Accounts
      payable
                              
                              
                              6,951
                              
                              
                              
                              4,909
                              
                              
                              
                              (32,836
                              )Accrued
      compensation
                              
                              
                              (258
                              )
                              
                              
                              (3,306
                              )
                              
                              
                              (14,724
                              )Insurance
      deductible reserves
                              
                              
                              (739
                              )
                              
                              
                              (1,756
                              )
                              
                              
                              (10,961
                              )Other
      accrued liabilities
                              
                              
                              (1,852
                              )
                              
                              
                              (2,540
                              )
                              
                              
                              (8,028
                              )Billings
      in excess of costs and estimated earnings
                              
                              
                              (4,358
                              )
                              
                              
                              1,434
                              
                              
                              
                              275Other
      long-term assets and liabilities
                              
                              
                              (3,343
                              )
                              
                              
                              (2,610
                              )
                              
                              
                              8,789Other,
      net
                              
                              
                              (241
                              )
                              
                              
                              (3,504
                              )
                              
                              
                              (205
                              )Cash
      flows(used)provided
      by operating activities
                              
                              
                              (6,811
                              )
                              
                              
                              8,209
                              
                              
                              
                              (23,126
                              )Investing
      ActivitiesPurchases
      of property and equipment
                              
                              
                              (570
                              )
                              
                              
                              (7,176
                              )
                              
                              
                              (16,509
                              )Acquisitions
      and investments in businesses, net of cash acquired
                              
                              
                              —
                              
                              
                              
                              (2,450
                              )
                              
                              
                              (8,575
                              )Proceeds
      from dispositions of property and equipment
                              
                              
                              10,828
                              
                              
                              
                              5,187
                              
                              
                              
                              14,871Purchase
      of marketable securities
                              
                              
                              —
                              
                              
                              
                              (13,854
                              )
                              
                              
                              (28,589
                              )Proceeds
      from sales of marketable securities
                              
                              
                              —
                              
                              
                              
                              10,339
                              
                              
                              
                              70,221Other,
      net
                              
                              
                              (26
                              )
                              
                              
                              (2,797
                              )
                              
                              
                              (2,123
                              )Cash
      flowsprovided
      (used)by
      investing activities
                              
                              
                              10,232
                              
                              
                              
                              (10,751
                              )
                              
                              
                              29,296Financing
      ActivitiesNet
      borrowings under revolver
                              
                              
                              2,300
                              
                              
                              
                              —
                              
                              
                              
                              —Principal
      payments on term notes
                              
                              
                              (11,986
                              )
                              
                              
                              (3,522
                              )
                              
                              
                              (19,866
                              )Interest
      rate swap contracts notional reduction settlement payments
                              
                              
                              (1,220
                              )
                              
                              
                              —
                              
                              
                              
                              (3,835
                              )Net
      payments on other notes
                              
                              
                              (138
                              )
                              
                              
                              (418
                              )
                              
                              
                              (2,261
                              )Increase
      (decrease) in book overdrafts
                              
                              
                              2,418
                              
                              
                              
                              (4,413
                              )
                              
                              
                              (17,616
                              )Proceeds
      from share options exercised
                              
                              
                              —
                              
                              
                              
                              9
                              
                              
                              
                              8Income
      tax benefit for share-based compensation
                              
                              
                              —
                              
                              
                              
                              (731
                              )
                              
                              
                              —Dividends
      paid
                              
                              
                              —
                              
                              
                              
                              (2,938
                              )
                              
                              
                              (2,938
                              )Deferred
      financing costs
                              
                              
                              —
                              
                              
                              
                              (4,927
                              )
                              
                              
                              (8,847
                              )Other,
      net
                              
                              
                              44
                              
                              
                              
                              —
                              
                              
                              
                              82Cash
      flowsusedby
      financing activities
                              
                              
                              (8,582
                              )
                              
                              
                              (16,940
                              )
                              
                              
                              (55,273
                              )Decrease
      in Cash and Cash Equivalents
                              
                              
                              (5,161
                              )
                              
                              
                              (19,482
                              )
                              
                              
                              (49,103
                              )Cash
      and cash equivalents, beginning of period
                              
                              
                              11,484
                              
                              
                              
                              60,587
                              
                              
                              
                              60,587Cash
      and cash equivalents, end of period
                              
                              $
                              6,323
                              
                              
                              $
                              41,105
                              
                              
                              $
                              11,484Supplemental
      Disclosure of Cash Flow
      InformationCash
      paid for interest
                              
                              $
                              8,407
                              
                              
                              $
                              8,876
                              
                              
                              $
                              41,863Cash
      paid for income taxes
                              
                              $
                              9
                              
                              
                              $
                              78
                              
                              
                              $
                              3,141Supplemental
      Schedule of Investing
    ActivitiesLiabilities
      of acquisitions (extinguished)
                              
                              $
                              —
                              
                              
                              $
                              (2,450
                              )
                              
                              $
                              (8,525
                              )Cash
      paid for acquisitions made this period
                              
                              $
                              —
                              
                              
                              $
                              2,450
                              
                              
                              $
                              8,525Cash
      paid for acquisitions made in prior period
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              50Supplemental
      Schedule of Financing
    ActivitiesFair
      value of warrants issued
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              782Discount
      on term note for warrants issued
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              (782
                              )
 
 The
      accompanying notes are an integral part of these consolidated financial
      statements.
  6
 Notes
to Unaudited Consolidated Financial Statements
 
 
 1.    Summary of Significant Accounting
Policies
 
 Nature of Operations
 Building Materials
Holding Corporation (BMHC) providesbuilding products
and construction services to professional homebuilders and contractors in
western and southern regions of the United States.  We distribute
building products, manufacture building components (millwork, floor and roof
trusses and wall panels) and provide construction services to professional
builders and contractors through a network of 31 distribution facilities, 43
manufacturing facilities and 5 regional construction services
facilities.  Based on National Association of Home Builders building
permit activity, we provide building products and construction services in 9 of
the top 25 single-family construction markets.
 
 Principles of
Consolidation
 The consolidated
financial statements include the accounts of BMHC and its
subsidiaries.  All significant intercompany balances and transactions
are eliminated.
 
 Basis of
Presentation
 
 ·
                Interim
      consolidated financial
statements
 These
consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information anddisclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in theUnited
Stateshave been
condensed or omitted pursuant to those rules and regulations. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes included in our most recent
Annual Report on Form 10-K.
 
 These
consolidated financial statements have not been audited by independent registered public accountants.  However, in the opinion
of management, all adjustments, including those of a normal and recurring
nature, necessary to present fairly the results for the periods have been
included.  The preparation of these consolidated financial statements
required estimates and assumptions.  Actual results may differ from
those estimates.
 
 ·
                Uncertainty
      regarding Liquidity and Going
Concern
 Our consolidated
financial statements were prepared assuming we will continue as a going concern
which contemplates the realization of assets and the liquidation of liabilities
in the normal course of business.
 
 Beginning with the
fourth quarter of 2007 and continuing through the first quarter of 2009, we have
incurred losses from operations and, during 2008 and the first quarter of 2009,
restructuring costs as we downsized our business to match the current
environment.  We have managed our liquidity during this time with
closure and consolidation of underperforming business units and cost reduction
initiatives as well as sales of assets.  However, the downturn in the
housing industry has been deepened by an increase in home foreclosures and
reduced consumer confidence from tightened lending standards and rising
unemployment, which have created a difficult business environment for
homebuilders generally.  Our operating performance and liquidity were
negatively affected by these economic and industry conditions, which are beyond
our control.
 
 These business
conditions have not improved during 2009.  As of March 2009,
single-family housing starts for the U.S. as a whole fell to an annualized rate
below 0.4 million and single-family permits in our markets remained at a
depressed annualized rate of 0.1 million.  We do not believe
these business conditions will improve significantly during 2009.
 7
  Our actions to
align our cost structure with anticipated sales may not be sufficient to fund
our operating costs, restructuring costs and debt service
requirements.  When funds from operations are insufficient, our
primary source of funding has been the revolver component of our credit
facility.  Our amended credit facility provides a $200 million
revolver and a $340 million term note maturing in November 2011.  Our
revolver is subject to borrowing base limitations based on certain accounts
receivable, inventory, property and equipment and real estate and may not
provide adequate liquidity.  As of March 31, 2009, there were $2.3
million borrowings outstanding under the revolver and $313.8 million was
outstanding under the term note.
 
 Our credit
agreement requires monthly compliance with financial covenants, including
minimum liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA).  Operating results,
particularly income from continuing operations, are a primary factor for these
covenants, and our ability to comply with these covenants depends on our
operating performance.  Lack of compliance with these covenants would
constitute an event of default under the credit agreement which, absent any
waiver, forbearance or modification, would enable the lenders under our credit
agreement to cause all amounts
borrowed to become due and payable immediately and to prohibit further
borrowings by us under therevolver.
 
 Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we obtained a limited waiver
through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA
requirement and we preserved access to limited liquidity permitting us to borrow
up to $20 million under the revolver.  Previously, we had obtained
waivers for financial covenants due to lower than planned operating performance
as of both June 2008 and December 2007.
 
 Due to the
difficulty of reliably projecting our operating results within the depressed
business conditions of the homebuilding industry, we believe that it is likely
that we will not be able to meet the financial covenants of our credit agreement
during 2009.  Also, our independent registered public accounting firm
included a going concern explanatory paragraph in their report on our financial
statements for 2008, citing among other things, the uncertainty that we would
remain in compliance with these financial covenants.  The going
concern explanatory paragraph constitutes a default under our credit
agreement.  In April 2009, we obtained a waiver for the going concern
explanatory paragraph.
 
 In April 2009, our lenders also agreed
to extend the limited waiver through June 1, 2009.  In May 2009, the
limited waiver was extended through June 29, 2009.  This limited
waiver continues to waive compliance with the monthly Adjusted EBITDA, forecast
and projection requirements of our credit agreement.  The limited
waiver limits borrowings under the revolver to $20 million and limits capital
expenditures to $0.1 million from the date of the extended limited
waiver.Lenders approving each of the March,
April and May 2009 limited waivers were paid a fee of 0.10% of their revolver
commitment and their portion of the outstanding principal amount of the term
note.
 8
  For March 2009, we
were not in compliance with the monthly Adjusted EBITDA requirement of our
credit agreement.  Additionally, as the limited waiver for these
financial covenants is less than a year, it is probable we will not be in
compliance with these financial covenants within the next year and given there
is no amendment or other financing agreement currently in place, the revolver
and term note are classified as a current liability in the consolidated balance
sheet.
 
 We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing options.
 
 We
may not be able to meet near-term working capital and scheduled interest and
debt payment requirements if cash flows are inadequate from our reduced
operating activities or if our access to the revolver portion of our credit
facility is restricted because we are unable to reach an agreement with our
lenders.  Absent any waiver, forbearance or modification to our
current credit agreement, we believe our recurring losses from operations,
interest and debt burden amid declining sales and potential inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going
concern.
 
 Additionally, our
long-term future is dependent on more normal levels of single-family housing
starts and our ability to implement and maintain cost structures, including
reduced interest and debt that align with single-family housing
trends.  If this fails to transpire or if we cannot obtain a waiver,
forbearance or modification to our current credit agreement or other financing
options, we may not be able to continue as a going concern and may be forced to
seek relief through a bankruptcy filing.
  ·
                Discontinued
      operations
 These consolidated
financial statements present separately the financial information for
discontinued operations as follows:
 
 ·
                concrete
      block masonry, concrete services and truss manufacturing in Florida (June
      2008) and
 ·
                framing
      services in Virginia (March 2008).
 
 As
a result of these transactions:
 
 ·
                these
      operations are presented separately from continuing operations within the
      caption of discontinued operations
and
 ·
                related
      assets and liabilities are separately classified in the consolidated
      balance sheet.
  9
  Use of Estimates
 The preparation of
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and contingent assets and liabilities
as of the date of the financial statements as well as the reported amounts of
sales and expenses during the reporting period.  Actual amounts may
differ materially from those estimates.  The following critical
accounting estimates often require our subjective and complex judgment as a
result of the need to estimate matters that are inherently
uncertain:
 
 ·
                Revenue
      Recognition for Construction
Services
 The
percentage-of-completion method is used to recognize revenue for construction
services.  Periodic estimates of our progress towards completion are
made based on a comparison of labor costs incurred to date with total estimated
contract costs for labor.  The percentage-of-completion method
requires the use of various estimates, including among others, the extent of
progress towards completion, contract revenues and contract completion
costs.  Contract revenues and contract costs to be recognized are
dependent on the accuracy of estimates, including quantities of materials, labor
productivity and other cost estimates.  We have a history of making
reasonable estimates of the extent of progress towards completion, contract
revenues and contract completion costs.  However, due to uncertainties
inherent in the estimation process, it is possible that actual contract revenues
and completion costs may vary from estimates.  Revisions of contract
revenues and cost estimates as well as provisions for estimated losses on
uncompleted contracts are recognized in the period such revisions are
known.
 ·
                  Estimated
      Losses on Uncompleted Contracts and Changes in Contract
      Estimates
 Estimated losses on
uncompleted contracts and changes in contract estimates are established by
assessing estimated costs to complete, change orders and claims for uncompleted
contracts.  Revisions of estimated losses are recognized in the period
such revisions are known.
 ·
                  Realizability
      of Net Deferred Tax
Asset
 Deferred tax assets
and liabilities are recognized for tax credits and for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  A
valuation allowance is recognized to reduce the carrying amount of deferred tax
assets to the amount that is more likely than not to be realized.  If
it is later determined it is more likely than not that deferred tax assets will
be realized, the valuation allowance will be adjusted.  Revisions of
the valuation allowance are recognized in the period such revisions are
known.
 ·
                  Goodwill
 Goodwill represents
the excess of purchase price over the fair values of net tangible and
identifiable intangible assets of acquired businesses.  An annual
assessment for impairment is completed in the fourth quarter and whenever events
and circumstances indicate the carrying amount may not be
recoverable.  An impairment is recognized if the carrying amount is
more than the estimated future operating cash flows as measured by fair value
techniques.
  10
 ·
                  Insurance
      Deductible Reserves
 The estimated cost
of automobile, general liability and workers’ compensation claims is determined
by actuarial methods.  Claims in excess of insurance deductibles are
insured with third-party insurance carriers.  Insurance deductible
reserves for claims are recognized based on the estimated costs of these claims
as limited by the deductibles of the applicable insurance
policies.  Revisions to insurance deductible reserves for estimated
claims are recognized in the period such revisions are known.
 ·
                  Warranties
 The estimated cost
of warranties for certain construction services is based on the nature and
frequency of claims, anticipated claims and cost per claim.  Claims in
excess of insurance deductibles are insured with third-party insurance
carriers.  Estimated costs for warranties are recognized when the
revenue associated with the service is recognized.  Revisions of
estimated warranties are recognized in the period such revisions are
known.
 ·
                  Share-based
      Compensation
 Our estimates of
the fair values of our share-based payment transactions are based on the
modified Black-Scholes-Merton model.  To meet the fair value
measurement objective, we are required to develop estimates regarding expected
exercise patterns, share price volatility, forfeiture rates, risk-free interest
rate and dividend yield.  These assumptions are based principally on
historical experience.  When circumstances indicate changes in
forfeiture rates, revisions to forfeiture rates are recognized in the period
such revisions are known.  Due to uncertainties inherent in these
assumptions, it is possible that actual share-based compensation may vary from
these estimates.
 
 Cash and Cash
Equivalents
 Cash and cash
equivalents consist of short-term investments that have a maturity of three
months or less at the date of purchase.
 
 Receivables
 Receivables consist
primarily of amounts due from customers and are net of an allowance for doubtful
accounts.  The allowance for doubtful accounts reflects our best
estimate of probable losses of accounts receivable.  We determine the
allowance based on known troubled accounts, historical experience and other
available evidence.
 
 Inventory Valuation
 Inventory consists
principally of building materials purchased for resale and is valued at the
lower of average cost or market.  We participate in vendor rebate
programs under which rebates are earned by attaining certain purchase
volumes.  Volume rebates are accrued as earned.  These
volume rebates are recorded as a reduction in inventory and recognized in cost
of goods sold when the related product is sold.
 
 Unbilled Receivables andBillingsin Excess of Costs and Estimated
Earnings
 The
percentage-of-completion method results in recognizing costs incurred and
estimated revenues on uncompleted contracts.  Unbilled receivables
represent revenues recognized for construction services performed, however not
yet billed.  Billings in excess of costs and estimated earnings
represent billings made in excess of estimated revenues
recognized.  These billings are deferred until the actual progress
towards completion indicates recognition is appropriate.  Costs
include labor and materials as well as equipment costs related to contract
performance.
  11
  Property and
Equipment
 Property and
equipment are recorded at cost.  Cost includes expenditures for major
improvements and replacements that extend useful life.  Certain costs
of software are capitalized provided those costs are not research and
development and certain other criteria are met.  Capitalized interest
was not significant for the period ended March 31, 2009, $0.3 million for the
period ended March 31, 2008 and $0.9 million for 2008.  Expenditures
for other maintenance and repairs are expensed as incurred.  Gains and
losses from sales and retirements are included in Other expense (income), net as
they occur.  Depreciation is calculated using the straight-line method
over the economic useful lives of the assets.  The estimated useful
lives of depreciable assets are generally:
  ·
                ten to thirty
      years for buildings and
improvements,
 ·
                    seven to ten
      years for machinery and fixtures,
 ·
                    three
      to ten years for handling and delivery equipment
  and
 ·
                three to ten
      years for software development
costs.
  To
improve financial returns, we periodically evaluate our investments in property
and equipment.  As a result, property and equipment may be
consolidated, leased or sold.  For continuing operations, we
recognized a gain of $5.3 million for the period ended March 31, 2009, $3.4
million for the period ended March 31, 2008 and $3.2 million for 2008 from the
sales of property and equipment.
 
 Assets Held forSale
 Assets held for
sale are measured at the lower of carrying amount or fair value less costs to
sell and are no longer depreciated.  These assets are being actively
marketed for sale at a price that is reasonable in relation to their carrying
amounts.  Any gain or loss arising from the sale of these assets is
included in Other expense (income), net.  Assets held for sale are as
follows (thousands):
 
 March
      312009
                              
                              
                              December
      312008Property and
      equipmentLand
                              
                              $
                              23,611
                              
                              
                              $
                              26,211Buildings
      and improvements
                              
                              
                              17,840
                              
                              
                              
                              20,089$
                              41,451
                              
                              
                              $
                              46,300
 
 Long-lived Assets
 Long-lived assets
such as property, equipment and intangibles with useful lives are evaluated for
impairment whenever events and circumstances indicate the carrying amount may
not be recoverable.  An impairment is recognized if the carrying
amount exceeds its fair value and when the carrying amount is not recoverable
based on the estimated future operating cash flows on an undiscounted
basis.
 
 Derivative Instruments and Hedging
Activities
 We
are exposed to certain risks related to business operations, some of which we
may seek to manage with derivative instruments and hedging
activities.  The primary risk managed with derivative instruments is
interest rate risk.  Interest rate swap contracts are entered into to
manage interest rate risk associated with variable-rate
borrowings.  These interest rate swap contracts are accounted for as
cash flow hedges unless effectiveness is not probable.
  12
  The fair value of
derivative instruments is based on pricing models using current market
rates.  The fair value of interest rate swap contracts is recorded as
an asset or liability and the effective portion of the gain or loss is recorded
as a component of Accumulated other comprehensive (loss) income, net, a separate
component of equity, and is subsequently reclassified into Interest expense as
interest expense is recognized on the term note.  The ineffective
portion, if any, of the change in the value of the interest rate swap contracts
is immediately recognized as a component of interest expense.
 
 Derivative
financial instruments are not utilized to hedge other risks or for speculative
or trading purposes.
 
 Revenue Recognition
 Revenues for
building products are recognized when title to the goods and risk of loss pass
to the buyer, which is at the time of delivery.  The
percentage-of-completion method is used to recognize revenue for construction
services.  Taxes assessed by governmental authorities that are
directly imposed on our revenue-producing transactions are excluded from
sales.
 
 Shipping and
Handling
 Shipping and
handling costs for manufactured building components and construction services
are included as a component of cost of goods sold.  Shipping and
handling costs for building products are included as a component of selling,
general and administrative expenses and were $10.2 million for the period ended
March 31, 2009, $14.6 million for the period ended March 31, 2008 and $57.9
million for 2008.
 
 Reclassifications
 Certain
reclassifications, none of which affected previously reported consolidated
results of operations, cash flows or shareholders’ equity, have been made to
amounts reported in prior periods to conform to the current period
presentation.
 
 Recent Accounting
Principles
 In
May 2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  This accounting principle identifies a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. generally accepted accounting principles (GAAP) for nongovernmental
entities.  This accounting principle was adopted November 2008 and had
no impact on our consolidated financial position, results of operations or cash
flows.
 
 In
March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  This accounting principle
enhances disclosure for derivative instruments and hedging activities and their
effects on consolidated financial position, results of operations and cash
flows.  Specifically, enhanced disclosures include objectives and
strategies for using derivatives, including underlying risk and accounting
designation, as well as fair values, gains and losses.  This
accounting principle was adopted June 2008 and had no impact on our consolidated
financial position, results of operations or cash flows.
 
 In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  This accounting principle
eliminates noncomparable accounting for noncontrolling
interests.  Specifically, noncontrolling interests are presented as a
component of equity; consolidated net income includes amounts attributable to
both the parent and noncontrolling interest and is disclosed on the face of the
income statement; changes in the ownership interest are accounted for as equity
transactions if ownership remains controlling; purchase accounting for
acquisitions of noncontrolling interests and acquisitions of additional
interests is eliminated; and deconsolidated controlling interests are recognized
based on fair value consistent with Statement of Financial Accounting Standards
No. 141 (revised 2007), Business
Combinations.  The accounting requirements were adopted January
2009 and had no impact on our consolidated financial position, results of
operations or cash flows.
  In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (revised 2007), Business
Combinations.  This accounting principle requires acquisition
accounting (purchase accounting) be applied to all business combinations in
which control is obtained regardless of consideration and for an acquirer to be
identified for each business combination.  Additionally, this
accounting principle requires acquisition-related costs and restructuring costs
at the date of acquisition to be expensed rather than allocated to the assets
acquired and the liabilities assumed; noncontrolling interests, including
goodwill, to be recorded at fair value at the acquisition date; recognition of
the fair value of assets and liabilities arising from contingent consideration
(payments conditioned on the outcome of future events) at the acquisition date;
recognition of bargain purchase (acquisition-date fair value exceeds
consideration plus any noncontrolling interest) as a gain; and recognition of
changes in deferred taxes.  This accounting principle was adopted
January 2009 and had no impact on our consolidated financial position, results
of operations or cash flows.
  13
  2.    Restructuring
 
 In
May 2008, we initiated a comprehensive analysis of our businesses operations to
improve cash flow and profitability as well as rationalize our operations for
the current conditions of the homebuilding industry.  The plan places
a priority on positive cash flow, efficient use of capital and higher returns
and focuses on closing or consolidating business units in underperforming
markets as well as improving business processes.  The results of the
plan were as follows:
 
 ·
                for the
      period ended March 31, 2009:
 §
                closed 6
      business units and
 §
                consolidated
      1 business unit with other business
units.
 
 ·
                for the
      period ended March 31, 2008:
 §
                no
      restructuring activity as the plan was not initiated until May
      2008.
 
 ·
                for
      2008:
 §
                closed 42
      business units,
 §
                consolidated
      15 business units with other business units
and
 §
                consolidated
      administrative functions of information systems, reporting, accounts
      payable and human resources.
 
 Our restructuring
plans do not include formal severance plans for employees affected by the
closures and consolidations of business units or enhancements to administrative
functions.
 
 As
of March 31, 2009, the estimated cumulative charges expected to be incurred and
recognized in (loss) from continuing operations and resulting liability were as
follows (thousands):
 
 Impairment
      of assets
                        
                        
                        Operating
      lease obligations
                        
                        
                        TotalEstimated
      charges
                        
                        $
                        8,967
                        
                        
                        $
                        11,387
                        
                        
                        $
                        20,354Changes in
      estimates, net
                        
                        
                        —
                        
                        
                        
                        (753
                        )
                        
                        
                        (753
                        )Cash
      payments
                        
                        
                        —
                        
                        
                        
                        (535
                        )
                        
                        
                        (535
                        )Non-cash
      charges
                        
                        
                        (8,967
                        )
                        
                        
                        (3,051
                        )
                        
                        
                        (12,018
                        )$
                        —
                        
                        
                        $
                        7,048
                        
                        
                        $
                        7,048
 
 Impairments of
assets were determined based on available market data and are recognized in
Impairment of assets.  Operating lease obligations represent the
present value of contractual rental payments offset by estimated sublease income
and are recognized in Selling, general and administrative
expenses.  The liability for restructuring is recorded in the
consolidated balance sheet as follows:
 
 ·
                $4.1 million
      in Other accrued liabilities and $2.9 million in Other long-term
      liabilities as of March 31, 2009
and
 ·
                $5.6 million
      in Other accrued liabilities and $4.0 million in Other long-term
      liabilities as of December 31,
2008.
  14
  Activity related to
restructuring plans and the resulting liability were as follows
(thousands):
 
 Three
      Months Ended
                          March
      31, 2009Impairment
      of assets
                        
                        
                        Operating
      lease obligations
                        
                        
                        TotalBalance at beginning of
      period
                        
                        $
                        —
                        
                        
                        $
                        9,644
                        
                        
                        $
                        9,644Estimated
      charges
                        
                        
                        365
                        
                        
                        
                        —
                        
                        
                        
                        365Change
      in estimates, net
                        
                        
                        —
                        
                        
                        
                        (753
                        )
                        
                        
                        (753
                        )Cash
      payments
                        
                        
                        —
                        
                        
                        
                        (145
                        )
                        
                        
                        (145
                        )Non-cash
      charges
                        
                        
                        (365
                        )
                        
                        
                        (1,698
                        )
                        
                        
                        (2,063
                        )$
                        —
                        
                        
                        $
                        7,048
                        
                        
                        $
                        7,048
  Year
      Ended
                                      December
      31, 2008Impairment
      of assets
                                    
                                    
                                    Operating
      lease obligations
                                    
                                    
                                    TotalBalance
      at beginning of period
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Estimated
      charges
                                    
                                    
                                    8,602
                                    
                                    
                                    
                                    11,387
                                    
                                    
                                    
                                    19,989Change
      in estimates, net
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Cash
      payments
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (390
                                    )
                                    
                                    
                                    (390
                                    )Non-cash
      charges
                                    
                                    
                                    (8,602
                                    )
                                    
                                    
                                    (1,353
                                    )
                                    
                                    
                                    (9,955
                                    )$
                                    —
                                    
                                    
                                    $
                                    9,644
                                    
                                    
                                    $
                                    9,644
 
 Due to
uncertainties in the markets of certain business units and inherent in the
estimation process, it is possible the actual costs of restructuring may vary
from estimates.  Revisions of these costs are recognized in the period
such revisions are known.
  15
 3. Impairment of Assets
 
 Long-lived assets
such as property, equipment and intangibles are evaluated for impairment
whenever events and circumstances indicate the carrying amount may not be
recoverable.  An impairment for these assets is recognized if the
carrying amount exceeds their fair value and when the carrying amount is
not recoverable based on the estimated future operating cash flows on an
undiscounted basis.
 
 Similarly, goodwill
is evaluated for impairment in the fourth quarter and whenever events and
circumstances indicate the carrying amount may not be recoverable.  An
impairment for goodwill is recognized if the carrying amount is more than the
estimated future operating cash flows as measured by fair value
techniques.
 
 As
a result of our ongoing evaluations of underperforming business units, certain
property and equipment specific to these business units were identified as
impaired.  Impairments recognized in loss from continuing operations
were as follows:
 
 ·
                for the
      period ended March 31, 2009:
 §
                $0.4 million
      for certain property and equipment held for
  sale.
 
 During the later
portion of the fourth quarter of 2008, the leading sources of economic and
housing data forecasted deeper reductions in estimated housing
starts.  Market factors as well as developing regulatory efforts to
revive historically low housing starts have been further complicated by the
weakening economic conditions of rising unemployment and pessimistic consumer
confidence stemming from tightened lending standards and losses in home values
and investments.  Similarly, tightened lending conditions have
impacted the liquidity of our customers.
 
 For impairment
testing of customer relationships and covenants not to compete, the carrying
amounts exceeded the estimated future operating cash flows on an undiscounted
basis.  The impairment testing for goodwill indicated the carrying
amount exceeded our estimate of enterprise value.  Impairments
recognized in loss from continuing operations were as follows:
 
 ·
                for the
      period ended March 31, 2008:
 §
                no
      impairments were recognized.
 
 ·
                for
      2008:
 §
                $30.2 million
      for certain customer relationships and covenants not to
      compete,
 §
                $14.2 million
      for goodwill,
 §
                $6.3 million
      for certain property and equipment held for sale
  and
 §
                $2.3 million
      for leasehold improvements.
 
 16
 
 4.    Discontinued
Operations
 
 The results of
operations and financial position of discontinued operations are separately
reported for all periods presented as a result of the following
transactions:
 
 ·
                In June 2008,
      we discontinued concrete block masonry, concrete services and truss
      manufacturing in Florida.  These business units represented
      approximately 6% of sales.
 
 ·
                In March
      2008, we discontinued framing services in Virginia.  This
      business unit represented less than 1% of
sales.
 
 Assets,
liabilities, sales and loss after related income tax expense (benefit) for
these operations are separately reported from continuing operations and were as
follows (thousands):
 
 March
      31
                      
                      
                      December
      312009
                      
                      
                      2008Assets
                      
                      $
                      5,073
                      
                      
                      $
                      5,659Liabilities
                      
                      $
                      502
                      
                      
                      $
                      773
 
 Three
      Months Ended
                      March
      31
                    
                    
                    Year
      Ended December 312009
                    
                    
                    2008
                    
                    
                    2008SalesBuilding
      products
                    
                    $
                    —
                    
                    
                    $
                    485
                    
                    
                    $
                    2,021Construction
      services
                    
                    $
                    17
                    
                    
                    $
                    12,206
                    
                    
                    $
                    38,624Loss from
      discontinued operations
                    
                    $
                    (152
                    )
                    
                    $
                    (57
                    )
                    
                    $
                    (22,353
                    )
  17
  5.    NetLossPer Share
 
 Net loss per share
was determined using the following information (thousands, except per share
data):
 
 Three
      Months Ended
                          March
      31
                        
                        
                        Year
      Ended
                          December
      312009
                        
                        
                        2008
                        
                        
                        2008Loss from
      continuing operations
                        
                        $
                        (45,068
                        )
                        
                        $
                        (33,804
                        )
                        
                        $
                        (192,456
                        )Loss from
      discontinued operations
                        
                        
                        (152
                        )
                        
                        
                        (57
                        )
                        
                        
                        (22,353
                        )Net
      loss attributable to common
                          shareholders
                        
                        $
                        (45,220
                        )
                        
                        $
                        (33,861
                        )
                        
                        $
                        (214,809
                        )Weighted
      average shares - basic
                        
                        
                        29,508
                        
                        
                        
                        28,972
                        
                        
                        
                        29,081Effect
      of dilutive:Share
      options
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Restricted
      shares
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Warrants
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Weighted
      average shares - assuming
                          dilution
                        
                        
                        29,508
                        
                        
                        
                        28,972
                        
                        
                        
                        29,081Net loss per
      share:Continuing
      operations
                        
                        $
                        (1.53
                        )
                        
                        $
                        (1.17
                        )
                        
                        $
                        (6.62
                        )Discontinued
      operations
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (0.77
                        )Basic
                        
                        $
                        (1.53
                        )
                        
                        $
                        (1.17
                        )
                        
                        $
                        (7.39
                        )Continuing
      operations
                        
                        $
                        (1.53
                        )
                        
                        $
                        (1.17
                        )
                        
                        $
                        (6.62
                        )Discontinued
      operations
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (0.77
                        )Diluted
                        
                        $
                        (1.53
                        )
                        
                        $
                        (1.17
                        )
                        
                        $
                        (7.39
                        )Cash dividends
      declared per share
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
 
 Potential common
shares for options, restricted shares and warrants are generally excluded from
the computation of diluted net loss per share if there is a loss from continuing
operations for the period.  Additionally, certain share options,
restricted shares and warrants are excluded from the computation of diluted net
loss per share:
 
 ·
                options and
      warrants with exercise prices greater than the average market value of the
      common shares (out-of-the-money)
and
 ·
                unrecognized
      compensation expense for restricted shares with after-tax proceeds greater
      than the average market value of the common
  shares.
 
 Options, restricted
shares and warrants excluded from the computation of diluted net loss per share
will change based on additional grants as well as the average market value of
the common shares for the period.  These options, restricted shares
and warrants that are not dilutive and therefore excluded from the computation
of diluted net loss per share were as follows (thousands, except share price
data):
  Three
      Months Ended
                                                                March
      31
                                                              
                                                              
                                                              Year
      Ended December 312009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2008Average market
      value of shares
                                                              
                                                              
                                                              $0.38
                                                              
                                                              
                                                              
                                                              $5
                                                              
                                                              
                                                              
                                                              $3Share
      options:Exercise
      price range
                                                              
                                                              
                                                              $5
      to $38
                                                              
                                                              
                                                              
                                                              $5 to
      $38
                                                              
                                                              
                                                              
                                                              $5 to
      $38Not
      dilutive
                                                              
                                                              
                                                              2,472
                                                              
                                                              
                                                              
                                                              2,964
                                                              
                                                              
                                                              
                                                              2,627Restricted
      shares:Grant
      price range
                                                              
                                                              
                                                              $15
      to $18
                                                              
                                                              
                                                              
                                                              $14 to
      $42
                                                              
                                                              
                                                              
                                                              $15 to
      $38Not
      dilutive
                                                              
                                                              
                                                              103
                                                              
                                                              
                                                              
                                                              297
                                                              
                                                              
                                                              
                                                              214Warrants:Exercise
      price
                                                              
                                                              
                                                              $0.47
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              $0.47Not
      dilutive
                                                              
                                                              
                                                              2,825
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              2,825
  18
 6.    NoncontrollingInterests
 
 Noncontrolling
interests reflects the other owners’ proportionate share in the assets and
liabilities of business ventures as of the date of purchase, adjusted by the
proportionate share of post-acquisition income or loss.  As the
operating results of entities with noncontrolling interests are consolidated,
noncontrolling interests loss represents the loss attributable to the other
owners.
 
 ·
                In June 2008,
      we acquired the remaining 40% interest in SelectBuild Mechanical for $0.2
      million in cash.  In October 2004, we formed this venture for an
      initial 60% interest for $0.3 million in cash.  SelectBuild
      Mechanical provides heating, ventilation and air conditioning services in
      Las Vegas, Nevada.
 
 ·
                In January
      2008, we were required to purchase the remaining 49% interest in
      SelectBuild Illinois (RCI Construction) for $8.3 million in cash of which
      $2.4 million was paid in January 2008 and $5.9 million was paid in July
      2008.  The fair value of SelectBuild Illinois did not exceed its
      net book value.  As a result, the $5.5 million excess of the
      purchase price for the noncontrolling interest over the recorded amount
      for the noncontrolling interest in SelectBuild Illinois was recognized as
      an expense in Other income, net in December 2007.  In January
      2005, we acquired an initial 51% interest for $4.9 million in
      cash.  SelectBuild Illinois provides framing services to
      production homebuilders in the greater Chicago
  area.
 
 Assets and
liabilities acquired in acquisitions, including payments of amounts retained for
settlement periods, were as follows (thousands):
 
 March
      31
                                    December
      31
                                    
                                    
                                    
                                    March
      31
                                    December
      312009
                                    
                                    2008
                                    
                                    
                                    
                                    2009
                                    
                                    2008Receivables
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    Other accrued
      liabilities
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    (47
                                    )Prepaid
      expenses and other
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Current
      assets
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    Current
      liabilities
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (47
                                    )Property and
      equipment
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    Deferred
      income taxes
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Other
      intangibles, net
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    Noncontrolling
      interests
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (8,528
                                    )Goodwill
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —$
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    (8,575
                                    )
  19
  7.    Intangible Assetsand Goodwill
 
 Intangible assets
represent the values assigned to customer relationships, covenants not to
compete, trade names and favorable leases.  Intangible assets are
amortized on a straight-line basis over their expected useful
lives.  Customer relationships are amortized over 7 years and
covenants not to compete over 3 years.  Amortization expense for
intangible assets was $0.8 million for the period ended March 31, 2009, $2.4
million for the period ended March 31, 2008 and $8.9 million for
2008.  Intangible assets consist of the following
(thousands):
 
 March
      31, 2009Gross
                            Carrying
      Amount
                          
                          Accumulated
                            Amortization
                          
                          Net
      Carrying
                            AmountCustomer
      relationships
                          
                          $
                          25,300
                          
                          
                          $
                          (7,730
                          )
                          
                          $
                          17,570Covenants not
      to compete
                          
                          
                          1,900
                          
                          
                          
                          (1,045
                          )
                          
                          
                          855$
                          27,200
                          
                          
                          $
                          (8,775
                          )
                          
                          $
                          18,425
 
 December
      31, 2008Gross
                              Carrying
      Amount
                            
                            
                            Accumulated
                              Amortization
                            
                            
                            Net
      Carrying AmountCustomer
      relationships
                            
                            $
                            29,074
                            
                            
                            $
                            (10,802
                            )
                            
                            $
                            18,272Covenants not
      to compete
                            
                            
                            4,089
                            
                            
                            
                            (3,139
                            )
                            
                            
                            950Favorable
      leases
                            
                            
                            382
                            
                            
                            
                            (382
                            )
                            
                            
                            —$
                            33,545
                            
                            
                            $
                            (14,323
                            )
                            
                            $
                            19,222
 
 Estimated
amortization expense for intangible assets is $2.4 million for the remainder of
2009, $3.2 million for 2010, $3.0 million for 2011, $2.8 million for 2012, $2.8
million for 2013 and $4.2 million thereafter.
 
 Goodwill represents
the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets of acquired businesses.  Adjustments to
amounts previously reported as goodwill may occur as a result of completing the
purchase price allocation to the assets acquired, including intangible assets,
and liabilities assumed based on their estimated fair values at the date of
acquisition.
 
 An
annual assessment for impairment is completed in the fourth quarter and whenever
events and circumstances indicate the carrying amount may not be
recoverable.  An impairment is recognized at the reporting unit if the
carrying amount is more than the estimated future operating cash flows as
measured by fair value techniques.
 
 Changes in the
carrying amount of goodwill were as follows:
 
 Three
      Months Ended
                                            
                                            
                                            Year
      EndedMarch
      31
                                            
                                            
                                            December
      312009
                                            
                                            2008
                                            
                                            
                                            2008Balance at
      beginning of period
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            14,196
                                            
                                            
                                            $
                                            14,196Impairment
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (14,196
                                            )$
                                            —
                                            
                                            
                                            $
                                            14,196
                                            
                                            
                                            $
                                            —
 
 While goodwill is
tested for impairment annually and not amortized for financial statement
purposes, goodwill may be deductible for income tax purposes.  Certain
goodwill is non-deductible.  Changes to non-deductible goodwill were
as follows (thousands):
  Three
      Months Ended
                                            
                                            
                                            Year
      EndedMarch
      31
                                            
                                            
                                            December
      312009
                                            
                                            2008
                                            
                                            
                                            2008Balance at
      beginning of period
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            3,460
                                            
                                            
                                            $
                                            3,460Impairment
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (3,460
                                            )$
                                            —
                                            
                                            
                                            $
                                            3,460
                                            
                                            
                                            $
                                            —
  20
 
 8.    Debt
 
 Long-term debt
consists of the following (thousands):
 As
      ofMarch
      31, 2009
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                Notional
                                                                
                                                                
                                                                Effective
      Interest RateBalance
                                                                
                                                                Stated
      Interest Rate
                                                                
                                                                Amount
      of Interest Rate Swaps
                                                                
                                                                
                                                                Average
                                                                  for
      Quarter
                                                                
                                                                
                                                                As
      of
                                                                  March
      31Revolver
                                                                
                                                                $
                                                                2,300
                                                                
                                                                LIBOR(minimum
      of
                                                                  3%)plus
                                                                  5.25%OR
                                                                  Prime
      plus
                                                                  3.25%
                                                                  and0.50%
                                                                  commitment
                                                                  fee
                                                                
                                                                $
                                                                —
                                                                
                                                                
                                                                
                                                                7.0
                                                                %
                                                                
                                                                
                                                                7.0
                                                                %Term
      note
                                                                
                                                                
                                                                313,773
                                                                
                                                                LIBOR
                                                                  (minimum
      of
                                                                  3%)plus
                                                                  5.25%OR
                                                                  Prime
      plus
                                                                  3.25%
                                                                
                                                                
                                                                123,019
                                                                
                                                                
                                                                
                                                                11.5
                                                                %
                                                                
                                                                
                                                                11.5
                                                                %Other
                                                                
                                                                
                                                                1,275
                                                                
                                                                Various
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —317,348
                                                                
                                                                
                                                                
                                                                $
                                                                123,019Less:  Current
      portion
                                                                
                                                                
                                                                316,309Less:  Unamortized
                                                                  discount
                                                                
                                                                
                                                                658$
                                                                381
 As
      of December 31, 2008
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              Notional
                                                              
                                                              
                                                              Effective
      Interest RateBalance
                                                              
                                                              Stated
      Interest Rate
                                                              
                                                              Amount
      of Interest Rate Swaps
                                                              
                                                              
                                                              Average
      for Year
                                                              
                                                              
                                                              As
      of
                                                                December
      31Revolver
                                                              
                                                              $
                                                              —
                                                              
                                                              LIBOR
                                                                (minimum of
                                                                3%) plus
                                                                5.25%
      OR
                                                                Prime
      plus
                                                                3.25%
                                                                and 0.50%
                                                                commitment
                                                                fee
                                                              
                                                              $
                                                              —
                                                              
                                                              
                                                              
                                                              12.9
                                                              %
                                                              
                                                              
                                                              n/aTerm
      note
                                                              
                                                              
                                                              325,759
                                                              
                                                              LIBOR
                                                                (minimum of
                                                                3%) plus
                                                                5.25%
      OR
                                                                Prime plus
                                                                3.25%
                                                              
                                                              
                                                              135,124
                                                              
                                                              
                                                              
                                                              9.6
                                                              %
                                                              
                                                              
                                                              11.5
                                                              %Other
                                                              
                                                              
                                                              1,412
                                                              
                                                              Various
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —327,171
                                                              
                                                              
                                                              
                                                              $
                                                              135,124Less:  Current
      portion
                                                              
                                                              
                                                              39,443Less:  Unamortized
                                                                discount
                                                              
                                                              
                                                              719$
                                                              287,009
  21
  In
September 2008, we entered into an amendment to our credit agreement with our
lenders.  The amended credit facility continues to provide a $200
million revolver subject to borrowing base limitations and a $340 million term
note maturing in November 2011.  However, the April
2009 limited waiver limits borrowings under the revolver to $20 million and may
not provide adequate liquidity.
 
 ·
                Revolver
 The $200 million
revolver is subject to borrowing base limitations and matures in November
2011.  The revolver may consist of both LIBOR and Prime based
borrowings.  In the September 2008 amendment, the variable interest
rate for the revolver was increased to LIBOR plus 5.25% or Prime plus
3.25%.  Minimum LIBOR interest is 3.0%.  Additionally, a
commitment fee for the unused portion is 0.50%.  LIBOR interest is
paid quarterly and Prime interest is paid monthly.  As of March 31,
2009, $2.3 million was outstanding under the revolver.
 
 The effective
interest rate is based on interest rates for the period as well as the
commitment fee for the unused portion of the revolver.
 
 Letters of credit
outstanding that guaranteed performance or payment to third parties were $109.0
million as of March 31, 2009.  These letters of credit reduce the $200
million revolver commitment.
 
 Total availability
under the revolver is subject to a monthly borrowing base calculation that
includes:
 
 ·
                70% of
      certain accounts receivable,
 ·
                50% of
      certain inventory,
 ·
                25% of
      certain other inventory,
 ·
                approximately
      75% of the appraised value of certain property and equipment
      and
 ·
                50% of the
      appraised value of real estate.
 
 As
of March 31, 2009, the unused borrowing base under the revolver was $49.2
million, however the April 2009 limited waiver limits borrowings under the
revolver to $20 million.
 
 ·
                Term
      Note
 The term note
matures in November 2011 and is payable in quarterly installments of $0.9
million with the remaining principal of $270.0 million payable in November
2011.  In the September 2008 amendment, the variable interest rate for
the term note was increased to LIBOR plus 5.25% or Prime plus
3.25%.  Minimum LIBOR interest is 3.0%.  LIBOR interest is
paid quarterly and Prime interest is paid monthly.  In addition to the
LIBOR and Prime interest rates, the term note includes an additional annual
payment-in-kind interest or fee of 2.75% that is payable on the earlier of
payoff or maturity.  As of March 31, 2009, $313.8 million was
outstanding under this term note.
  22
  ·
                Other
 Other long-term
debt consists of term notes, equipment notes and capital leases for
equipment.  Interest rates vary and dates of maturity are through
March 2021.  As of March 31, 2009, other long-term debt was $1.3
million.
 
 Covenants and
Maturities
 Our credit agreement
requires monthly compliance with financial covenants, including minimum
liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA).  Operating results,
particularly income from continuing operations, are a primary factor for these
covenants, and our ability to comply with these covenants depends on our
operating performance.  Lack of compliance with these covenants would
constitute an event of default under the credit agreement which, absent any
waiver, forbearance or modification, would enable the lenders under our credit
agreement to cause
all amounts borrowed to become due and payable immediately and to prohibit
further borrowings by us under therevolver.
  Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we
obtained a limited waiver through April 15, 2009 for lack of compliance with the
monthly Adjusted EBITDA requirement and we preserved access to limited liquidity
permitting us to borrow up to $20 million under the
revolver.  Previously, we had obtained waivers for financial covenants
due to lower than planned operating performance as of both June 2008 and
December 2007.
  Due
to the difficulty of reliably projecting our operating results within the
depressed business conditions of the homebuilding industry, we believe that it
is likely that we will not be able to meet the financial covenants of our credit
agreement during 2009.  Also, our independent registered public
accounting firm included a going concern explanatory paragraph in their report
on our financial statements for 2008, citing among other things, the uncertainty
that we would remain in compliance with these financial
covenants.  The going concern explanatory paragraph constitutes a
default under our credit agreement.  In April 2009, we obtained a
waiver for the going concern explanatory paragraph.
  In
April 2009, our lenders also agreed to extend the limited waiver through June 1,
2009.  In May 2009, the limited waiver was extended through June 29,
2009.  This limited waiver continues to waive compliance with the
monthly Adjusted EBITDA, forecast and projection requirements of our credit
agreement.  The limited waiver limits borrowings under the revolver to
$20 million and limits capital expenditures to $0.1 million from
the date of the extended limited waiver.  Lenders
approving each of the March, April and May 2009 limited waivers were paid a fee
of 0.10% of their revolver commitment and their portion of the outstanding
principal amount of the term note.
  For
March 2009, we were not in compliance with the monthly Adjusted EBITDA
requirement of our credit agreement.  Additionally, as the limited
waiver for these financial covenants is less than a year, it is probable we will
not be in compliance with these financial covenants within the next year and
given there is no amendment or other financing agreement currently in place, the
revolver and term note are classified as a current liability in the consolidated
balance sheet.
  23
  We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing
options.
 
 If
our leverage ratio is at or above a certain maximum as of September 30, 2010,
the monthly Adjusted EBITDA may be replaced with quarterly compliance with a
leverage ratio and interest coverage ratio.  Operating results, particularly income
from continuing operations, are a primary factor for these covenants and our
ability to comply with these covenants depends on our operating
performance.  The significant downturn in single-family housing starts
has negatively impacted and may continue to negatively impact our operating
performance.
 
 The credit
agreement requires certain proceeds and cash flows be applied to the credit
facility as follows:
 
 ·
                Revolver
 §
                30% of tax
      refunds and
 §
                cash in
      excess of $25 million.
 
 ·
                Term
      Note
 §
                proceeds from
      certain dispositions,
 §
                70% of tax
      refunds and
 §
                75% of excess
      cash flow as defined beginning in
2010.
 
 Proceeds from tax
refunds and certain dispositions are retained in a separate cash
account.  Cash in excess of $25 million in this separate cash account
is to be applied to the revolver or term note.  There was no amount in
this separate cash account as of March 31, 2009.  In the event of
default, this cash is restricted and not available for our operating
needs.
 
 The amended credit
facility continues to restrict our ability to incur additional indebtedness, pay
dividends, repurchase shares, enter into mergers or acquisitions, use proceeds
from equity offerings, make capital expenditures and sell assets.  The
amended credit facility is secured by all assets of our wholly-owned
subsidiaries.
 
 In
connection with the September 2008 amendment, 100% or $2.8 million of
unamortized deferred loan costs related to the term note were recognized as
interest expense in the third quarter of 2008.  We also incurred $3.8
million of costs in connection with the amendment and $2.0 million of these
costs will be amortized over the remaining term of the credit facility whereas
$1.8 million of these costs were recognized as interest expense in the third
quarter of 2008.
  24
  In
connection with the February 2008 amendment, 60% or $2.4 million of unamortized
deferred loan costs related to the previous revolver were recognized as interest
expense in the first quarter of 2008.  We also incurred $4.9 million
of fees in connection with the amendment and these costs were to be amortized
over the remaining term of our credit facility.  However, in
connection with the September 2008 amendment, the remaining $2.6 million of
these unamortized costs were recognized as interest expense in the third quarter
of 2008.
 
 Scheduled
maturities of long-term debt are as follows (thousands):
 
 2009
                        
                        $
                        316,2462010
                        
                        
                        2232011
                        
                        
                        662012
                        
                        
                        652013
                        
                        
                        70Thereafter
                        
                        
                        678$
                        317,348
 
 Warrants
 In
connection with the amendment of our credit facility in September 2008, we
issued warrants that entitle the lenders to purchase approximately 8.75% or 2.8
million of our common shares at a purchase price of $0.47 per common share, the
closing price on the NYSE on September 30, 2008.  These warrants may
be exercised through September 2015.
 
 The fair value of
the warrants of $0.8 million was recorded as a discount on the term
note.  Amortization of the discount will be recognized ratably through
November 2011, the remaining term of our credit facility.
 
 Hedging Activities
 In
addition to the amendment to our credit facility in September 2008, we amended
our interest rate swap contracts to lower amounts and a maturity matching the
credit facility.  As of March 2009, the interest rate swap contracts
effectively converted $123.0 million of variable rate borrowings to a fixed
interest rate of 10.6% plus any difference between minimum LIBOR interest of
3.0% and LIBOR, thus reducing the impact of increases in interest rates on
future interest expense.  Additionally, the notional amount of the
interest rate swap contracts will be ratably reduced to zero through the
maturity of November 2011.
 
 As
of March 2009, approximately 39% of the outstanding variable rate borrowings
have been hedged with these interest rate swap contracts.  After
giving effect to the interest rate swap contracts, total borrowings were 61%
variable and 39% fixed.  The fair value of the interest rate swap
contracts was a liability of $6.4 million as of March 31,
2009.  Management may choose not to swap variable rates to fixed rates
or may terminate a previously executed swap if the variable rate positions are
more beneficial.
 
 Hedge accounting
was discontinued in January 2009, as it is not probable future LIBOR interest
rates for the remaining term of the interest rate swap contracts will be at or
above the minimum LIBOR interest of 3.0% of the term note.  In
September 2008, we amended our interest rate swap contracts.  Monthly
settlements are made to ratably reduce the notional amount of the interest rate
swap contracts through November 2011.  As a result, the following
amounts were recognized as Interest expense:
  25
  ·
                $0.1 million
      for the period ended March 31, 2009 for an increase in the fair value of
      the interest rate swap contracts rather than recorded in Accumulated other
      comprehensive loss, net, a component of equity.  This increase
      in the fair value was after $1.2 million of notional reduction settlement
      payments for the period ended March 31, 2009.  There were no
      notional reduction settlement payments for the period ended March 31,
      2008.
 ·
                $0.4 million
      for the period ended March 31, 2009 for amortization of unrealized loss
      due to increases in fair value of interest rate swap contracts previously
      accounted for as a cash flow hedge and recorded in Accumulated other
      comprehensive loss, net.  The remaining unrealized loss of $4.1
      million in Accumulated other comprehensive loss, net as of March 31, 2009
      will be subsequently amortized to Interest expense over the remaining term
      of our term note.
 ·
                $0.2 million
      for the period ended March 31, 2009 and $0.9 million for 2008 for
      amortization of the notional reduction settlement payments previously
      accounted for as a cash flow hedge and recorded in Accumulated other
      comprehensive loss, net.  The remaining unrealized loss of $2.7
      million for notional reduction settlement payments previously accounting
      for cash flow hedged for 2008 recorded in Accumulated other comprehensive
      loss, net as of March 31, 2009 will be subsequently amortized to Interest
      expense over the remaining term of our term
  note.
 
 In
December 2008, we determined the interest rate swap contracts were not an
effective hedge of variable interest due to the recent significant reductions in
LIBOR interest rates.  As a result of the estimated difference between
the LIBOR interest of the interest rate swap contracts and the minimum LIBOR
interest of 3.0% of the term note, we recognized $3.0 million of interest
expense for the ineffective portion of these interest rate swap contracts for
2008.  The effective portion of the interest rate swap contracts of
$4.5 million was recorded as an unrealized loss and an unrealized tax benefit of
$1.7 million in Accumulated other comprehensive loss, net, a component of
equity.  A corresponding deferred tax asset for the unrealized tax
benefit was eliminated with a valuation allowance as there may be an inability
to utilize this deferred tax asset.  The remaining unrealized loss of
$4.1 million in Accumulated other comprehensive loss, net as of March 31, 2009
will be subsequently amortized to Interest expense over the remaining term of
our term note.
 
 The fair value and
gains and losses on interest rate swap contracts are as follows
(thousands):
 
 March
      31
                              
                              December
      312009
                              
                              2008Balance
      Sheet
                              Fair
                              
                              Balance
      Sheet
                              FairClassification
                              Value
                              
                              Classification
                              ValueInterest rate
      swap contracts –not
      designated as cash flow hedge
                              Other
      long-termliabilities
                              
                              $
                              6,411
                              
                              
                              
                              $
                              —Interest rate
      swap contracts –
                                designated
      as cash flow hedge
                              
                              
                              
                              
                              
                              Other
      long-term$
                              —
                              
                              liabilities
                              
                              $
                              7,514
 
 The effect of
interest rate swap contracts on the consolidated statement of operations is as
follows (thousands):
  26
  Gain
      (Loss) Recognized in
                                            Accumulated
      Other
                                            Comprehensive
      Loss, NetThree
      Months Ended
                                            March
      31
                                          
                                          Year
      Ended
                                            December
      312009
                                          
                                          
                                          2008
                                          
                                          
                                          2008Unrealized
      (loss) gain
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          (8,419
                                          )
                                          
                                          $
                                          226
 
 Loss Reclassified
      from
                                            Accumulated
      Other
                                            Comprehensive
      Loss, Net
                                            to
      Interest ExpenseThree
      Months Ended
                                            March
      31
                                          
                                          
                                          Year
      Ended December 312009
                                          
                                          
                                          2008
                                          
                                          
                                          2008Effective cash
      flow hedgeInterest
      rate swap contracts – activeAmortization
      of unrealized loss
                                          
                                          $
                                          384
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          —Interest
      rate swap contracts – terminatedNotional
      reduction settlement paymentsAmortization
      of payments
                                          
                                          
                                          250
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          926Ineffective
      cash flow hedgeInterest
      rate swap contracts – active
                                            Ineffective
      portion
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,022$
                                          634
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          3,948
  27
  9.    Shareholders’(Deficit)Equity
 
 PreferredShares
 We
are authorized to issue 2 million preferred shares, however none of these shares
are issued.  Under the terms of our Restated Certificate of
Incorporation, the Board of Directors is authorized to determine or alter the
rights, preferences, privileges and restrictions of the preferred
shares.
 
 Common Shares
 Our common shares
have a par value of $0.001.  We have 50 million shares authorized, of
which 29.7 million are issued and outstanding as of March 31, 2009.
 
 Of
the unissued shares, 6.0 million shares were reserved for the
following:
 
 Employee Stock
      Purchase Plan
                      1.3
      million2008 Stock
      Incentive Plan
                      1.9
      millionWarrants
                      2.8
      million
 
 Warrants
 In
connection with the amendment of our credit facility in September 2008, we
issued warrants that entitle the lenders to purchase approximately 8.75% or 2.8
million of our common shares at a purchase price of $0.47 per common share, the
closing price on the NYSE on September 30, 2008.  These warrants may
be exercised through September 2015.
 
 The fair value of
these warrants was estimated on the date of grant using the modified
Black-Scholes-Merton model.  The following table presents the
assumptions used in the valuation and the resulting fair value as of the date of
grant:
 
 Expected term
      (years)
                      
                      
                      5.5Expected
      volatility
                      
                      
                      64.6
                      %Expected
      dividend yield
                      
                      
                      0.0
                      %Risk-free
      interest rate
                      
                      
                      3.0
                      %Exercise
      price
                      
                      
                      $0.47Weighted
      average fair value
                      
                      
                      $0.28
 
 These assumptions
to determine fair value are based principally on historical
experience.  Due to uncertainties inherent in these assumptions, it is
possible that actual value received by the warrant holders may vary from the
estimate of the fair value of these warrants.
 
 The fair value of
the warrants of $0.8 million was recorded as a discount on our term
note.  Amortization of the discount will be recognized ratably through
November 2011, the remaining term of our credit facility.
 
 No
warrants have been exercised and all 2.8 million warrants are outstanding and
exercisable as of March 31, 2009.  Warrants exercised are settled with
newly issued common shares.  The common shares for warrants are not
included in the calculation of basic income per share until exercised, however
the common shares for warrants may be included in the calculation of diluted
income per share.
  28
  Dividends
 Cash dividends per
common share were as follows:
  2009
                            
                            
                            2008First
      quarter
                            
                            $
                            —
                            
                            
                            $
                            —Second
      quarter
                            
                            
                            —
                            
                            
                            
                            —Third
      quarter
                            
                            
                            —
                            
                            
                            
                            —Fourth
      quarter
                            
                            
                            —
                            
                            
                            
                            —$
                            —
                            
                            
                            $
                            —
 
 Our credit
facility, amended in September 2008, prohibits the payment of cash dividends on
our common shares.  The determination of future dividend payments
(cash or shares) will depend on many factors, including credit facility
restrictions, financial position, results of operations and cash
flows.
 
 Our credit
facility, amended in September 2008, prohibits the repurchase of our common
shares.  The determination of future share repurchases will depend on
many factors, including credit facility restrictions, financial position,
results of operations and cash flows.
  29
  10.  Employee Benefit
Plans
 
 Retirement Plans
 ·      Savings and
Retirement Plan
 We
provide a savings and retirement plan for salaried and certain hourly employees
whereby eligible employees may contribute a percentage of their earnings to a
trust.  Participants may defer up to 75% of their eligible
compensation (base salary, annual incentive and long-term incentives) subject to
the limitations imposed under the Internal Revenue Code.
 
 Prior to 2009, our
matching contributions ranged from 25% of the first 4% to 50% of the first 6% of
the participant’s contribution.  Matching contributions are
established at the discretion of the Compensation Committee of our Board of
Directors in the first quarter.  Vesting in matching contributions
occurs at the rate of 20% per year of service, upon reaching normal or early
retirement date, or upon death, disability or certain other
circumstances.  Matching
contributions were temporarily suspended for 2009and matching
contributions of $1.0 million for the period ended March 31, 2008 and $2.9
million for 2008 were made to the trusts based on a percentage of the
contributions made by participants.
 
 Participants may
direct their contributions and matching contributions through any of the
investment options offered, including self-directed brokerage
accounts.  Investment options are reviewed and may be revised
quarterly by an Investment Committee comprised of management and advised by
consultants.
 
 ·      Executive Deferred
Compensation
 We
previously provided a deferred compensation plan for directors, executives and
key employees.  The objective of the plan was to provide executives
and key employees with an additional opportunity to save for their
retirement.  Executive and key employee participants could defer up to
80% of their eligible compensation (base salary, annual incentive and medium
term incentives).  Director participants could defer 100% of their
compensation.  Effective January 2009, the plan was suspended and no
participant contributions or matching contributions will be made.
 
 There are no
minimum or guaranteed returns.  Participants may elect distribution
upon reaching a specific age, number of years or separation of
service.  Distributions may be a lump sum payment or monthly
installments over 5 to 10 years.
 
 Matching
contributions were the same as the savings and retirement plan matching
contribution percentage.  Matching contributions were established at
the discretion of the Compensation Committee of our Board of Directors in the
first quarter.  There were no matching contributions for the period
ended March 31, 2009 and matching contributions of less than $0.1 million for
the period ended March 31, 2008 and $0.1 million for 2008 were made to the trust
based on a percentage of the contributions made by participants.
 
 Investments of the
deferred compensation plan are held in a custodial account and the assets are
subject to the claims of general creditors.  Participants may elect to
invest their deferred compensation through any of the investment options
offered, including our common shares.  Investment options are reviewed
and may be revised quarterly by an Investment Committee comprised of management
and advised by consultants.
  30
  ·
                Compensation
      deferred and invested in third-party investment options is recorded in
      Other long-term assets and Other long-term liabilities.  As the
      obligation is settled for the value of the underlying investments, changes
      in the fair value of the investments are recognized in Other income and
      changes in the fair value of the liability are recognized in Selling,
      general and administrative expenses.  Fair value is based on
      market quotes.  The fair value of these investments was $1.3
      million at March 31, 2009 and $4.0 million at December 31,
      2008.
 
 ·
                Compensation
      deferred and invested in our common shares is recorded as a component of
      shareholders’ equity.  As the obligation is settled for the
      fixed number of common shares purchased, changes in fair value are not
      recognized.  Rather, purchases and distributions of the common
      shares are recorded at historical cost.  The historical cost of
      these common shares was $0.1 million or 15,116 common shares at March 31,
      2009 and $0.9 million or 107,757 common shares at December 31,
      2008.
 
 ·      Supplemental
Retirement
 Additionally, there
is a supplemental retirement plan for executives and key
employees.  The objective of the plan is to provide a supplemental
retirement benefit that enables participants to retire at age 65 with 30 years
of service at an income level of at least 60% of pre-retirement base salary
after considering deferred compensation, predecessor retirement and social
security benefits.  Effective January 2009, the plan was suspended as
no contributions or return will be made to participants except the contribution
and return required for the employment agreements of certain executives and no
new participants will be added to the plan.
 
 Contributions have
typically been 5.5% of net income.  Contributions are allocated
proportionately to participants based on their base salaries and limited to 30%
of a participant’s base salary.
 
 ·
                65% of the
      contributions are invested in company-owned life insurance polices for
      certain participants.
 ·
                35% of the
      contributions are made in our common shares and distributed to the savings
      and retirement plans of certain
participants.
 
 Active participants
invested in company-owned life insurance policies receive a return based on
long-term corporate bond yields.  This return has been approximately
6% and may vary based on changes to this yield.  Inactive participants
receive a return of 0% to 9% based on their years of service and payment
elections.  Participants receiving our common shares receive a return
of any related dividend.
 
 Contributions and
the return are established at the discretion of the Compensation Committee of
our Board of Directors in the first quarter.  Participants are
immediately vested in the contribution.
 
 The Compensation
Committee decided to make:
 ·
                no
      contribution or return to participants and no contribution or return was
      required for the employment agreements of certain executives for the
      period ended March 31, 2009.
  31
  ·
                no
      contribution or return to participants and no contribution or return was
      required for the employment agreements of certain executives for the
      period ended March 31, 2008.
 ·
                no
      contributions or return to participants and no contribution or return was
      required for the employment agreements of certain executives for
      2008.
 
 The cash surrender
value of the company-owned life insurance policies approximates the obligation,
however the returns, if any, are not fully funded as these returns are dependent
upon years of service and payment elections.  These life insurance
policies fund the obligation to the participants or their beneficiaries over a
5, 10 or 15-year period.
 
 ·      Management Retention
Compensation
 In
February 2008, the Compensation Committee of our Board of Directors approved
management retention agreements for certain executives and key
employees.  Participants receive common share equivalent units which
may be exchanged for the market value of those shares upon vesting two years
from the date of grant.  Compensation expense recognized for these
agreements was not significant for the period ended March 31, 2009, for the
period ended March 31, 2008 and for 2008.
 
 Employee Stock Purchase
Plan
 In
February 2008, our Board of Directors adopted the Employee Stock Purchase Plan,
as approved by our shareholders in May 2008.  The plan amended an
employee share purchase plan originally effective October 2000.  The
plan permits eligible employees to purchase common shares through payroll
deductions of up to 10% of an employee’s compensation limited to $25,000 each
year.  The purchase price of the shares may be 85% or more of the
lowest market price on either the first or last day of each three month period
ending January, April, July and October.  A total of 2 million shares
were authorized for issuance, however 0.4 million shares were issued under the
previous employee share purchase plan resulting in 1.6 million shares remaining
available for this plan.  Unissued shares were 1.3 million for the
period ended March 31, 2009 and 1.4 million as of December 31,
2008.  Compensation expense recognized was not significant for the
period ended March 31, 2009, for the period ended March 31, 2008 and for
2008.
 
 Incentive and Performance
Plans
 In
February 2008, our Board of Directors adopted the 2008 Stock Incentive Plan, as
approved by our shareholders in May 2008.  A total of 2 million common
shares were reserved for issuance under the plan.
 
 In
addition to the payment of an annual retainer, non-employee directors receive
annual share grants with an approximate value of $50,000, based on the closing
price of our common shares on the day of grant.  There were no grants
of equity for the period ended March 31, 2009 and shares of 0.1 million that
were restricted from trading for six months were granted to directors for
2008.
 
 There were no
grants of equity awards to employees, including all executives, for the period
ended March 31, 2009 or 2008.  Grants of equity awards are approved by
our Compensation Committee at regularly scheduled meetings.  Unissued
shares were 1.9 million as of March 31, 2009 and December 31, 2008.
 
 Employees and
non-employee directors are eligible to receive awards at the discretion of the
Compensation Committee.  Options, appreciation rights, restricted
shares, other share-based awards and non-discretionary awards may be granted
under these plans.
  32
  Options
 ·
                Grants of
      options under the 2008 Stock Incentive Plan vest ratably over a maximum of
      5 years from the date of grant and expire after 10 years if
      unexercised.  Under certain circumstances, some or all of the
      options may vest earlier.  Options are to be awarded with
      exercise prices equal to the closing share price of our common shares on
      the date of grant.
 
 ·
                Grants of
      options under the 2004 Incentive and Performance Plan vest ratably over 3
      to 4 years from the date of grant and expire after 7 years if
      unexercised.  Under certain circumstances, some or all of the
      options may vest earlier.  Options were awarded with exercise
      prices equal to the closing share price of our common shares on the date
      of grant.  No further grants will be made under this
      plan.
 
 ·
                Grants of
      options under the 2000 Stock Incentive Plan vest ratably through the end
      of the fourth year from the date of grant and expire after 10 years if
      unexercised.  Under certain circumstances, some or all of the
      options may vest earlier.  Options were awarded with exercise
      prices equal to the closing share price of our common shares on the date
      of grant.  No further grants will be made under this
      plan.
 
 Share-based
compensation expense includes the fair value of share options, restricted shares
and other share awards and is recognized over the requisite service
period.  Additionally, tax benefits for share-based compensation
payments are reported as a financing activity for the statement of cash
flows.
 
 The fair value of
each option is estimated on the date of grant using the modified
Black-Scholes-Merton model. These assumptions
are based principally on historical experience.  Due to uncertainties
inherent in these assumptions, it is possible that actual share-based
compensation may vary from the estimate of the fair value of these
options.  There were no grants of share options, restricted shared or
other awards for the period ended March 31, 2009, for the period ended March 31,
2008 and for 2008.
  33
  Activity for option
awards was as follows (thousands, except per share data):
  Three
      Months Ended
                                                                                                            March
      31
                                                                                                          
                                                                                                          
                                                                                                          Three
      Months Ended
                                                                                                            March
      31
                                                                                                          
                                                                                                          
                                                                                                          Year
      Ended
                                                                                                            December
      312009
                                                                                                          
                                                                                                          
                                                                                                          2008
                                                                                                          
                                                                                                          
                                                                                                          2008Shares
                                                                                                          
                                                                                                          
                                                                                                          Weighted Average Exercise
      Price
                                                                                                          
                                                                                                          
                                                                                                          Weighted Average Remaining
      Contractual Term (years)
                                                                                                          
                                                                                                          
                                                                                                          Shares
                                                                                                          
                                                                                                          
                                                                                                          Weighted
      Average Exercise Price
                                                                                                          
                                                                                                          
                                                                                                          Shares
                                                                                                          
                                                                                                          
                                                                                                          Weighted
      Average Exercise PriceOutstanding at
      beginning
                                                                                                            of
      the period
                                                                                                          
                                                                                                          
                                                                                                          2,627
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $14
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3.2
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,978
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $15
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,978
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $15Granted
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $—
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $—
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $—Exercised
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $—
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          $6
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          $6Forfeited
                                                                                                          
                                                                                                          
                                                                                                          (155
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          $21
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (6
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          $26
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (350
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          $20Outstanding at
      end of the
                                                                                                            period
                                                                                                          
                                                                                                          
                                                                                                          2,472
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $14
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.8
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,971
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $15
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,627
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $14Exercisable at
      end
                                                                                                            of
      the period
                                                                                                          
                                                                                                          
                                                                                                          2,305
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $13
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2.6
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,414
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $13
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,245
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $13
 
 March
      31
                                          
                                          
                                          Year
      Ended December 312009
                                          
                                          
                                          2008
                                          
                                          
                                          2008Weighted
      average grant-date fair value
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Intrinsic
      value of options exercised
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          1
                                          
                                          
                                          $
                                          1Fair value of
      options vested
                                          
                                          $
                                          1,957
                                          
                                          
                                          $
                                          4,120
                                          
                                          
                                          $
                                          3,767
 
 The intrinsic value
(the difference between our share price on the date of exercise and the exercise
price) for options exercised represents the value received by option holders who
exercised their options.
 
 As
of March 31, 2009, option awards outstanding and exercisable were as follows
(thousands, except per share data):
  Options
      Outstanding
                                  
                                  
                                  Options
      ExercisableExercise
      Price
                                  
                                  
                                  Shares
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
      Price
                                  
                                  Intrinsic
      Value
                                  
                                  Weighted
                                    Average
                                    Remaining
                                    Contractual
                                    Life
      (years)
                                  
                                  
                                  Shares
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
      Price
                                  
                                  Intrinsic
      Value$5
                                  
                                  
                                  
                                  534
                                  
                                  
                                  
                                  $5
                                  
                                  
                                  
                                  
                                  1.2
                                  
                                  
                                  
                                  534
                                  
                                  
                                  
                                  $5$7
                                  
                                  
                                  
                                  563
                                  
                                  
                                  
                                  $7
                                  
                                  
                                  
                                  
                                  3.0
                                  
                                  
                                  
                                  563
                                  
                                  
                                  
                                  $7$8
                                  
                                  
                                  
                                  179
                                  
                                  
                                  
                                  $8
                                  
                                  
                                  
                                  
                                  4.1
                                  
                                  
                                  
                                  179
                                  
                                  
                                  
                                  $8$9
                                  
                                  
                                  
                                  260
                                  
                                  
                                  
                                  $9
                                  
                                  
                                  
                                  
                                  1.9
                                  
                                  
                                  
                                  260
                                  
                                  
                                  
                                  $9$17 to
      $18
                                  
                                  
                                  
                                  351
                                  
                                  
                                  
                                  $18
                                  
                                  
                                  
                                  
                                  4.7
                                  
                                  
                                  
                                  184
                                  
                                  
                                  
                                  $18$23
                                  
                                  
                                  
                                  317
                                  
                                  
                                  
                                  $23
                                  
                                  
                                  
                                  
                                  2.7
                                  
                                  
                                  
                                  317
                                  
                                  
                                  
                                  $23$38
                                  
                                  
                                  
                                  268
                                  
                                  
                                  
                                  $38
                                  
                                  
                                  
                                  
                                  3.4
                                  
                                  
                                  
                                  268
                                  
                                  
                                  
                                  $382,472
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,305In-the-money:Outstanding
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  —Exercisable
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $—
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $—
  The intrinsic value
(the difference between our share price on the last day of trading in March 2009
and the exercise price) for in-the-money options represents the value that would
have been received by option holders had they exercised their
options.  These values change based on the fair market value of our
shares.
 
 The fair value of
compensation expense recognized for options was $0.2 million for the period
ended March 31, 2009, $1.0 million for the period ended March 31, 2008 and $2.8
million for 2008.  The common shares for options are not included in
the calculation of basic income per share, however the common shares for options
may be included in the calculation of diluted income per share.
  34
  As
of March 31, 2009, there was $1.2 million of unrecognized compensation expense
related to these options.  This compensation expense is recognized as
the requisite services are rendered and is expected to be recognized ratably
through March 2011.
 
 Options exercised
are settled with newly issued common shares.
 
 Restricted Shares
 Grants of
restricted shares vest 3 years from the date of grant.  Under certain
circumstances, some or all of the restricted shares may vest
earlier.  The fair value of restricted shares is the closing share
price of our common shares on the date of grant.  Compensation expense
is recognized over the vesting period.
 
 Activity for
restricted share awards was as follows (thousands, except per share
data):
  Three
      Months Ended
                                              March
      31
                                            
                                            
                                            Year
      Ended
                                              December
      312009
                                            
                                            
                                            2008
                                            
                                            
                                            2008Shares
                                            
                                            
                                            Weighted
      Average Grant Date Fair Value
                                            
                                            
                                            Shares
                                            
                                            
                                            Weighted
      Average Grant Date Fair Value
                                            
                                            
                                            Shares
                                            
                                            
                                            Weighted
      Average Grant Date Fair ValueNonvested at
      beginning of
                                              the period
                                            
                                            
                                            214
                                            
                                            
                                            
                                            $26
                                            
                                            
                                            
                                            410
                                            
                                            
                                            
                                            $26
                                            
                                            
                                            
                                            410
                                            
                                            
                                            
                                            $26Granted
                                            
                                            
                                            —
                                            
                                            
                                            
                                            $—
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            $—
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            $—Vested
                                            
                                            
                                            (90
                                            )
                                            
                                            
                                            $38
                                            
                                            
                                            
                                            (110
                                            )
                                            
                                            
                                            $23
                                            
                                            
                                            
                                            (118
                                            )
                                            
                                            
                                            $23Forfeited
                                            
                                            
                                            (21
                                            )
                                            
                                            
                                            $18
                                            
                                            
                                            
                                            (3
                                            )
                                            
                                            
                                            $38
                                            
                                            
                                            
                                            (78
                                            )
                                            
                                            
                                            $27Nonvested at
      end of the
                                              period
                                            
                                            
                                            103
                                            
                                            
                                            
                                            $18
                                            
                                            
                                            
                                            297
                                            
                                            
                                            
                                            $27
                                            
                                            
                                            
                                            214
                                            
                                            
                                            
                                            $26
 
 Three
      Months Ended
                          March
      31
                        
                        
                        Year
      Ended December 312009
                        
                        
                        2008
                        
                        
                        2008Weighted
      average grant-date fair value
                        
                        
                        $—
                        
                        
                        
                        $—
                        
                        
                        
                        $—Fair value of
      restricted shares granted
                        
                        
                        $—
                        
                        
                        
                        $—
                        
                        
                        
                        $—Fair value of
      restricted shares vested
                        
                        
                        $3,391
                        
                        
                        
                        $2,516
                        
                        
                        
                        $2,761
 
 The fair value of
compensation expense recognized for restricted shares was not significant for
the period ended March 31, 2009, $0.7 million for the period ended March 31,
2008 and $1.0 million for 2008.  The common shares for restricted
shares are not included in the calculation of basic income per share until these
shares vest, however the common shares for restricted shares may be included in
the calculation of diluted income per share.
 
 As
of March 31, 2009, there was $0.6 million of unrecognized compensation expense
related to these restricted shares.  This compensation expense is
recognized as the requisite services are rendered and is expected to be
recognized ratably through March 2010.
 
 Shares
 We
issue shares to non-employee directors of our Board of Directors for their
services.  These shares vest immediately, however trading is
restricted for six months from the date of grant.  We issued 99,200
shares in May 2008 and recognized compensation expense of $0.1 million for the
period ended March 31, 2009, $0.1 million for the period ended March 31, 2008
and $0.4 million for 2008.
  35
 
 The following table
summarizes equity compensation information as of March 31, 2009 (thousands,
except per share data):
 
 Number
      of Securities to be
                    Issued
      Upon Exercise of
                    Outstanding
      Options,
                    Warrants
      and Rights
                  
                  Weighted
      Average
                    Exercise
      Price of
                    Outstanding
      Options,
                    Warrants
      and Rights
                  
                  Number
      of Securities
                    Remaining
      Available for
                    Future
      Issuance Under
                    Equity
      Compensation PlansEquity
      compensation plans
                    approved
      by security holders
                  2,575
                  
                  $13.23
                  
                  1,901Equity
      compensation plans not
                    approved
      by security holders
                  2,825(1)
                  
                  $0.47
                  
                  —Total
                  5,400
                  
                  $6.55
                  
                  1,901
 
 (1)      In
connection with the amendment of our credit facility in September 2008, our
Board of Directors authorized issuance of these warrants that entitle the
lenders to purchase approximately 8.75% or 2.8 million of our common shares at a
purchase price of $0.47 per common share, the closing price on the NYSE on
September 30, 2008.  These warrants may be exercised through September
2015.
 
 Share-based
compensation expense is included in Selling, general and administrative expenses
since it is incentive compensation issued primarily to our executives and senior
management.  Share-based compensation expense for options, restricted
shares and other share awards was $0.2 million for the period ended March 31,
2009, $1.8 million for the period ended March 31, 2008 and $4.3 million for
2008.
  36
 
 11.  Income Taxes
 
 The asset and
liability method is used to account for income taxes.  Under this
method, deferred tax assets and liabilities are recognized for tax credits and
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their tax bases.  Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  A valuation allowance is recognized to reduce the carrying
amount of deferred tax assets to the amount that is more likely than not to be
realized.  If it is later determined it is more likely than not that
deferred tax assets will be realized, the valuation allowance will be
adjusted.  Revisions of the valuation allowance are recognized in the
period such revisions are known.
 
 Income tax benefit
(expense) and effective rates were as follows (thousands):
  Three
      Months Ended
                                                                                              March
      31
                                                                                            
                                                                                            
                                                                                            Year
      Ended
                                                                                              December
      312009
                                                                                            
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            
                                                                                            2008Effective
                                                                                              Rate
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            Effective
                                                                                              Rate
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            Effective
                                                                                              RateContinuing
      operations:Income
      tax benefit (expense)
                                                                                            
                                                                                            $
                                                                                            12
                                                                                            
                                                                                            
                                                                                            
                                                                                            0.0
                                                                                            %
                                                                                            
                                                                                            $
                                                                                            (3,849
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (12.8
                                                                                            )%
                                                                                            
                                                                                            $
                                                                                            23,409
                                                                                            
                                                                                            
                                                                                            
                                                                                            10.8
                                                                                            %Discontinued
      operations:Income
      tax benefit (expense)
                                                                                            
                                                                                            $
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            0.0
                                                                                            %
                                                                                            
                                                                                            $
                                                                                            3,456
                                                                                            
                                                                                            
                                                                                            
                                                                                            98.4
                                                                                            %
                                                                                            
                                                                                            $
                                                                                            (1,860
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (9.1
                                                                                            )%
 
 The significant
change in our effective tax rate for continuing operations was the result of
uncertainty of our ability to realize deferred tax assets.  Deferred
tax assets resulted from operating losses and impairments, however valuation
allowances were recognized due to the potential inability to realize these
deferred tax assets.  In assessing the ability to realize deferred tax
assets, we consider whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized.  The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible.  The scheduled reversal of deferred tax liabilities, loss
carryback and carryforward abilities, projected future taxable income, tax
planning strategies, cumulative earnings and our industry are considered in
making this assessment.
 
 There was no tax
benefit associated with exercised options and vested restricted shares for the
period ended March 31, 2009 and the tax benefit associated with exercised
options and vested restricted share increased taxes receivable $0.3 million for
the period ended March 31, 2008 and $0.3 million for 2008.  The tax
impact for the difference between the fair value and the exercised value for
options exercised and the difference between the grant-date value and vest-date
value for vested restricted shares are recognized in additional paid-in capital,
a component of equity.
 
 Our ability to
realize the deferred tax assets could change if estimates of future taxable
income change.  To the extent taxable income is generated in future
periods, these tax benefits may be realized and reduce our effective tax rate in
future periods.
  37
  12.  Financial
Instruments
 
 The estimated fair
values of cash and cash equivalents, receivables, unbilled receivables, accounts
payable and accruals are the same as their carrying amounts due to their
short-term nature.
  Our amended credit
facility provides a $200 million revolver subject to borrowing base limitations
and a $340 million term note maturing in November 2011.  However, the
April 2009 limited waiver limits borrowings under the revolver to $20 million
and may not provide adequate liquidity.  As of March 31, 2009, there
were $2.3 million borrowings outstanding under the revolver and $313.8 million
outstanding under the term note.  After giving effect to the interest
rate swap contracts, the interest for our debt is 61% variable and 39%
fixed.
 
 Quoted market
prices are not available for our debt.  Given the significant downturn
in the homebuilding industry and tightening credit from lenders as well as our
current negotiations to develop debt and capital structures acceptable to us and
our lenders, it is not practicable to estimate the fair value of our
debt.
  Changes in interest
rates expose us to financial market risk.  We currently utilize
interest rate swap contracts to hedge variable interest rates.  As of
March 2009, the interest rate swap contracts effectively converted $123.0
million of variable rate debt to a fixed interest rate of 10.6% plus any
difference between minimum LIBOR interest of 3.0% and LIBOR.  The
notional amount of the interest rate swap contracts will be ratably reduced to
zero through the maturity of November 2011.
 
 Derivative
financial instruments are not utilized to hedge other risks or for speculative
or trading purposes.
  38
  13.  Commitments and
Contingencies
 
 Legal Proceedings
 We
are involved in litigation and other legal matters arising in the normal course
of business.  In the opinion of management, the recovery or liability,
if any, under any of these matters will not have a material effect on our
financial position, results of operations or cash flows.
 
 Operating Leases
 We
lease certain real property, vehicles and office equipment under operating
leases.  Operating lease expense was as follows
(thousands):
  Three
      Months Ended
                            March
      31
                          
                          
                          Year
      Ended December 312009
                          
                          
                          2008
                          
                          
                          2008Operating
      lease expense
                          
                          $
                          7,082
                          
                          
                          $
                          7,553
                          
                          
                          $
                          29,907Less:  Sublease
      income
                          
                          
                          (591
                          )
                          
                          
                          (326
                          )
                          
                          
                          (1,741
                          )$
                          6,491
                          
                          
                          $
                          7,227
                          
                          
                          $
                          28,166
 
 Certain of these
leases are non-cancelable and have minimum lease payment requirements as follows
(thousands):
 
 Operating
                            Leases
                          
                          
                          Sublease
                            Income
                          
                          
                          Operating
      Leases, net2009
                          
                          $
                          19,477
                          
                          
                          $
                          (1,172
                          )
                          
                          $
                          18,3052010
                          
                          
                          19,514
                          
                          
                          
                          (817
                          )
                          
                          
                          18,6972011
                          
                          
                          12,747
                          
                          
                          
                          (385
                          )
                          
                          
                          12,3622012
                          
                          
                          7,573
                          
                          
                          
                          (110
                          )
                          
                          
                          7,4632013
                          
                          
                          4,684
                          
                          
                          
                          (113
                          )
                          
                          
                          4,571Thereafter
                          
                          
                          3,461
                          
                          
                          
                          (9
                          )
                          
                          
                          3,452$
                          67,456
                          
                          
                          $
                          (2,606
                          )
                          
                          $
                          64,850
 
 Warranties
 We
provide limited warranties for certain construction
services.  Specific terms and conditions for warranties vary from 1
year to 10 years and are based on geographic market and state
regulations.  Factors for determining estimates of warranties include
the nature and frequency of claims, anticipated claims and cost per
claim.  Estimated costs for warranties are recognized when the revenue
associated with the service is recognized.  Revisions of estimated
warranties are reflected in the period such revisions are
determined.  Warranty activity is as follows (thousands):
 
 Three
      Months Ended
                      
                      Year
      EndedMarch
      31
                      
                      
                      March
      31
                      
                      December
      312009
                      
                      
                      2008
                      
                      2008Balance at
      beginning of period
                      
                      $
                      5,701
                      
                      
                      $
                      6,805
                      
                      
                      $
                      6,805Provision
      for warranties
                      
                      
                      (232
                      )
                      
                      
                      275
                      
                      
                      
                      (492
                      )Warranty
      charges
                      
                      
                      (65
                      )
                      
                      
                      (563
                      )
                      
                      
                      (612
                      )$
                      5,404
                      
                      
                      $
                      6,517
                      
                      
                      $
                      5,701
  39
 
 14.  Fair Values of Assets and
Liabilities
 
 Our assets and
liabilities measured at fair value are grouped into three levels.  The
levels are based on the markets in which the assets and liabilities are traded
and the reliability of the assumptions used to determine fair
value.  These levels are:
 
 ·
                Quoted Prices
      in Active Markets for Identical Assets – valuations for assets and
      liabilities traded in active exchange markets, such as the New York Stock
      Exchange.
 
 ·
                Significant
      Other Observable Inputs – valuations for assets and liabilities traded in
      less active dealer or broker markets.  For example, an interest
      rate swap contract is valued based on a model whose inputs are observable
      forward interest rate curves.  Valuations are obtained from
      third party pricing services for identical or comparable assets or
      liabilities.
 
 ·
                Significant
      Unobservable Inputs – valuations for assets and liabilities that are
      derived from other valuation methodologies, including discounted cash flow
      models and similar techniques, and are not based on market exchange,
      dealer, or broker traded transactions.  Valuations incorporate
      certain assumptions and projections in determining fair value assigned to
      such assets or liabilities.
 
 The following
assets and liabilities are measured at fair value on a recurring basis
(thousands):
 
 Fair
      Value Measurements at Reporting Date UsingMarch
      31
                          2009
                        
                        
                        Quoted
      Prices
                          in
      Active
                          Markets
      for Identical
                          Assets
                        
                        
                        Significant
      Other Observable
                          Inputs
                        
                        
                        Significant
      Unobservable InputsInterest rate
      swap contracts
                        
                        $
                        (6,411
                        )
                        
                        $
                        —
                        
                        
                        $
                        (6,411
                        )
                        
                        $
                        —
 
 Fair
      Value Measurements at Reporting Date UsingDecember
      31
                              2008
                            
                            Quoted
      Prices
                              in
      Active
                              Markets
      for Identical
                              Assets
                            
                            
                            Significant
      Other Observable
                              Inputs
                            
                            
                            Significant
      Unobservable InputsInterest rate
      swap contracts
                            
                            $
                            (7,514
                            )
                            
                            $
                            —
                            
                            
                            $
                            (7,514
                            )
                            
                            $
                            —
  40
 
 Also, from time to
time we may be required to measure certain other assets at fair value on a
nonrecurring basis.  These adjustments to fair value usually result
from application of lower-of-cost or market accounting or write-downs of
individual assets.  For assets measured at fair value on a
nonrecurring basis, the following table provides the amount, level of valuation
assumptions used to determine each adjustment and the related realized losses
(thousands):
 Fair
      Value Measurements at Reporting Date UsingDecember
      31
                                                      2008
                                                    
                                                    
                                                    Quoted
      Prices in Active Markets

                                                        for
      Identical
                                                        Assets
                                                    
                                                    
                                                    Significant
      Other Observable Inputs
                                                    
                                                    
                                                    Significant
      Unobservable
                                                      Inputs
                                                    
                                                    
                                                    Year
      Ended December 31
                                                      2008
                                                      Gains
      (Losses)Other
      intangibles, net
                                                    
                                                    $
                                                    19,222
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    19,222
                                                    
                                                    
                                                    $
                                                    (30,218
                                                    )Goodwill
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (14,196
                                                    )$
                                                    19,222
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    19,222
                                                    
                                                    
                                                    $
                                                    (44,414
                                                    )
  Other intangibles,
net are evaluated for impairment whenever events and circumstances indicate the
carrying amount may not be recoverable.  An impairment for intangibles
with finite useful lives is recognized if the carrying amount is not recoverable
based on the estimated future operating cash flows on an undiscounted
basis.  Our intangibles are principally customer
relationships.  The present value of estimated future operating cash
flows is utilized to determine fair value.  Retention rates, margins
and discount rates are significant inputs for determining the present value of
estimated future cash flows.
 
 ·
                Other
      intangibles with a carrying amount of $49.4 million were written down to
      their implied fair value of $19.2 million, resulting in an impairment
      charge of $30.2 million for 2008.
 
 Goodwill is
evaluated for impairment whenever events and circumstances indicate the carrying
amount may not be recoverable.  An impairment for goodwill is
recognized if the carrying amount is more than the estimated future operating
cash flows as measured by fair value techniques.  The fair value
techniques of enterprise value as well as the present value of estimated future
operating cash flows are utilized.  Market capitalization based on
average common share price, debt and cash are significant inputs for determining
enterprise value.  An estimate of our weighted average cost of
financing sources and future operating cash flows as derived from estimates of
revenues, operating expenses and income taxes as well as working capital
requirements and capital expenditures are significant inputs for determining the
present value of estimated future operating cash flows.
 
 ·
                Goodwill with
      a carrying amount of $14.2 million was written down to its implied fair
      value of zero, resulting in an impairment charge of $14.2 million for
      2008.
  41
 
 15.  Quarterly Results of Operations
(unaudited)
 
 Operating results
by quarter for 2009 and 2008 were as follows (thousands, except per share
data):
 
 First
                                                                                                                                                                    
                                                                                                                                                                    Second
                                                                                                                                                                    
                                                                                                                                                                    Third
                                                                                                                                                                    
                                                                                                                                                                    Fourth2009Sales
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    167,499
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Loss from continuing
      operations(1)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (45,068
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Loss from discontinued
      operations(1)
      (2)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (152
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —Net loss
      attributable to common shareholders
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (45,220
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Net loss per
      share:Continuing
      operations
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.53
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Discontinued
      operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —Diluted
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.53
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Common share
      prices:High
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.61
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Low
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.22
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —Cash dividends
      declared per share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —2008Sales
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    342,948
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    384,620
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    364,430
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    232,681Loss from continuing
      operations(1)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (33,843
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (41,350
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (35,569
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (81,757
                                                                                                                                                                    )(Loss) income from discontinued
      operations(1)
      (2)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (57
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9,385
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (9,637
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (22,044
                                                                                                                                                                    )Noncontrolling
      interests loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    39
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    24
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —Net loss
      attributable to common shareholders
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (33,861
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (31,941
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (45,206
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (103,801
                                                                                                                                                                    )Net loss per
      share:Continuing
      operations
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.17
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.42
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.22
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2.78
                                                                                                                                                                    )Discontinued
      operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0.32
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (0.33
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (0.76
                                                                                                                                                                    )Diluted
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.17
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.10
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.55
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (3.54
                                                                                                                                                                    )Common share
      prices:High
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    7.22
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    5.09
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    2.65
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.94Low
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    3.78
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    1.77
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.47
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.21Cash dividends
      declared per share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
 
 (1)   Includes
      the following impairments:First
                    
                    Second
                    
                    Third
                    
                    Fourth2009Continuing
      operations
                    
                    $
                    365
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Discontinued
      operations
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —2008Continuing
      operations
                    
                    $
                    —
                    
                    
                    $
                    8,469
                    
                    
                    $
                    3,856
                    
                    
                    $
                    40,690Discontinued
      operations
                    
                    $
                    —
                    
                    
                    $
                    6,212
                    
                    
                    $
                    873
                    
                    
                    $
                    728
 
 (2)Discontinued
operations were as follows:
 
 ·
                concrete
      block masonry and concrete services in Florida in June
    2008,
 ·
                framing
      services in Virginia in March 2008
and
 ·
                three
      Western Colorado building materials distribution businesses sold in
      September 2007.
  42
  Item 2.Management's Discussion and Analysis of
Financial Condition and Result of Operations
 
 The following
discussion should be read in conjunction with the Consolidated Financial
Statements and related notes that appear in Item 1 of this Form 10-Q as well as
the caption under this item entitled Business Risks and Forward-Looking
Statements.
 
 Our Business
 
 We
are one of the largest providers of residential building products and
construction services in the United States.  Under the brand names of
BMC West and SelectBuild, we serve the homebuilding industry through six
regional operations:  Texas, California, Intermountain, Southwest,
Northwest and Illinois.  In each of these regions, we market and sell
building products, manufacture building components and provide construction
services to professional builders and contractors.
 
 Our operations are
located in metropolitan areas that have historically outpaced U.S. averages for
residential building permit activity.  We believe we are in
homebuilding markets supported by positive long-term population growth,
household formation and demographic trends.
  43
 
 BusinessEnvironment and Executive
Overview
 
 
 Already under
contraction, single-family housing starts declined further in the first quarter
of 2009 as home foreclosures increased, lending standards tightened and rising
unemployment sapped consumer confidence.  According to the U.S. Census
Bureau as of February 2009, single-family housing starts for the U.S. as a whole
fell below an annualized rate of 0.4 million.  Excluding the boom
years of 2006 through 2003, single-family housing starts for the U.S. as a whole
averaged 1.1 million starts per year since 1990.
 
 Similarly, as of
February 2009 annualized single-family permits in our markets fell 46% to 0.1
million from the prior year.  The decline was widespread across all
our markets for both building products and construction
services.  Lower sales from weakening buyer demand and increased
competition for fewer contracts led to declines in our margins, particularly for
construction services.  As of March 2009, single-family housing starts
for the U.S. as a whole fell to an annualized rate below 0.4 million and
single-family permits in our markets remained at an annualized rate of 0.1
million.
 
 This suggests 2009
will be more challenging than 2008 as the decline in housing starts will cause
competition to sharpen.  As a result, we continue to assess the
operating performance of business units and eliminate cost
inefficiencies.  We continue to believe our employees’ efforts to
maintain customer relationships and focus on cost efficiencies are
distinguishing factors in our ability to weather this unprecedented downturn in
the basic necessity of housing.
  44
  Uncertainty of
Liquidity
 Beginning with the
fourth quarter of 2007 and continuing through the first quarter of 2009, we have
incurred losses from operations and, during 2008 and the first quarter of 2009,
restructuring costs as we downsized our business to match the current
environment.  We have managed our liquidity during this time with
closure and consolidation of underperforming business units and cost reduction
initiatives as well as sales of assets.  However, the downturn in the
housing industry has been deepened by an increase in home foreclosures and
reduced consumer confidence from tightened lending standards and rising
unemployment, which have created a difficult business environment for
homebuilders generally.  Our operating performance and liquidity were
negatively affected by these economic and industry conditions, which are beyond
our control.
 
 These business
conditions have not improved during 2009.  As of March 2009,
single-family housing starts for the U.S. as a whole fell to an annualized rate
below 0.4 million and single-family permits in our markets remained at a
depressed annualized rate of 0.1 million.  We do not believe
these business conditions will improve significantly during 2009.
 
 Our actions to
align our cost structure with anticipated sales may not be sufficient to fund
our operating costs, restructuring costs and debt service
requirements.  When funds from operations are insufficient, our
primary source of funding has been the revolver component of our credit
facility.  Our amended credit facility provides a $200 million
revolver and a $340 million term note maturing in November 2011.  Our
revolver is subject to borrowing base limitations based on certain accounts
receivable, inventory, property and equipment and real estate and may not
provide adequate liquidity.  As of March 31, 2009, there were $2.3
million borrowings outstanding under the revolver and $313.8 million was
outstanding under the term note.
 
 Our credit
agreement requires monthly compliance with financial covenants, including
minimum liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA).  Operating results,
particularly income from continuing operations, are a primary factor for these
covenants, and our ability to comply with these covenants depends on our
operating performance.  Lack of compliance with these covenants would
constitute an event of default under the credit agreement which, absent any
waiver, forbearance or modification, would enable the lenders under our credit
agreement to cause all amounts
borrowed to become due and payable immediately and to prohibit further
borrowings by us under therevolver.
 
 Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we obtained a limited waiver
through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA
requirement and we preserved access to limited liquidity permitting us to borrow
up to $20 million under the revolver.  Previously, we had obtained
waivers for financial covenants due to lower than planned operating performance
as of both June 2008 and December 2007.
 
 Due to the
difficulty of reliably projecting our operating results within the depressed
business conditions of the homebuilding industry, we believe that it is likely
that we will not be able to meet the financial covenants of our credit agreement
during 2009.  Also, our independent registered public accounting firm
included a going concern explanatory paragraph in their report on our financial
statements for 2008, citing among other things, the uncertainty that we would
remain in compliance with these financial covenants.  The going
concern explanatory paragraph constitutes a default under our credit
agreement.  In April 2009, we obtained a waiver for the going concern
explanatory paragraph.
 45
  In
April 2009, our lenders also agreed to extend the limited waiver through June 1,
2009.  In May 2009, the limited waiver was extended through June 29,
2009.  This limited waiver continues to waive compliance with the
monthly Adjusted EBITDA, forecast and projection requirements of our credit
agreement.  The limited waiver limits borrowings under the revolver to
$20 million and limits capital expenditures to $0.1 million from
the date of the extended limited waiver.  Lenders
approving each of the March, April and May 2009 limited waivers were paid a fee
of 0.10% of their revolver commitment and their portion of the outstanding
principal amount of the term note.
 
 For March 2009, we
were not in compliance with the monthly Adjusted EBITDA requirement of our
credit agreement.  Additionally, as the limited waiver for these
financial covenants is less than a year, it is probable we will not be in
compliance with these financial covenants within the next year and given there
is no amendment or other financing agreement currently in place, the revolver
and term note are classified as a current liability in the consolidated balance
sheet.
 
 We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing options.
 
 We
may not be able to meet near-term working capital and scheduled interest and
debt payment requirements if cash flows are inadequate from our reduced
operating activities or if our access to the revolver portion of our credit
facility is restricted because we are unable to reach an agreement with our
lenders.  Absent any waiver, forbearance or modification to our
current credit agreement, we believe our recurring losses from operations,
interest and debt burden amid declining sales and potential inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going
concern.
 
 Additionally, our
long-term future is dependent on more normal levels of single-family housing
starts and our ability to implement and maintain cost structures, including
reduced interest and debt that align with single-family housing
trends.  If this fails to transpire or if we cannot obtain a waiver,
forbearance or modification to our current credit agreement or other financing
options, we may not be able to continue as a going concern and may be forced to
seek relief through a bankruptcy filing.
  46
 
 Performance
Measurements
 
 We
measure our operating performance and financial condition based on several
factors including:
  ●
                  Sales
                  ●
                  Cash
      flow●
                  Income from
      operations
                  ●
                  Management of
      working capital●
                  Return on
      investment
 
 The discussion of
our results of operations and financial condition provides information to assist
the reader in understanding our financial statements, changes in key items in
those financial statements and the primary factors that accounted for those
changes.
 
 RESULTS OF
OPERATIONS
 
 FIRST QUARTER OF 2009 COMPARED TO FIRST
QUARTER OF 2008
 
 The following table
sets forth the amounts and percentage relationship to sales of certain costs,
expenses and income items (millions, except per share data):
 
 Three
      Months Ended
                                                                      March
      312009
                                                                    
                                                                    
                                                                    2008SalesBuilding
      products
                                                                    
                                                                    $
                                                                    99
                                                                    
                                                                    
                                                                    
                                                                    59
                                                                    %
                                                                    
                                                                    $
                                                                    180
                                                                    
                                                                    
                                                                    
                                                                    52
                                                                    %Construction
      services
                                                                    
                                                                    
                                                                    68
                                                                    
                                                                    
                                                                    
                                                                    41
                                                                    %
                                                                    
                                                                    
                                                                    163
                                                                    
                                                                    
                                                                    
                                                                    48
                                                                    %Total
      sales
                                                                    
                                                                    
                                                                    167
                                                                    
                                                                    
                                                                    
                                                                    100
                                                                    %
                                                                    
                                                                    
                                                                    343
                                                                    
                                                                    
                                                                    
                                                                    100
                                                                    %Costs
      and operating expensesCost
      of goods soldBuilding
      products
                                                                    
                                                                    
                                                                    77
                                                                    
                                                                    
                                                                    
                                                                    78
                                                                    %
                                                                    
                                                                    
                                                                    131
                                                                    
                                                                    
                                                                    
                                                                    73
                                                                    %Construction
      services
                                                                    
                                                                    
                                                                    67
                                                                    
                                                                    
                                                                    
                                                                    99
                                                                    %
                                                                    
                                                                    
                                                                    151
                                                                    
                                                                    
                                                                    
                                                                    93
                                                                    %Impairment
      of assets
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —Selling,
      general and administrative expenses
                                                                    
                                                                    
                                                                    62
                                                                    
                                                                    
                                                                    
                                                                    37
                                                                    %
                                                                    
                                                                    
                                                                    84
                                                                    
                                                                    
                                                                    
                                                                    24
                                                                    %Other
      income, net
                                                                    
                                                                    
                                                                    (6
                                                                    )
                                                                    
                                                                    
                                                                    (4
                                                                    )%
                                                                    
                                                                    
                                                                    (4
                                                                    )
                                                                    
                                                                    
                                                                    (1
                                                                    )%Total
      costs and operating expenses
                                                                    
                                                                    
                                                                    200
                                                                    
                                                                    
                                                                    
                                                                    120
                                                                    %
                                                                    
                                                                    
                                                                    361
                                                                    
                                                                    
                                                                    
                                                                    105
                                                                    %Lossfrom
      operations
                                                                    
                                                                    
                                                                    (33
                                                                    )
                                                                    
                                                                    
                                                                    (20
                                                                    )%
                                                                    
                                                                    
                                                                    (18
                                                                    )
                                                                    
                                                                    
                                                                    (5
                                                                    )%Interest
      expense
                                                                    
                                                                    
                                                                    12
                                                                    
                                                                    
                                                                    
                                                                    7
                                                                    %
                                                                    
                                                                    
                                                                    12
                                                                    
                                                                    
                                                                    
                                                                    3
                                                                    %Lossfrom
      continuing operations before income
                                                                      taxes
                                                                    
                                                                    
                                                                    (45
                                                                    )
                                                                    
                                                                    
                                                                    (27
                                                                    )%
                                                                    
                                                                    
                                                                    (30
                                                                    )
                                                                    
                                                                    
                                                                    (9
                                                                    )%Income
      tax benefit (expense)
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (4
                                                                    )
                                                                    
                                                                    
                                                                    (1
                                                                    )%Loss
      from continuing operations
                                                                    
                                                                    
                                                                    (45
                                                                    )
                                                                    
                                                                    
                                                                    (27
                                                                    )%
                                                                    
                                                                    
                                                                    (34
                                                                    )
                                                                    
                                                                    
                                                                    (10
                                                                    )%Loss
      from discontinued operations
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (4
                                                                    )
                                                                    
                                                                    
                                                                    (1
                                                                    )%Impairment
      of assets
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —Income
      tax expense
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    
                                                                    1
                                                                    %Loss
      from discontinued operations
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —Net
      loss
                                                                    
                                                                    
                                                                    (45
                                                                    )
                                                                    
                                                                    
                                                                    (27
                                                                    )%
                                                                    
                                                                    
                                                                    (34
                                                                    )
                                                                    
                                                                    
                                                                    (10
                                                                    )%Noncontrolling
      interest loss
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —Net
      lossattributable
      to common shareholders
                                                                    
                                                                    $
                                                                    (45
                                                                    )
                                                                    
                                                                    
                                                                    (27
                                                                    )%
                                                                    
                                                                    $
                                                                    (34
                                                                    )
                                                                    
                                                                    
                                                                    (10
                                                                    )%
  Note: Certain
      amounts and percentages may not sum to totals due to
    rounding.
  47
 
 Consolidated Financial
Results
 Selected financial
results were as follows (millions):
 
 
   2009
                                
                                
                                2008
                                
                                
                                %
      ChangeSalesBuilding
      products
                                
                                $
                                99
                                
                                
                                $
                                180
                                
                                
                                
                                (45
                                )%Construction
      services
                                
                                
                                68
                                
                                
                                
                                163
                                
                                
                                
                                (58
                                )%$
                                167
                                
                                
                                $
                                343
                                
                                
                                
                                (51
                                )%Lossfrom
      operations
                                
                                $
                                (33
                                )
                                
                                $
                                (18
                                )
                                
                                
                                83
                                %
 
 Sales decreased 51%
to $167 million from $343 million in the same quarter a year
ago.  Sales were lower in all our regions, particularly sales of
construction services.  National trends in single-family home
construction continue to be at depressed levels as annualized single-family
housing starts for the U.S. as a whole were 64% lower or 0.4 million starts as
of February 2009 compared to an average of 1.1 million starts per year since
1990 excluding the boom years of 2006 through 2003.  Increased home
foreclosures, tightening lending standards and rising unemployment have driven
housing starts to their lowest level in the 50 years of available housing
data.  Similarly, as of February 2009 annualized single-family permits
in our markets fell 46% to 0.1 million from the prior year.  The depth
and duration of the current housing downturn remains uncertain.
 
 Loss from
operations was $33 million compared to a loss of $18 million in the same quarter
a year ago and included the following:
 
 ·
                Gross margins
      declined to 14% from 18% for the same quarter a year ago.  Lower
      margins resulted from intensified competition for building products and
      construction services for fewer housing
starts.
 ·
                We recognized
      $0.4 million for the impairments of certain property and equipment held
      for sale.
  48
  ·
                Partially
      offsetting lower gross margins, selling and general administrative
      expenses decreased 27% or $22 million from the same quarter a year
      ago.  These expenses were lower due to employee reductions
      resulting in a decrease of $16 million or 51% in our operations and 10% in
      our administrative operation as well as $4 million of reductions in
      occupancy and shipping and handling expenses and $4 million of reductions
      in other costs.  These reductions were partially offset by $2
      million increase in the allowance for doubtful accounts receivable as our
      customers struggle with fewer construction projects and
      financing.
 ·
                Nonrecurring
      expenses associated with closure and consolidation of underperforming
      business units classified in selling, general and administrative expenses
      included $5 million of payroll and related expenses and other
      administrative operating expenses.  As a percent of sales,
      selling, general and administrative expenses increased to 37% from
      24%.  In addition to the nonrecurring expenses, the increase was
      the result of:
 §
                a substantial
      decline in sales volume, particularly construction services
      and
 §
                a shift in
      sales mix to building products from construction
  services.
 
 Interest Expense
 Interest expense
was 4% or $0.5 million more than the same quarter a year
ago.  Excluding $2.4 million of deferred loan cost write off in the
first quarter of 2008, interest expense was 32% or $2.9 million more than the
same quarter a year ago.  The increase was due to:
 
 ·
                $1.6 million
      for higher interest rates,
 ·
                $0.8 million
      for amortization of unrealized loss and notional reduction settlement
      payments as well as an unrealized loss for an increase in the fair value
      of the interest rate swap contracts no longer accounted for as a cash flow
      hedge and
 ·
                $0.4 million
      for fees associated with the limited waiver of our credit facility in
      March 2009.
 
 Income Taxes
 Our effective
income tax rate was zero and is lower than statutory federal and state tax rates
due to uncertainty in our ability to realize deferred tax assets resulting from
operating losses and impairments.  To the extent taxable income is
generated in future periods, these tax benefits may be realized and reduce our
effective tax rate in future periods.
 
 Discontinued
Operations
 In
June 2008 and as a consequence of the significant and ongoing correction in
single-family home construction, we discontinued our concrete block masonry and
concrete services business as well as our truss manufacturing business in
Florida.  For 2008, we incurred a loss from these operations of $12
million and recognized impairments of $8 million for customer relationships and
assets held for sale.  These operations represented approximately 6%
of sales.
 
 In
March 2008, we discontinued framing services in Virginia.  These
operations represented less than 1% of sales.
  49
  LIQUIDITY AND CAPITAL
RESOURCES
 
 Uncertainty of
Liquidity
 Beginning with the
fourth quarter of 2007 and continuing through the first quarter of 2009, we have
incurred losses from operations and, during 2008 and the first quarter of 2009,
restructuring costs as we downsized our business to match the current
environment.  We have managed our liquidity during this time with
closure and consolidation of underperforming business units and cost reduction
initiatives as well as sales of assets.  However, the downturn in the
housing industry has been deepened by an increase in home foreclosures and
reduced consumer confidence from tightened lending standards and rising
unemployment, which have created a difficult business environment for
homebuilders generally.  Our operating performance and liquidity were
negatively affected by these economic and industry conditions, which are beyond
our control.
 
 These business
conditions have not improved during 2009.  As of March 2009,
single-family housing starts for the U.S. as a whole fell to an annualized rate
below 0.4 million and single-family permits in our markets remained at a
depressed annualized rate of 0.1 million.  We do not believe
these business conditions will improve significantly during 2009.
 
 Our actions to
align our cost structure with anticipated sales may not be sufficient to fund
our operating costs, restructuring costs and debt service
requirements.  When funds from operations are insufficient, our
primary source of funding has been the revolver component of our credit
facility.  Our amended credit facility provides a $200 million
revolver and a $340 million term note maturing in November 2011.  Our
revolver is subject to borrowing base limitations based on certain accounts
receivable, inventory, property and equipment and real estate and may not
provide adequate liquidity.  As of March 31, 2009, there were $2.3
million borrowings outstanding under the revolver and $313.8 million was
outstanding under the term note.
 
 Our credit
agreement requires monthly compliance with financial covenants, including
minimum liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA).  Operating results,
particularly income from continuing operations, are a primary factor for these
covenants, and our ability to comply with these covenants depends on our
operating performance.  Lack of compliance with these covenants would
constitute an event of default under the credit agreement which, absent any
waiver, forbearance or modification, would enable the lenders under our credit
agreement to cause all amounts
borrowed to become due and payable immediately and to prohibit further
borrowings by us under therevolver.
 
 Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we obtained a limited waiver
through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA
requirement and we preserved access to limited liquidity permitting us to borrow
up to $20 million under the revolver.  Previously, we had obtained
waivers for financial covenants due to lower than planned operating performance
as of both June 2008 and December 2007.
 
 Due to the
difficulty of reliably projecting our operating results within the depressed
business conditions of the homebuilding industry, we believe that it is likely
that we will not be able to meet the financial covenants of our credit agreement
during 2009.  Also, our independent registered public accounting firm
included a going concern explanatory paragraph in their report on our financial
statements for 2008, citing among other things, the uncertainty that we would
remain in compliance with these financial covenants.  The going
concern explanatory paragraph constitutes a default under our credit
agreement.  In April 2009, we obtained a waiver for the going concern
explanatory paragraph.
  50
 
  In
April 2009, our lenders also agreed to extend the limited waiver through June 1,
2009.  In May 2009, the limited waiver was extended through June 29,
2009.  This limited waiver continues to waive compliance with the
monthly Adjusted EBITDA, forecast and projection requirements of our credit
agreement.  The limited waiver limits borrowings under the revolver to
$20 million and limits capital expenditures to $0.1 million from
the date of the extended limited waiver.  Lenders
approving each of the March, April and May 2009 limited waivers were paid a fee
of 0.10% of their revolver commitment and their portion of the outstanding
principal amount of the term note.
 For March 2009, we
were not in compliance with the monthly Adjusted EBITDA requirement of our
credit agreement.  Additionally, as the limited waiver for these
financial covenants is less than a year, it is probable we will not be in
compliance with these financial covenants within the next year and given there
is no amendment or other financing agreement currently in place, the revolver
and term note are classified as a current liability in the consolidated balance
sheet.
 
 We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing options.
 
 We
may not be able to meet near-term working capital and scheduled interest and
debt payment requirements if cash flows are inadequate from our reduced
operating activities or if our access to the revolver portion of our credit
facility is restricted because we are unable to reach an agreement with our
lenders.  Absent any waiver, forbearance or modification to our
current credit agreement, we believe our recurring losses from operations,
interest and debt burden amid declining sales and potential inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going
concern.
 
 Additionally, our
long-term future is dependent on more normal levels of single-family housing
starts and our ability to implement and maintain cost structures, including
reduced interest and debt that align with single-family housing
trends.  If this fails to transpire or if we cannot obtain a waiver,
forbearance or modification to our current credit agreement or other financing
options, we may not be able to continue as a going concern and may be forced to
seek relief through a bankruptcy filing.
 Cash Flows
 Historically, our
primary needs for capital resources were to fund working capital and
acquisitions as well as finance capital expenditures.  In the future
we expect to fund working capital requirements and necessary capital
expenditures with cash flow from operations and seasonal borrowings under our
credit facility.
  If
we are unable to implement and maintain cost structures, including debt and
interest, that align with single-family housing trends or if we cannot obtain a
waiver, forbearance or similar amendment to our current credit agreement or
other financing options, we may not be able to continue as a going concern and
we may be forced to seek relief by altering our capital structure or through a
bankruptcy filing.
  51
  Operations
 Operating
activities used $7 million of cash compared to $8 million provided in the same
period a year ago.  Net loss adjusted for non-cash items increased $34
million from the same period a year ago due to lower sales and reduced
profitability as a result of the significant downturn in home
construction.  Our working capital requirements were $17 million less
than the same period a year ago.  Cash provided by working capital
requirements was $40 million compared to cash provided of $23 million in the
same period a year ago, as our working capital requirements decreased despite an
increase in our cash conversion cycle as days payable outstanding decreased,
inventory turns slowed and there was no significant change in days sales
outstanding.
 
 Capital Investment and
Acquisitions
 Cash provided by
investing activities was $10 million compared to $11 million used in the same
period a year ago.  Cash of $11 million was provided principally from
the sale of real property due to the consolidation of building distribution
facilities in Nevada, Washington and Colorado.  Cash used for
investing activities also included capital expenditures of $0.6 million or $6.6
million less than the same period a year ago.  Capital expenditures
were principally for consolidation of building component operations with
existing building product distribution facilities in Idaho, California and
Colorado and lease buyout requirements for certain equipment.
 
 Financing
 Cash used by
financing activities was $9 million compared to $17 million used in the same
period a year ago.  Borrowings under the revolver were $2 million
compared to no borrowings in the same period a year ago.  Cash for
operating needs and payments on the term note were funded by reductions in
working capital requirements, proceeds from dispositions and existing
cash.  In addition to the $0.9 million scheduled principal payment,
$11 million was paid on the term note as a result of proceeds from
dispositions.
 
 Financing
Arrangements
 Our debt structure
consists of a revolver, term note and other borrowings.
 
 In September 2008, we entered into
an amendment to our credit agreement with our lenders.  The amended
credit facility continues to provide a $200 million revolver subject to
borrowing base limitations and a $340 million term note maturing in November
2011.  However, the April
2009 limited waiver limits borrowings under the revolver to $20 million and may
not provide adequate liquidity.
 
 ·
                Revolver
 The $200 million
revolver is subject to borrowing base limitations and matures in November
2011.  The revolver may consist of both LIBOR and Prime based
borrowings.  In the September 2008 amendment, the variable interest
rate for the revolver was increased to LIBOR plus 5.25% or Prime plus
3.25%.  Minimum LIBOR interest is 3.0%.  Additionally, a
commitment fee for the unused portion is 0.50%.  LIBOR interest is
paid quarterly and Prime interest is paid monthly.  As of March 31,
2009, $2.3 million was outstanding under the revolver.
 
 The effective
interest rate is based on interest rates for the period as well as the
commitment fee for the unused portion of the revolver.
  52
  Letters of credit
outstanding that guaranteed performance or payment to third parties were $109.0
million as of March 31, 2009.  These letters of credit reduce the $200
million revolver commitment.
 
 Total availability
under the revolver is subject to a monthly borrowing base calculation that
includes:
 
 ·
                70% of
      certain accounts receivable,
 ·
                50% of
      certain inventory,
 ·
                25% of
      certain other inventory,
 ·
                approximately
      75% of the appraised value of certain property and equipment
      and
 ·
                50% of the
      appraised value of real estate.
 
 As
of March 31, 2009, the unused borrowing base under the revolver was $49.2
million, however the April 2009 limited waiver limits borrowings under the
revolver to $20 million.
 
 ·
                Term
      Note
 The term note
matures in November 2011 and is payable in quarterly installments of $0.9
million with the remaining principal of $270.0 million payable in November
2011.  In the September 2008 amendment, the variable interest rate for
the term note was increased to LIBOR plus 5.25% or Prime plus
3.25%.  Minimum LIBOR interest is 3.0%.  LIBOR interest is
paid quarterly and Prime interest is paid monthly.  In addition to the
LIBOR and Prime interest rates, the term note includes an additional annual
payment-in-kind interest or fee of 2.75% that is payable on the earlier of
payoff or maturity.  As of March 31, 2009, $313.8 million was
outstanding under this term note.
 
 ·
                Other
 Other long-term
debt consists of term notes, equipment notes and capital leases for
equipment.  Interest rates vary and dates of maturity are through
March 2021.  As of March 31, 2009, other long-term debt was $1.3
million.
 
 Covenants and
Maturities
 Our credit
agreement requires monthly compliance with financial covenants, including
minimum liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA).  Operating results,
particularly income from continuing operations, are a primary factor for these
covenants, and our ability to comply with these covenants depends on our
operating performance.  Lack of compliance with these covenants would
constitute an event of default under the credit agreement which, absent any
waiver, forbearance or modification, would enable the lenders under our credit
agreement to cause all amounts
borrowed to become due and payable immediately and to prohibit further
borrowings by us under therevolver.
 
 Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we obtained a limited waiver
through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA
requirement and we preserved access to limited liquidity permitting us to borrow
up to $20 million under the revolver.  Previously, we had obtained
waivers for financial covenants due to lower than planned operating performance
as of both June 2008 and December 2007.
 53
  Due to the
difficulty of reliably projecting our operating results within the depressed
business conditions of the homebuilding industry, we believe that it is likely
that we will not be able to meet the financial covenants of our credit agreement
during 2009.  Also, our independent registered public accounting firm
included a going concern explanatory paragraph in their report on our financial
statements for 2008, citing among other things, the uncertainty that we would
remain in compliance with these financial covenants.  The going
concern explanatory paragraph constitutes a default under our credit
agreement.  In April 2009, we obtained a waiver for the going concern
explanatory paragraph.
 
 In
April 2009, our lenders also agreed to extend the limited waiver through June 1,
2009.  In May 2009, the limited waiver was extended through June 29,
2009.  This limited waiver continues to waive compliance with the
monthly Adjusted EBITDA, forecast and projection requirements of our credit
agreement.  The limited waiver limits borrowings under the revolver to
$20 million and limits capital expenditures to $0.1 million from
the date of the extended limited waiver.  Lenders
approving each of the March, April and May 2009 limited waivers were paid a fee
of 0.10% of their revolver commitment and their portion of the outstanding
principal amount of the term note.
 
 For March 2009, we
were not in compliance with the monthly Adjusted EBITDA requirement of our
credit agreement.  Additionally, as the limited waiver for these
financial covenants is less than a year, it is probable we will not be in
compliance with these financial covenants within the next year and given there
is no amendment or other financing agreement currently in place, the revolver
and term note are classified as a current liability in the consolidated balance
sheet.
 
 We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing
options.
  If
our leverage ratio is at or above a certain maximum as of September 30, 2010,
the monthly Adjusted EBITDA may be replaced with quarterly compliance with a
leverage ratio and interest coverage ratio.  Operating results, particularly income
from continuing operations, are a primary factor for these covenants and our
ability to comply with these covenants depends on our operating
performance.  The significant downturn in single-family housing starts
has negatively impacted and may continue to negatively impact our operating
performance.
  54
  The credit
agreement requires certain proceeds and cash flows be applied to the credit
facility as follows:
 
 ·
                Revolver
 §
                30% of tax
      refunds and
 §
                cash in
      excess of $25 million.
 
 ·
                Term
      Note
 §
                proceeds from
      certain dispositions,
 §
                70% of tax
      refunds and
 §
                75% of excess
      cash flow as defined beginning in
2010.
 
 Proceeds from tax
refunds and certain dispositions are retained in a separate cash
account.  Cash in excess of $25 million in this separate cash account
is to be applied to the revolver or term note.  There was no amount in
this separate cash account as of March 31, 2009.  In the event of
default, this cash is restricted and not available for our operating
needs.
 
 The amended credit
facility continues to restrict our ability to incur additional indebtedness, pay
dividends, repurchase shares, enter into mergers or acquisitions, use proceeds
from equity offerings, make capital expenditures and sell assets.  The
amended credit facility is secured by all assets of our wholly-owned
subsidiaries.
 
 In
connection with the September 2008 amendment, 100% or $2.8 million of
unamortized deferred loan costs related to the term note were recognized as
interest expense in the third quarter of 2008.  We also incurred $3.8
million of costs in connection with the amendment and $2.0 million of these
costs will be amortized over the remaining term of the credit facility whereas
$1.8 million of these costs were recognized as interest expense in the third
quarter of 2008.
 
 In
connection with the February 2008 amendment, 60% or $2.4 million of unamortized
deferred loan costs related to the previous revolver were recognized as interest
expense in the first quarter of 2008.  We also incurred $4.9 million
of fees in connection with the amendment and these costs were to be amortized
over the remaining term of our credit facility.  However, in
connection with the September 2008 amendment, the remaining $2.6 million of
these unamortized costs were recognized as interest expense in the third quarter
of 2008.
 
 Scheduled
maturities of long-term debt are as follows (thousands):
 
 2009
                        
                        $
                        316,2462010
                        
                        
                        2232011
                        
                        
                        662012
                        
                        
                        652013
                        
                        
                        70Thereafter
                        
                        
                        678$
                        317,348
 
 Warrants
 In
connection with the amendment of our credit facility in September 2008, we
issued warrants that entitle the lenders to purchase approximately 8.75% or 2.8
million of our common shares at a purchase price of $0.47 per common share, the
closing price on the NYSE on September 30, 2008.  These warrants may
be exercised through September 2015.
  55
  The fair value of
the warrants of $0.8 million was recorded as a discount on the term
note.  Amortization of the discount will be recognized ratably through
November 2011, the remaining term of our credit facility.
 
 Hedging Activities
 In
addition to the amendment to our credit facility in September 2008, we amended
our interest rate swap contracts to lower amounts and a maturity matching the
credit facility.  As of March 2009, the interest rate swap contracts
effectively converted $123.0 million of variable rate borrowings to a fixed
interest rate of 10.6% plus any difference between minimum LIBOR interest of
3.0% and LIBOR, thus reducing the impact of increases in interest rates on
future interest expense.  Additionally, the notional amount of the
interest rate swap contracts will be ratably reduced to zero through the
maturity of November 2011.
 
 As
of March 2009, approximately 39% of the outstanding variable rate borrowings
have been hedged with these interest rate swap contracts.  After
giving effect to the interest rate swap contracts, total borrowings were 61%
variable and 39% fixed.  The fair value of the interest rate swap
contracts was a liability of $6.4 million as of March 31,
2009.  Management may choose not to swap variable rates to fixed rates
or may terminate a previously executed swap if the variable rate positions are
more beneficial.
 
 Hedge accounting
was discontinued in January 2009, as it is not probable future LIBOR interest
rates for the remaining term of the interest rate swap contracts will be at or
above the minimum LIBOR interest of 3.0% of the term note.  In
September 2008, we amended our interest rate swap contracts.  Monthly
settlements are made to ratably reduce the notional amount of the interest rate
swap contracts through November 2011.  As a result, the following
amounts were recognized as Interest expense:
  ·
                $0.1 million
      for the period ended March 31, 2009 for an increase in the fair value of
      the interest rate swap contracts rather than recorded in Accumulated other
      comprehensive loss, net, a component of equity.  This increase
      in the fair value was after $1.2 million of notional reduction settlement
      payments for the period ended March 31, 2009.  There were no
      notional reduction settlement payments for the period ended March 31,
      2008.
 ·
                $0.4 million
      for the period ended March 31, 2009 for amortization of unrealized loss
      due to increases in fair value of interest rate swap contracts previously
      accounted for as a cash flow hedge and recorded in Accumulated other
      comprehensive loss, net.  The remaining unrealized loss of $4.1
      million in Accumulated other comprehensive loss, net as of March 31, 2009
      will be subsequently amortized to Interest expense over the remaining term
      of our term note.
 ·
                $0.2 million
      for the period ended March 31, 2009 and $0.9 million for 2008 for
      amortization of the notional reduction settlement payments previously
      accounted for as a cash flow hedge and recorded in Accumulated other
      comprehensive loss, net.  The remaining unrealized loss of $2.7
      million for notional reduction settlement payments previously accounting
      for cash flow hedged for 2008 recorded in Accumulated other comprehensive
      loss, net as of March 31, 2009 will be subsequently amortized to Interest
      expense over the remaining term of our term
  note.
 
 In
December 2008, we determined the interest rate swap contracts were not an
effective hedge of variable interest due to the recent significant reductions in
LIBOR interest rates.  As a result of the estimated difference between
the LIBOR interest of the interest rate swap contracts and the minimum LIBOR
interest of 3.0% of the term note, we recognized $3.0 million of interest
expense for the ineffective portion of these interest rate swap contracts for
2008.  The effective portion of the interest rate swap contracts of
$4.5 million was recorded as an unrealized loss and an unrealized tax benefit of
$1.7 million in Accumulated other comprehensive loss, net, a component of
equity.  A corresponding deferred tax asset for the unrealized tax
benefit was eliminated with a valuation allowance as there may be an inability
to utilize this deferred tax asset.  The remaining unrealized loss of
$4.1 million in Accumulated other comprehensive loss, net as of March 31, 2009
will be subsequently amortized to Interest expense over the remaining term of
our term note.
  56
  Equity
 EquityRepurchases
 Our credit facility
amended in September 2008 prohibits the repurchase of our common
shares.  The determination of future share repurchases will depend on
many factors, including credit facility restrictions, financial position,
results of operations and cash flows.
 
 Shelf Registration
 In
the third quarter of 1998, we filed a shelf registration with the Securities and
Exchange Commission to register 4 million common shares.  We may issue
these shares in connection with future business acquisitions, combinations or
mergers.  Shares have been issued from this registration statement for
a portion of the purchase price for acquisitions.  There are
approximately 3.7 million shares remaining and available under this shelf
registration.
  57
  OFF-BALANCE SHEET
ARRANGEMENTS
 
 As
part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships
often referred to as structured finance or special purpose entities which might
be established to facilitate off-balance sheet arrangements or other
contractually narrow or limited purposes.  As of March 31, 2009, we
were not involved in any transactions with unconsolidated entities.
 
 DISCLOSURES OF CONTRACTUAL OBLIGATIONS
AND COMMERCIAL COMMITMENTS
 
 Contractual
obligations as of March 31, 2009 (millions):
 
 Payments
      Due by PeriodContractual
      Obligations
                              
                              2009
                              
                              
                              
                              2010
      -
                                2012
                              
                              
                              
                              2013
      -
                                2015
                              
                              
                              Thereafter
                              
                              
                              TotalLong-term
      debt(1)
                              
                              $
                              316.2
                              
                              
                              $
                              0.4
                              
                              
                              $
                              0.2
                              
                              
                              $
                              0.5
                              
                              
                              $
                              317.3Capital lease
      obligations
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Interest on
      long-term debt and
                                capital
      leases(2)
                              
                              
                              6.9
                              
                              
                              
                              0.2
                              
                              
                              
                              0.1
                              
                              
                              
                              0.1
                              
                              
                              
                              7.3Operating
      lease obligations(3)
                              
                              
                              18.3
                              
                              
                              
                              38.5
                              
                              
                              
                              7.2
                              
                              
                              
                              0.9
                              
                              
                              
                              64.9Unconditional
      purchase
                                obligations
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Other
      long-term commitments
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —$
                              341.4
                              
                              
                              $
                              39.1
                              
                              
                              $
                              7.5
                              
                              
                              $
                              1.5
                              
                              
                              $
                              389.5Interest rate
      swap contractsNotional
      principal amount of
                                interest
      rate exchange agreements
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              123.0Variable
      to fixedAverage
      pay rate
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              5.3
                              %Average
      receive rate
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2.7
                              %
 (1)
                  Long-term debt
      obligations may differ due to potential changes in our debt and capital
      structures or future refinancing of
debt.
 (2)
                Interest
      obligations may differ due to potential changes in our debt and capital
      structures or future refinancing of debt.  Interest on our
      variable rate debt was calculated for all years using the rates in effect
      as of March 31, 2009.
 (3)
                Operating
      lease obligations may differ due to potential changes in our debt and
      capital structures or changes in operating plans and sublease
      arrangements.  Operating lease obligations are net of sublease
      arrangements of $1.2 million for remainder of 2009, $1.3 million for
      2010-2012 and $0.1 million for
2013-2015.
 
 Our credit facility
consists of the revolver and term note.  Accelerated repayment of our
revolver and term note may occur if certain financial conditions or warranties
and representations are not met.  The credit facility is secured by
all the assets of our wholly-owned subsidiaries.
 
 Our amended credit
facility requires monthly compliance with financial covenants including minimum
liquidity and adjusted earnings before interest, taxes, depreciation and
amortization (monthly Adjusted EBITDA) at least through 2010.
 
 If
our leverage ratio is at or above a certain maximum as of September 30, 2010,
the monthly Adjusted EBITDA may be replaced with quarterly compliance with a
leverage ratio and interest coverage ratio.  Lack of compliance with
these covenants may accelerate the related scheduled maturities.
  58
  We
have $109.0 million in letters of credit outstanding principally for the
deductible portion of automobile, general liability and workers’ compensation
claims.  These obligations are not required to be recorded as
liabilities on our balance sheet and renew automatically on their various
anniversary dates or until released by their respective
beneficiaries.
  59
  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 
 Inventory Price Risk
 Prices of commodity
wood products, which are subject to significant volatility, may adversely impact
operating income when prices rapidly rise or fall within a relatively short
period of time.  We do not use derivative financial instruments to
hedge commodity wood product prices.
 
 Interest Rate Risk
 Changes in interest
expense occur when market interest rates change.  Changes in the
amount of debt could also increase interest rate risks.  We currently
utilize interest rate swap contracts to hedge variable interest
rates.  As of March 2009, the interest rate swap contracts effectively
converted $123.0 million of variable rate debt to a fixed interest rate of 10.6%
plus any difference between minimum LIBOR interest of 3.0% and
LIBOR.  The notional amount of the interest rate swap contracts will
be ratably reduced to zero through the maturity of November 2011.
 
 Approximately 39%
of the outstanding variable rate borrowings have been hedged with interest rate
swap contracts.  After giving effect to the interest rate swap
contracts, total borrowings are 61% variable and 39% fixed.  Based on
debt outstanding as of March 31, 2009, a 0.25% increase in interest rates would
result in approximately $0.5 million of additional interest expense
annually.
 
 Derivative
financial instruments are not utilized to hedge other risks or for speculative
or trading purposes.
  60
  CRITICAL ACCOUNTING
ESTIMATES
 
 Preparing financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses.  These
estimates and assumptions include critical accounting estimates which are
defined by the Securities and Exchange Commission as those that are the most
important to the portrayal of our financial condition, results of operations or
cash flows.  These estimates require our subjective and complex
judgments often as a result of the need to estimate matters that are inherently
uncertain.  We review the development, selection and disclosure of
these estimates with our Audit Committee.  We believe the estimates
utilized are reasonable under the circumstances, however actual results could
differ from these estimates and may require adjustment in future
periods.  Our critical accounting estimates are:
 
 ·
                  Revenue
      Recognition for Construction
Services
 The
percentage-of-completion method is used to recognize revenue for construction
services.  Periodic estimates of our progress towards completion are
made based on a comparison of labor costs incurred to date with total estimated
contract costs for labor.  The percentage-of-completion method
requires the use of various estimates, including among others, the extent of
progress towards completion, contract revenues and contract completion
costs.  Contract revenues and contract costs to be recognized are
dependent on the accuracy of estimates, including quantities of materials, labor
productivity and other cost estimates.  We have a history of making
reasonable estimates of the extent of progress towards completion, contract
revenues and contract completion costs.  However, due to uncertainties
inherent in the estimation process, it is possible that actual contract revenues
and completion costs may vary from estimates.  Revisions of contract
revenues and cost estimates as well as provisions for estimated losses on
uncompleted contracts are recognized in the period such revisions are
known.
 
 ·
                Estimated
      Losses on Uncompleted Contracts and Changes in Contract
      Estimates
 Estimated losses on
uncompleted contracts and changes in contract estimates are established by
assessing estimated costs to complete, change orders and claims for uncompleted
contracts.  Revisions of estimated losses are recognized in the period
such revisions are known.
 
 At
March 31, 2009, the reserve for these estimated losses was $0.1
million.  These reserves are established by assessing estimated costs
to complete, change orders and claims.  Assumptions for estimated
costs to complete include material prices, labor costs, labor productivity and
contract claims.  Such estimates are inherently uncertain and
therefore it is possible that actual completion costs may vary from these
estimates.  We have a history of making reasonable estimates of the
extent of progress towards completion, contract revenue and contract completion
costs.  However, due to uncertainties inherent in the estimation
process, it is possible that actual completion costs may vary from
estimates.
 ·
                  Realizability
      of Net Deferred Tax
Asset
 Deferred tax assets
and liabilities are recognized for tax credits and for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  A
valuation allowance is recognized to reduce the carrying amount of deferred tax
assets to the amount that is more likely than not to be realized.  If
it is later determined it is more likely than not that deferred tax assets will
be realized, the valuation allowance will be adjusted.  Revisions of
the valuation allowance are recognized in the period such revisions are
known.
  61
  At
March 31, 2009, the valuation allowance was $177.7 million.  The
valuation allowance was recognized due to the potential inability to realize
these deferred tax assets.  The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.  The
scheduled reversal of deferred tax liabilities, loss carryback and carryforward
abilities, projected future taxable income, tax planning strategies, cumulative
earnings and our industry are considered in making this
assessment.  Our ability to realize the deferred tax assets could
change if estimates of future taxable income change.  To the extent
taxable income is generated in future periods, these tax benefits may be
realized and reduce our effective tax rate in future periods.
 ·
                  Goodwill
 Goodwill represents
the excess of purchase price over the fair values of net tangible and
identifiable intangible assets of acquired businesses.  An annual
assessment for impairment is completed in the fourth quarter and whenever events
and circumstances indicate the carrying amount may not be
recoverable.  An impairment is recognized if the carrying amount is
more than the estimated future operating cash flows as measured by fair value
techniques.
 
 At
March 31, 2009, there was no goodwill remaining due to impairments in 2008 and
2007.  The impairment assessment includes determining the estimated
fair value of reporting units based on discounting the future operating cash
flows using a discount rate reflecting our estimated average cost of
funds.  Future operating cash flows are derived from our annual plan
and forecast information, which includes assumptions of future volumes, pricing
of commodity products and labor costs.  Prices for commodity products
are inherently volatile.  Due to the variables associated with prices
of commodity products and the effects of changes in circumstances, both the
precision and reliability of the estimates of future operating cash flows are
subject to uncertainty.  As additional information becomes known, we
may change our estimates.
 ·
                  Insurance
      Deductible Reserves
 The estimated cost
of automobile liability, general liability and workers’ compensation claims is
determined by actuarial methods.  Claims in excess of insurance
deductibles are insured with third-party insurance
carriers.  Insurance deductible reserves for claims are recognized
based on the estimated costs of these claims as limited by deductibles of the
applicable insurance policies.  Revisions to insurance deductible
reserves for estimated claims are recognized in the period such revisions are
known.
 
 At
March 31, 2009, the reserve for automobile, general liability and workers’
compensation claims was $42.3 million.  The estimated cost of claims
is determined by actuarial methods.  Actual loss experience may differ
substantially from the actuarial assumptions.  Future estimates of the
cost of claims are subject to the nature and frequency of claims, medical cost
inflation and changes in the insurance deductibles of the applicable insurance
policies.
 62
  ·
                  Warranties
 The estimated cost
of warranties for certain construction services is based on the nature and
frequency of claims, anticipated claims and cost per claim.  Claims in
excess of insurance deductibles are insured with third-party insurance
carriers.  Estimated costs for warranties are recognized when the
revenue associated with the service is recognized.  Revisions of
estimated warranties are recognized in the period such revisions are
known.
  At
March 31, 2009, the reserve for warranties was $5.4 million.  Specific
terms and conditions for warranties vary from one year to ten years and are
based on geographic market and state regulations.  The reserve for
these claims is susceptible to change based on the estimated cost of the
claim.  We have a history of making reasonable estimates of
warranties.  However, due to uncertainties inherent in the estimation
process, it is possible that actual warranty costs may vary from
estimates.
 ·
                  Share-based
      Compensation
 Our estimates of
the fair values of our share-based payment transactions are based on the
modified Black-Scholes-Merton model.  To meet the fair value
measurement objective, we are required to develop estimates regarding expected
exercise patterns, share price volatility, forfeiture rates, risk-free interest
rate and dividend yield.  These assumptions are based principally on
historical experience.  When circumstances indicate changes in
forfeiture rates, revisions to forfeiture rates are recognized in the periods
such revisions are known.  Due to uncertainties inherent in these
assumptions, it is possible that actual share-based compensation may vary from
these estimates.
 
 RECENT ACCOUNTING
PRINCIPLES
 
 In
May 2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  This accounting principle identifies a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. generally accepted accounting principles (GAAP) for nongovernmental
entities.  This accounting principle was adopted November 2008 and had
no impact on our consolidated financial position, results of operations or cash
flows.
 
 In
March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  This accounting principle
enhances disclosure for derivative instruments and hedging activities and their
effects on consolidated financial position, results of operations and cash
flows.  Specifically, enhanced disclosures include objectives and
strategies for using derivatives, including underlying risk and accounting
designation, as well as fair values, gains and losses.  This
accounting principle was adopted June 2008 and had no impact on our consolidated
financial position, results of operations or cash flows.
 
 In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  This accounting principle
eliminates noncomparable accounting for noncontrolling
interests.  Specifically, noncontrolling interests are presented as a
component of equity; consolidated net income includes amounts attributable to
both the parent and noncontrolling interest and is disclosed on the face of the
income statement; changes in the ownership interest are accounted for as equity
transactions if ownership remains controlling; purchase accounting for
acquisitions of noncontrolling interests and acquisitions of additional
interests is eliminated; and deconsolidated controlling interests are recognized
based on fair value consistent with Statement of Financial Accounting Standards
No. 141 (revised 2007), Business
Combinations.  The accounting requirements were adopted January
2009 and had no impact on our consolidated financial position, results of
operations or cash flows.
  63
  In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (revised 2007), Business
Combinations.  This accounting principle requires acquisition
accounting (purchase accounting) be applied to all business combinations in
which control is obtained regardless of consideration and for an acquirer to be
identified for each business combination.  Additionally, this
accounting principle requires acquisition-related costs and restructuring costs
at the date of acquisition to be expensed rather than allocated to the assets
acquired and the liabilities assumed; noncontrolling interests, including
goodwill, to be recorded at fair value at the acquisition date; recognition of
the fair value of assets and liabilities arising from contingent consideration
(payments conditioned on the outcome of future events) at the acquisition date;
recognition of bargain purchase (acquisition-date fair value exceeds
consideration plus any noncontrolling interest) as a gain; and recognition of
changes in deferred taxes.  This accounting principle was adopted
January 2009 and had no impact on our consolidated financial position, results
of operations or cash flows.
 
 
 BUSINESS RISKS AND FORWARD-LOOKING
STATEMENTS
 
 There are a number
of business risks and uncertainties that affect our operations and therefore
could cause future results to differ from past performance or expected
results.  Additional information regarding business risks and
uncertainties is contained in Part II Item 1A of this Form
10-Q.  These risks and uncertainties may include, however are not
limited to:
 
 ·
                  substantial
      doubt about our ability to continue as a going concern;·
                  our existing
      common equity may have no
value;
 ·
                demand for
      and supply of single-family homes which are influenced by changes in the
      overall condition of the U.S. economy, including interest rates, consumer
      confidence, job formation, availability of credit and other important
      factors;
 ·
                our ability
      to maintain adequate liquidity, reduce operating costs and increase market
      share in an industry that has experienced and continues to experience a
      significant reduction in average annual housing
  starts;
 §
                our liquidity
      is dependent on operating performance, an efficient cash conversion cycle
      and compliance with financial
covenants;
 §
                our ability
      to implement and maintain cost structures that align with sales trends
      and
 §
                loss of
      customers as well as changes in the business models of our customers may
      limit our ability to provide building products and construction
      services;
 ·
                additional
      impairment charges and costs to close or consolidate additional business
      units in underperforming markets;
 ·
                intense
      competition;
 ·
                availability
      of and our ability to attract, train and retain qualified
      individuals;
 ·
                fluctuations
      in our costs and availability of sourcing channels for commodity wood
      products, concrete, steel and other building
  materials;
 ·
                weather
      conditions including natural catastrophic
  events;
 ·
                exposure to
      product liability and construction defect claims as well as other legal
      proceedings;
 ·
                disruptions
      in our information systems;
  64
  ·
                actual and
      perceived vulnerabilities as a result of widespread credit and liquidity
      concerns,terrorist
      activities and armed conflict;
 ·
                costs and/or
      restrictions associated with federal, state and other regulations
      and
 ·
                numerous
      other matters of a local and regional scale, including those of a
      political, economic, business, competitive or regulatory
      nature.
 
 Risks related to
our shares may include, however are not limited to:
 
 ·
                price for our
      shares may fluctuate significantly;
 ·
                our shares
      may be less attractive as they are not traded on a large, more well-known
      exchange and
 ·
                anti-takeover
      defenses and certain provisions could prevent an acquisition of our
      company or limit share price.
 
 Certain statements
in this Form 10-Q including those related to expectations about homebuilding
activity in our markets, demographic trends supporting homebuilding, competition
trends, anticipated sales and operating income and negotiations with our lenders
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  Statements that are not historical or
current facts, including statements about our expectations, anticipated
financial results and future business prospects are forward-looking
statements.  While these statements represent our current judgment on
what the future may hold and we believe these judgments are reasonable, these
statements involve risks and uncertainties that are important factors that could
cause our actual results to differ materially from those in forward-looking
statements.  These factors include, however are not limited to the
risks and uncertainties cited in the above paragraph, as well as our ability to
timely and successfully implement our restructuring program and achieve the
benefits that the program is designed to provide, including preserving value,
enhancing our liquidity, generating tax refunds, reducing expenses and
generating cash proceeds.  Undue reliance should not be placed on such
forward-looking statements, as such statements speak only as of the date of the
filing of this Form 10-Q.  We undertake no obligation to update
forward-looking statements.
  65
  Item 3.Quantitative and
Qualitative Disclosures About Market Risk
 
 Inventory Price Risk
 Prices of commodity
wood products, which are subject to significant volatility, may adversely impact
operating income when prices rapidly rise or fall within a relatively short
period of time.  We do not use derivative financial instruments to
hedge commodity wood product prices.
 
 Interest Rate Risk
 Changes in interest
expense occur when market interest rates change.  Changes in the
amount of debt could also increase interest rate risks.  We currently
utilize interest rate swap contracts to hedge variable interest
rates.  As of March 2009, the interest rate swap contracts effectively
converted $123.0 million of variable rate debt to a fixed interest rate of 10.6%
plus any difference between minimum LIBOR interest of 3.0% and
LIBOR.  The notional amount of the interest rate swap contracts will
be ratably reduced to zero through the maturity of November 2011.
 
 Approximately 39%
of the outstanding variable rate borrowings have been hedged with interest rate
swap contracts.  After giving effect to the interest rate swap
contracts, total borrowings are 61% variable and 39% fixed.  Based on
debt outstanding as of March 31, 2009, a 0.25% increase in interest rates would
result in approximately $0.5 million of additional interest expense
annually.
 
 Derivative
financial instruments are not utilized to hedge other risks or for speculative
or trading purposes.
  66
  Item 4.Controls and
Procedures
 
 Evaluation of Disclosure Controls and
Procedures
 As
of the end of the period covered by this report, management carried out an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the design and operation of
our disclosure controls and procedures.  This evaluation was conducted
to determine whether the disclosure controls and procedures are effective and
timely in bringing material information to the attention of senior management
and are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial statements in
accordance with generally accepted accounting principles.  Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in ensuring
information required to be disclosed in reports filed under the Securities and
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms and is accumulated and communicated to our Chief Executive Officer and
Chief Financial Officer to allow timely decisions regarding required
disclosure.
 
 Changes in Internal Controls Over
Financial Reporting
 Our disclosure
controls and procedures and internal controls over financial reporting are
routinely evaluated and tested for effectiveness.  These evaluations
are discussed with management and the Audit Committee of the Board of
Directors.  As a result of these evaluations, revisions and corrective
actions are made to ensure the continuing effectiveness of our disclosure
controls and procedures and internal controls over financial
reporting.
 
 During the period
covered by this report, we identified deficiencies in the design or operation of
our internal controls, however revisions and corrective actions are being made
to ensure the effectiveness of our disclosure controls and procedures and
internal controls over financial reporting.  None of these
deficiencies have been considered a material weakness and there were no changes
in the design or operation of our internal controls over financial reporting
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
  67
  PART II – OTHER
INFORMATION
 
 Item 1.Legal
Proceedings
 
 We
are involved in litigation and other legal matters arising in the normal course
of business.  In the opinion of management the recovery or liability,
if any, under any of these matters will not have a material effect on our
consolidated financial position, results of operations or cash
flows.
   68
 
 Item1A. Risk Factors
 
 Risks Related to Our
Business
 We
face a number of significant risks and uncertainties in connection with our
operations.  The factors described below may adversely affect our
business, financial position, results of operations or cash flows and could
cause future results to differ from past performance or expected
results.
 
 While we describe
each risk separately, some of these risks are interrelated and certain risks
could trigger other risks described below.  Also, the risks and
uncertainties described below are not the only risks and uncertainties we may
face:
 
 There is substantial doubt about our
ability to continue as a going concern.
 Our consolidated
financial statements were prepared assuming we will continue as a going
concern.  We may not be able to meet near-term working capital and
scheduled interest and debt payment requirements if cash flows are inadequate
from our suppressed operating activities or if our access to the revolver
portion of our credit facility is restricted due to lack of compliance with
financial covenants or revolver borrowing base limitations.  Absent
any waiver, forbearance or modification to our current credit agreement or other
financing options, we believe our recurring losses from operations, interest and
debt burden amid declining sales and potential inability to generate sufficient
cash flow to meet our obligations and sustain our operations raise substantial
doubt about our ability to continue near-term as a going concern.
  Additionally, our
long-term future is dependent on more normal levels of single-family housing
starts and our ability to implement and maintain cost structures, including
reduced interest and debt that align with single-family housing
trends.  If this fails to transpire or if we cannot obtain a waiver,
forbearance or modification to our current credit agreement or other financing
options, we may not be able to continue as a going concern and may be forced to
seek relief through a bankruptcy filing.  Such actions would have an
adverse impact on the holders of our common shares.
 
 Our existing common equity may have no
value.
 Given our current
debt and capital structure, including our significant amount of debt and
accumulated deficit, our existing common equity may have little or no
value.  Even if we
successfully modify our credit agreement and restructure our debt and capital
structure, the terms of the restructuring and any new financing that we may be
able to raise could be expected to substantially dilute our current
shareholders, including resulting in potential loss of the entire value of their
investment.In addition, our long-term future is dependent on more
normal levels of single-family housing starts and our ability to implement and
maintain cost structures, including reduced interest and debt that align with
single-family housing trends.  If this fails to transpire or if we
cannot obtain a waiver, forbearance or modification to our current credit
agreement or other financing options, we may not be able to continue as a
going concern and may be forced to seek relief through a bankruptcy
filing.  Such actions would have an adverse impact on the holders of
our common shares.
 Our business is dependent on demand for
and supply of single-family homesthatareinfluenced by changes in the overall
condition of theU.S.economy, including interest rates,
consumer confidence,job formation, availability of creditand other important
factors.
 The residential
building products and construction services industry is highly dependent on
demand for single-family homes, which is influenced by several
factors.  These factors include economic changes nationally and
locally, mortgage and other interest rates, consumer confidence, job formation,
demographic trends, tax incentives and availability of credit as well as other
factors.  The construction of new homes may experience decline due to
excess unsold home inventory levels, lack of availability of credit for lenders,
builders and homebuyers, lack of available and affordable land in attractive
metropolitan areas, shortages of qualified tradespeople, shortages of materials
and regulations that impose restrictive zoning and density
requirements.  Also, changes to housing patterns may occur, such as an
increase in consumer demand for urban living rather than single-family suburban
neighborhoods.
 
 All of these
factors could limit demand for home construction and mayresult in lower sales of our building
products and construction services as well as lower operating results due to our
inability to align our cost structure with these sales
trends.
  69
  Our ability to maintain adequate
liquidity, reduce operating costs and increase market share in an industry
experiencing a 64% reduction in average annual housing startsmay not be fully realized or may take
longer to realize than expected.
 Already under
contraction, single-family housing starts declined further in the first quarter
of 2009 as home foreclosures increased, lending standards tightened and rising
unemployment sapped consumer confidence.  According to the U.S. Census
Bureau as of February 2009, single-family housing starts for the U.S. as a whole
fell below an annualized rate of 0.4 million.  Excluding the boom
years of 2006 through 2003, single-family housing starts for the U.S. as a whole
averaged 1.1 million starts per year since 1990.
 
 Similarly, as of
February 2009 annualized single-family permits in our markets fell 46% to 0.1
million from the prior year.  The decline was widespread across all
our markets for both building products and construction
services.  Lower sales from weakening buyer demand and increased
competition for fewer contracts led to declines in our margins, particularly for
construction services.  As of March 2009, single-family housing starts
for the U.S. as a whole fell to an annualized rate below 0.4 million and
single-family permits in our markets remained at an annualized rate of 0.1
million.  We expect market conditions to be challenging and may apply
further pressure to our sales, margins and operating results.
 
 ·
                Our liquidity
      is dependent on operating performance,an efficient
      cash conversion cycle andcompliance
      with financial covenants.
 Liquidity is essential to our
business.  We fund working capital requirements and necessary capital
expenditures with cash flow from operations and seasonal borrowings under our
credit facility.  A substantial deterioration in operating performance
as well as inefficient conversion of business activities to cash may adversely
affect our ability to obtain funding from operations or our credit
facility.
  We
may not be able to meet near-term working capital and scheduled interest and
debt payment requirements if cash flows are inadequate from our reduced
operating activities or if our access to the revolver portion of our credit
facility is restricted because we are unable to reach an agreement with our
lenders.  Absent any waiver, forbearance or modification to our
current credit agreement, we believe our recurring losses from operations,
interest and debt burden amid declining sales and potential inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going
concern.
  Additionally, our
long-term future is dependent on more normal levels of single-family housing
starts and our ability to implement and maintain cost structures, including
reduced interest and debt that align with single-family housing
trends.  If this fails to transpire or if we cannot obtain a waiver,
forbearance or modification to our current credit agreement or other financing
options, we may not be able to continue as a going concern and may be forced to
seek relief through a bankruptcy filing.
  Based on
financial information for February 2009, we were not in compliance with the
monthly Adjusted EBITDA requirement of our credit agreement.  In March
2009, we obtained a limited waiver
through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA
requirement and we preserved access to limited liquidity permitting us to borrow
up to $20 million under the revolver.  Previously, we had obtained
waivers for financial covenants due to lower than planned operating performance
as of both June 2008 and December 2007.
  70
  Due to the
difficulty of reliably projecting our operating results within the depressed
business conditions of the homebuilding industry, we believe that it is likely
that we will not be able to meet the financial covenants of our credit agreement
during 2009.  Also, our independent registered public accounting firm
included a going concern explanatory paragraph in their report on our financial
statements for 2008, citing among other things, the uncertainty that we would
remain in compliance with these financial covenants.  The going
concern explanatory paragraph constitutes a default under our credit
agreement.  In April 2009, we obtained a waiver for the going concern
explanatory paragraph.
 
 In April 2009, our lenders also agreed
to extend the limited waiver through June 1, 2009.  In May 2009, the
limited waiver was extended through June 29, 2009.  This limited
waiver continues to waive compliance with the monthly Adjusted EBITDA, forecast
and projection requirements of our credit agreement.  The limited
waiver limits borrowings under the revolver to $20 million and limits capital
expenditures to $0.1 million from the date of the extended limited
waiver.Lenders approving each of the March,
April and May 2009 limited waivers were paid a fee of 0.10% of their revolver
commitment and their portion of the outstanding principal amount of the term
note.
 
 For March 2009, we
were not in compliance with the monthly Adjusted EBITDA requirement of our
credit agreement.  Additionally, as the limited waiver for these
financial covenants is less than a year, it is probable we will not be in
compliance with these financial covenants within the next year and given there
is no amendment or other financing agreement currently in place, the revolver
and term note are classified as a current liability in the consolidated balance
sheet.
 
 We
are anticipating tax refunds of $56 million as a result of net operating losses
for 2008.  These refunds will be applied to reduce the amount
outstanding under our term loan facility to approximately $275
million.  The remaining portion of the tax refund will be available
for working capital needs after payment of any borrowings under the
revolver.  We filed for our federal tax refund in April 2009 and our
professional advisors have advised us that receipt of the refund is anticipated
in mid- to late May 2009.
 
 We are currently negotiating with our
lenders to develop debt and capital structures to support our long-term
strategic plan and business objectives.  We expect that these
negotiations may lead to a bankruptcy filing which we anticipate would reflect
the agreement of our lenders and would provide for the payment in full of all
amounts owing to key vendors and the uninterrupted supply of goods and services
to our customers.  Equity holders may be substantially diluted or be
eliminated in a bankruptcy filing.
 
 There can be no assurance these
negotiations will result in debt and capital structures acceptable to us and the
lenders or an agreement that would achieve our goals.If these
negotiations fail, we would not be able to continue as a going concern and would
be forced to seek relief through bankruptcy filing without an agreement of our
lenders.  We also continue to pursue alternative financing
arrangements as well as evaluate other financing options.
 If our operating performance,
particularly cash flows from operations, is inadequate, we could suffer
unfavorable consequences, such as payment delays to our suppliers or failure to
honor contractual commitments including financial
obligations.
 
 Changes in or
perceptions of our liquidity or the liquidity of our suppliers and customers may
adversely affect our cash flows and compound other risks.  Our
suppliers of building products as well as customers of our building products and
construction services may experience or perceive uncertain liquidity and cause
changes in our liquidity.  For example, vendors may disrupt supply
with changes in terms such as credit and quantity limitations, pricing or
payment.  Similarly, customers may disrupt demand with changes in
purchasing habits.
  71
  Increases in
interest rates and the credit risk premium assigned to us as well as changes in
the amount of debt will increase our interest expense.  Higher
interest expense may adversely impact our financial position, results of
operations or cash flows for operating needs.
 
 ·
                An inability
      to implement and maintain cost structures that align withsalestrends may
      have an adverse impact on our operating resultsor the
      anticipated benefits of restructuring may not be fully realized or may
      take longer to realize than expected.
 When we experience
slower periods of homebuilding activity, we may experience inefficiencies in our
cost structures.  In response to the current challenging economic and
industry conditions, we have implemented restructuring plans that include
closure or consolidation of underperforming business units, reductions in the
number of employees and consolidation of certain administrative
functions.  These actions are designed to align our cost structures
with anticipated sales.  Our evaluation of and changes to expenses in
response to declining sales may not be sufficient, timely or realized, leading
to costs that are too high relative to sales and to lower returns on
sales.
 
 ·
                Loss of
      customers as well as changes in the
      business models of customers mayhave an
      adverse impact on our operating results.
 We
are exposed to the risk of loss arising from the failure or financial distress
of customers.  Although amounts due from our customers are typically
secured by liens on their construction projects, in the event a customer cannot
meet its payment obligations to us, there is a risk that lender evaluations of
customer creditworthiness may limit amounts paid to us or the value of their
underlying project will not be sufficient to recover the amounts owed to
us.  Estimated credit losses are considered in the valuation of
amounts due from our customers, however the entire carrying amount is generally
at risk.
 
 While market and
regulatory changes seek to reduce excess unsold home inventory and stabilize
housing affordability, we may experience losses of and changes in
customers.  Many homebuilders are experiencing business and financial
challenges in the current housing environment.  Our 5 largest
customers represent 14% of consolidated sales.  Additionally,
diversification of our sales to more products and services for multi-family and
commercial projects may result in changes in our customer mix.  The
loss of one or more of our significant customers or changes in customer mix may
adversely affect our financial condition, results of operations or cash
flows.
 
 As
the business models of our customers evolve, our existing building products and
construction service offerings may not meet the needs of certain
homebuilders.  Homebuilders may decide to no longer outsource
construction services or may purchase construction services and building
products from separate suppliers.  If we do not timely assess shifts
in customer expectations, preferences and demands, our financial condition,
results of operations or cash flows may be adversely affected.
 
 Due to the continuing downturn in the
housing industry, we may incur additional impairment charges and costs to close
or consolidate additional business units in underperforming
markets.
 If
weakness in the housing industry continues, all or a portion of remaining
intangible assets for customer relationships as well as operating assets of
underperforming business units may be impaired.  Our ongoing
evaluation of business operations places a priority on positive cash flow,
efficient use of capital and higher returns.  As a result of these
evaluations, we may incur additional costs to close or consolidate additional
underperforming business units.  These impairment charges and costs
may adversely affect our financial condition, results of operations or cash
flows.
  72
  Our business is subject to intense
competition.
 Already under
contraction, single-family housing starts declined further in the first quarter
of 2009 as home foreclosures increased, lending standards tightened and rising
unemployment sapped consumer confidence.  According to the U.S. Census
Bureau as of February 2009, single-family housing starts for the U.S. as a whole
fell below an annualized rate of 0.4 million.  Excluding the boom
years of 2006 through 2003, single-family housing starts for the U.S. as a whole
averaged 1.1 million starts per year since 1990.
 
 Similarly, as of
February 2009 annualized single-family permits in our markets fell 46% to 0.1
million from the prior year.  The decline was widespread across all
our markets for both building products and construction
services.  Lower sales from weakening buyer demand and increased
competition for fewer contracts led to declines in our margins, particularly for
construction services.  As of March 2009, single-family housing starts
for the U.S. as a whole fell to an annualized rate below 0.4 million and
single-family permits in our markets remained at an annualized rate of 0.1
million.
 
 There are numerous
competitors providing building materials and construction services for these
lower housing starts.  These competitive factors have led to pricing
pressures and caused reductions in sales or margins as well as increases in
operating costs.  Loss of significant market share due to competition
could result in the closure of facilities.  Additionally, the
availability of our financial information as well as concerns about our
financial viability may be utilized against us by our
competitors.  Intense competition may adversely affect our financial
condition, results of operations or cash flows.
 
 Our success is dependent upon the
availability of and our ability to attract, train and retain qualified
individuals.
 Competition for
employees is especially intense in both building products distribution and
construction services.  Weak operating results may limit our ability
to offer competitive compensation and benefits and may result in shortages of
qualified labor and key personnel and in turn, may limit our ability to complete
contracts as well as obtain additional contracts with builders.  Also,
as a result of the downturn in the homebuilding industry, many qualified
individuals have sought and may continue to seek employment in other
industries.  Additional employment and eligibility requirements as
well as enhanced and perceived enforcement from state and federal authorities
could also limit the availability of qualified labor.  We cannot
guarantee that we will be successful in recruiting and retaining qualified
employees in the future.
 
 Our success is also
dependent on our ability to profitably implement evolving employment
legislation.  For example, potential legislation easing union
organizing activities and limiting arbitration options may significantly
increase costs and may reduce or eliminate our ability to provide building
products or construction services in certain markets.  Increases in
health care and unemployment benefits, holidays and various job protections
increase costs.  Likewise, changes required to reasonably balance
employment levels and profitability are difficult to obtain under binding
arbitration provisions.  There is no assurance we will be
successful in balancing a changing sense of entitlement with shareholder
value.  Employment legislation may adversely affectour
financial condition, results of operations or cash flows.
 
 Our operating results are affected by
fluctuations in our costs and the availability of sourcing channels for
commodity wood products, concrete, steel and other buildingproducts.
 Prices of commodity
wood products, concrete, steel and other building products are historically
volatile and are subject to fluctuations arising from changes in domestic and
international supply and demand, labor costs, competition, market speculation,
government regulations and periodic delays in delivery.  Rapid and
significant changes in product prices may affect sales as well as margins due to
a limited ability to pass on short-term price changes.  We do not use
derivative financial instruments to hedge commodity price changes.
  73
  We
may experience shortages of building products as a result of unexpected demand
or production difficulties as well as transportation limitations.  We
have preferred suppliers for certain building products.  We maintain
an open dialogue with our suppliers to avoid supply
disruptions.  Suppliers may experience liquidity problems due to the
decline in the homebuilding industry and tightened credit
availability.  Also, our suppliers may have concerns about our
financial viability and address their own liquidity needs by requesting faster
payment of invoices or other assurances.  If this were to happen, our
need for cash may intensify and we may be unable to make payments to our
suppliers as they become due.  Any disruption in our sources of supply
for key building products could negatively impact our financial condition,
results of operations or cash flows.
 
 Weather conditions, including natural
catastrophic events, may cause our operating results to fluctuate each
quarter.
 Our first and
fourth quarters historically have been, and are expected to continue to be,
adversely affected by weather conditions in some of our markets, causing
decreases in operating results due to slower homebuilding
activity.  In addition, natural catastrophic events may cause our
operating results to fluctuate.
 
 The nature of our business exposes us toproduct liability andconstruction defect claims
as well as other legal proceedings.
 We
are involved in product liability and construction defect claims relating to the
products we distribute and manufacture and our various construction
trades.  We are also exposed to potential claims arising from the
conduct of homebuilders and their subcontractors.  We also operate a
large fleet of trucks and other vehicles and therefore face some risk of
accidents.  Although we believe we maintain adequate insurance, we may
not be able to maintain such insurance on acceptable terms or such insurance may
not provide adequate protection against potential liabilities.
 
 The nature of our
business also exposes us to wage and hour claims.  Accuracy of
timekeeping methods may be difficult to defend and the extrapolation methods
utilized may result in significant claims.  Current or future claims
may adversely affect our financial condition, results of operations or cash
flows.
 
 We may be adversely affected by
disruptions in our information systems.
 Our operations are
dependent upon information for decision-making and the related information
systems.  A substantial disruption in our information systems for a
prolonged period could delay the delivery of our products and services and
adversely affect our ability to complete contracts and fulfill customer
demands.  Such delays, problems or costs may have an adverse effect on
our financial condition, results of operations or cash flows.
 
 Actual and perceived vulnerabilities as
a result ofwidespread
credit and liquidity concerns,terrorist activities and armed conflict
may adversely impact consumer confidence and our business.
 Instability in the
economy and financial markets as a result of widespread credit and liquidity
concerns, terrorism or war may impact consumer confidence and result in a
decrease in homebuilding in our markets.  Terrorist attacks may also
directly impact our ability to maintain operations and services and may have an
adverse effect on our business.
  74
  Federal, state and other regulations
could impose substantial costs and/or restrictions on our
business.
 We
are subject to various federal, state, local and other regulations, including
among other things:
 
 §
                work safety
      regulations promulgated by the Department of Labor’s Occupational Safety
      and Health Administration,
 §
                transportation
      regulations promulgated by the Department of
    Transportation,
 §
                employment
      regulations promulgated by the Department of Homeland Security and the
      United States Equal Employment Opportunity Commission as well
      as
 §
                state and
      local zoning restrictions and building
codes.
 
 More burdensome
regulatory requirements in these or other areas may increase our costs and have
an adverse effect on our financial condition, results of operations or cash
flows.
 
 Numerous other matters of a local and
regional scale, including those of a political, economic, business, competitive
or regulatory nature may have an adverse impact on our
business.
 Many factors shape
the homebuilding industry and our business.  In addition to the
factors previously cited, there are other matters of a local and regional scale,
including those of a political, economic, business, competitive or regulatory
nature that may have an adverse effect on our business.
 
 Risks Related to Our
Shares
 Risks related to
our shares may include, however are not limited to:
 §
                Our share
      price may fluctuate significantly, which may make it difficult for
      shareholders to trade our shares when desired or at attractive
      prices.
 The market price of
our shares is subject to significant changes as a result of our operating
performance and the other factors discussed above as well as perceptions and
events that are beyond our control.  Price and trading volume
fluctuations for our shares may be unrelated or disproportionate to our
operating performance.  Additionally, our share price could fluctuate
based on the expectations and performance of other publicly traded companies in
the building products distribution and construction services
industry.
 
 §
                Our shares may
      be less attractive as they are not traded on a large, well-known
      exchange.
 Our shares trade on
the OTC Bulletin Board.  Our shares were suspended from trading on the
New York Stock Exchange (NYSE) in October 2008 as our market capitalization was
less than $25 million for a 30 trading-day period.  The OTC Bulletin
Board may be perceived by investors as less desirable than the larger, more
well-known exchanges.  As a result, there may be a reduction in the
number of investors willing to acquire or hold our shares which could impact our
ability to raise equity financing as well as reduce the liquidity and market
price of our shares.
  75
  §
                Anti-takeover
      defenses in our governing documents and certain provisions under Delaware
      law could prevent an acquisition of our company or limit the price that
      investors might be willing to pay for our
  shares.
 Our governing
documents and certain provisions of Delaware law that apply to us could make it
difficult for another company to acquire control of our company.  For
example:
 
 ·
                our
      certificate of incorporation allows our Board of Directors to issue, at
      any time and without shareholder approval, preferred shares with such
      terms as they may determine;
 ·
                our bylaws
      provide that during certain types of transactions that could affect
      control, including the acquisition of 15% or more of our common shares,
      affiliates of any party to the transaction and persons having a material
      financial interest in the transaction may not be elected to the Board of
      Directors; and
 ·
                certain
      provisions of Delaware law generally prohibit us from engaging in any
      business combination with a person owning 15% or more of our common
      shares, or who is affiliated with us and owned 15% or more of our common
      shares at any time within three years prior to the proposed business
      combination, for a period of three years from the date the person became a
      15% owner, unless specified conditions are
met.
 
 These provisions
and others could delay, prevent or allow our Board of Directors to resist an
acquisition of our company, even if a majority of our shareholders favored the
proposed transaction.
  76
  Item 2.Unregistered Sales of Equity Securities
and Use of Proceeds
 
 Warrants
 In
connection with the amendment of our credit facility in September 2008, we
issued warrants that entitle our lenders to purchase approximately 8.75% or 2.8
million shares of our common shares at a purchase price of $0.47 per common
share, the closing price on the NYSE on September 30, 2008.  These
warrants may be exercised through September 2015.
 
 The fair value of
each common share for these warrants was estimated on the date of grant using
the modified Black-Scholes-Merton model.  The following table presents
the assumptions used in the valuation and the resulting fair value as of the
date of grant:
 
 Expected term
      (years)
                                
                                
                                5.5Expected
      volatility
                                
                                
                                64.6%Expected
      dividend yield
                                
                                
                                0.0%Risk-free
      interest rate
                                
                                
                                3.0%Exercise
      price
                                
                                
                                $0.47Weighted
      average fair value
                                
                                
                                $0.28
 
 These assumptions
to determine fair value are based principally on historical
experience.  Due to uncertainties inherent in these assumptions, it is
possible that actual value received by the warrant holders may vary from the
estimate of the fair value of these common shares.
 
 No
warrants have been exercised and all 2.8 million warrants are outstanding and
exercisable as of March 31, 2009.  Warrants exercised are settled with
newly issued common shares.
 
 The warrants were
issued without registration on the exemption provided by Section 4(2) of the
Securities Act of 1933.
  77
 
 Item 3.Defaults Upon Senior
Securities
 
 None.
  78
 
 Item 4.Submission of Matters to a Vote of
Security Holders
 
 None.
  79
 
 Item 5.Other Information
 
 None.
  80
 
 Item 6.Exhibits
 
 (a)
                    
                    ExhibitsNumber
                    
                    Description10.10.2.3
                    
                    Limited
      Waiver Agreement to Second Amended and Restated Credit Agreement Dated as
      of May 14, 2009 among Building Materials Holding Corporation and other
      Subsidiary Grantors, Wells Fargo Bank, National Association, as L/C
      Issuer, Swingline Lender and Administrative Agent for the
      Lenders31.1
                    
                    Section 302
      Certification31.2
                    
                    Section 302
      Certification32.0
                    
                    Section 906
      Certifications
  81
  SIGNATURES
 
 Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 
 BUILDING
      MATERIALS HOLDING CORPORATIONDate:  May
      14, 2009
                /s/ Robert E. MellorRobert E.
      Mellor
                  Chairman of
      the Board and Chief Executive Officer
                  (Principal
      Executive Officer)Date:  May
      14, 2009
                /s/ William M. SmarttWilliam M.
      Smartt
                  Senior Vice
      President and Chief Financial Officer
                  (Principal
      Financial Officer)
  82