Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,DC 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 September 30, 2009** |

 

| o                                                                                                                                                                                                                                                                                                                | **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:  333-122770**

 

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

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **20-1478587**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

**1111West Jefferson Street**

**Suite 300Boise, Idaho 83702-5389**

(Addressof principal executive offices) (Zip Code)

 

**(208)384-6161**

(Registrant’s telephonenumber, including area code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.     Yes o     No x

 

We are a voluntary filer of reports required of companies with publicsecurities under Sections 13 or 15(d) of the Securities Exchange Actof 1934, and we have filed all reports which would have been required of usduring the past 12 months had we been subject to such provisions.

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files).   Yes o   No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer,”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o   Accelerated filer o   Non-accelerated filer x   Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the ExchangeAct).      Yes o      No x

 

The registrant,a limited liability company, has no voting or nonvoting equity held bynonaffiliates and no common stock outstanding.

 

 

 

----

Tableof Contents

 

**Table of Contents**

 
| **PART I—FINANCIAL  INFORMATION**   |
|------------------------------------------|
|                                     |   |   |
| Item 1.                                  | Financial  Statements | 1 |
|                                     | Notes to  Unaudited Quarterly Consolidated Financial Statements | 7 |
|                                     |   | 1. | Nature of  Operations and Basis of Presentation | 7 |
|                                     |   | 2. | Sale of Our  Paper and Packaging & Newsprint Assets | 8 |
|                                     |   | 3. | Investment in  Equity Affiliate | 8 |
|                                     |   | 4. | Transactions  With Related Parties | 10 |
|                                     |   | 5. | Vendor and  Customer Rebates and Allowances | 11 |
|                                     |   | 6. | Other (Income)  Expense, Net | 11 |
|                                     |   | 7. | Leases | 12 |
|                                     |   | 8. | Income  Taxes | 12 |
|                                     |   | 9. | Inventories | 13 |
|                                     |   | 10. | Property and  Equipment, Net | 13 |
|                                     |   | 11. | Goodwill and  Intangible Assets | 13 |
|                                     |   | 12. | Debt | 14 |
|                                     |   | 13. | Financial  Instrument Risk | 16 |
|                                     |   | 14. | New and  Recently Adopted Accounting Standards | 17 |
|                                     |   | 15. | Retirement and  Benefit Plans | 18 |
|                                     |   | 16. | Redeemable Equity  Units | 19 |
|                                     |   | 17. | Segment Information | 20 |
|                                     |   | 18. | Commitments and  Guarantees | 23 |
|                                     |   | 19. | Subsequent Events | 23 |
|                                     |   | 20. | Consolidating  Guarantor and Nonguarantor Financial Information | 23 |
|                                     |   | 21. | Legal  Proceedings and Contingencies | 34 |
|                                     |   |   |   |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 34 |
|                                     |   | Understanding  Our Financial Information | 34 |
|                                     |   | Background | 34 |
|                                     |   | Recent  Trends and Operational Outlook | 35 |
|                                     |   | Factors  That Affect Our Operating Results | 36 |
|                                     |   | Our Operating Results | 40 |
|                                     |   | Liquidity and  Capital Resources | 45 |
|                                     |   | Contractual  Obligations | 47 |
|                                     |   | Off-Balance-Sheet  Activities | 47 |
|                                     |   | Guarantees | 48 |
|                                     |   | Seasonal  and Inflationary Influences | 48 |
|                                     |   | Environmental | 48 |
|                                     |   | Critical  Accounting Estimates | 48 |
|                                     |   | New and  Recently Adopted Accounting Standards | 48 |
|                                     |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk | 49 |
|                                     |   |   |
| Item 4T.                            | Controls and  Procedures | 49 |
|                                     |   |
| **PART II—OTHER  INFORMATION** |
| ** **                               | ** ** | ** ** |
| Item 1.                             | Legal Proceedings | 51 |
|                                     |   |   |
| Item 1A.                            | Risk  Factors | 51 |
|                                     |   |   |
| Item 2.                                  | Unregistered  Sales of Equity Securities and Use of Proceeds | 51 |
|                                     |   |   |
| Item 3.                                  | Defaults  Upon Senior Securities | 51 |
|                                     |   |   |
| Item 4.                                  | Submission  of Matters to a Vote of Securityholders | 51 |
|                                     |   |   |
| Item 5.                                  | Other Information | 51 |
|                                     |   |   |
| Item 6.                             | Exhibits | 51 |

 

ii

----

Tableof Contents

 

All reports wefile with the Securities and Exchange Commission (SEC) are available free ofcharge via Electronic Data Gathering Analysis and Retrieval (EDGAR) through theSEC website at www.sec.gov. We also provide copies of our SEC filings at nocharge upon request and make electronic copies of our reports available throughour website at www.bc.com as soon as reasonably practicable after filing suchmaterial with the SEC.

 

iii

----

Table of Contents

 

**PART 1—FINANCIAL INFORMATION**

 

***ITEM 1.              FINANCIALSTATEMENTS***

 

**Boise Cascade Holdings,L.L.C.Consolidated Statements of Income (Loss)**

**(unaudited)**

** **
| ** **                                                           | ** ** | **Three Months Ended  September 30** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                           | ** ** |
| **Sales**                                                            |       |                                      |       |   |   |
| Trade                                                                |       | $                                         | 567,643    |   | $ | 705,912 |   |
| Related  parties                                                     |       | 11,364                                    |       | 21,214 |   |
|                                                                 |       | 579,007                                   |       | 727,126 |   |
|                                                                 |       |                                      |       |   |   |
| **Costs and expenses**                                               |       |                                      |       |   |   |
| Materials,  labor, and other operating expenses                      |       | 501,886                                   |       | 627,407 |   |
| Materials,  labor, and other operating expenses from related parties |       | 6,094                                     |       | 19,045 |   |
| Depreciation,  amortization, and depletion                           |       | 9,627                                     |       | 8,751 |   |
| Selling  and distribution expenses                                   |       | 50,714                                    |       | 62,537 |   |
| General  and administrative expenses                                 |       | 6,841                                     |       | 7,259 |   |
| General  and administrative expenses from related party              |       | 2,682                                     |       | 2,506 |   |
| Loss  on sale of Paper and Packaging & Newsprint assets     |       | —                                    |       | 1,739 |   |
| Other  (income) expense, net                                         |       | (575                                      | )          | (3,768 | ) |
|                                                                 |       | 577,269                                   |       | 725,476 |   |
|                                                                 |       |                                      |       |   |   |
| **Income from operations**                                           |       | 1,738                                     |       | 1,650 |   |
|                                                                 |       |                                      |       |   |   |
| Equity  in net income of affiliate                                   |       | 28,225                                    |       | 2,148 |   |
| Gain  on sale of shares of equity affiliate                          |       | 997                                       |       | — |   |
| Impairment  of investment in equity affiliate                        |       | —                                    |       | (208,074 | ) |
| Foreign  exchange gain (loss)                                        |       | 521                                       |       | (406 | ) |
| Change  in fair value of contingent value rights                     |       | —                                    |       | 2,227 |   |
| Interest  expense                                                    |       | (5,389                                    | )          | (6,263 | ) |
| Interest  income                                                     |       | 185                                       |       | 1,469 |   |
|                                                                 |       | 24,539                                    |       | (208,899 | ) |
|                                                                 |       |                                      |       |   |   |
| **Income (loss) before income taxes**                                |       | 26,277                                    |       | (207,249 | ) |
| Income  tax provision                                                |       | (72                                       | )          | (391 | ) |
| **Net income (loss)**                                                | ** ** | **$**                                     | **26,205** | ** ** | **$** | **(207,640** | **)** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

1

----

Tableof Contents

 

**Boise Cascade Holdings,L.L.C.Consolidated Statements of Income (Loss)**

**(unaudited)**

** **
| ** **                                                           | ** ** | **Nine Months Ended  September 30** | ** **  |
|----------------------------------------------------------------------|------------|------------------------------------------|-------------|
| ** **                                                           | ** ** | **2009**                                 | ** **  | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                          | ** **  |
| **Sales**                                                            |       |                                     |        |   |   |
| Trade                                                                |       | $                                        | 1,487,614   |   | $ | 2,330,114 |   |
| Related  parties                                                     |       | 26,000                                   |        | 130,782 |   |
|                                                                 |       | 1,513,614                                |        | 2,460,896 |   |
|                                                                 |       |                                     |        |   |   |
| **Costs and expenses**                                               |       |                                     |        |   |   |
| Materials,  labor, and other operating expenses                      |       | 1,346,656                                |        | 2,157,951 |   |
| Materials,  labor, and other operating expenses from related parties |       | 24,716                                   |        | 48,234 |   |
| Depreciation,  amortization, and depletion                           |       | 32,194                                   |        | 27,470 |   |
| Selling  and distribution expenses                                   |       | 143,726                                  |        | 183,502 |   |
| General  and administrative expenses                                 |       | 20,629                                   |        | 29,770 |   |
| General  and administrative expenses from related party              |       | 7,618                                    |        | 6,010 |   |
| Gain  on sale of Paper and Packaging & Newsprint assets     |       | —                                   |        | (2,996 | ) |
| Other  (income) expense, net                                         |       | 355                                      |        | 3,925 |   |
|                                                                 |       | 1,575,894                                |        | 2,453,866 |   |
|                                                                 |       |                                     |        |   |   |
| **Income (loss) from operations**                                    |       | (62,280                                  | )           | 7,030 |   |
|                                                                 |       |                                     |        |   |   |
| Equity  in net income (loss) of affiliate                            |       | 61,536                                   |        | (15,249 | ) |
| Gain  on sale of shares of equity affiliate                          |       | 997                                      |        | — |   |
| Impairment  of investment in equity affiliate                        |       | (43,039                                  | )           | (208,074 | ) |
| Foreign  exchange gain (loss)                                        |       | 904                                      |        | (129 | ) |
| Change  in fair value of contingent value rights                     |       | 194                                      |        | (1,803 | ) |
| Change  in fair value of interest rate swaps                         |       | —                                   |        | (6,284 | ) |
| Gain  on repurchase of long-term debt                                |       | 6,026                                    |        | — |   |
| Interest  expense                                                    |       | (17,140                                  | )           | (28,071 | ) |
| Interest  income                                                     |       | 760                                      |        | 6,629 |   |
|                                                                 |       | 10,238                                   |        | (252,981 | ) |
|                                                                 |       |                                     |        |   |   |
| **Loss before income taxes**                                         |       | (52,042                                  | )           | (245,951 | ) |
| Income  tax provision                                                |       | (623                                     | )           | (1,523 | ) |
| **Net loss**                                                         | ** ** | **$**                                    | **(52,665** | **)** | **$** | **(247,474** | **)** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

2

----

Tableof Contents

 

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

**Consolidated Balance Sheets**

(unaudited)

 
| ** **                                       | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                       | ** ** | **2009**               | ** **  | **2008**              | ** ** |
| ** **                                       | ** ** | **(thousands)**        | ** **  |
| **ASSETS**                                       |       |                   |        |                  |       |
|                                             |       |                   |        |                  |       |
| **Current**                                      |       |                   |        |                  |       |
| Cash and cash equivalents                        |       | $                      | 214,129     |                  | $          | 275,803 |   |
| Receivables                                      |       |                   |        |                  |       |
| Trade, less allowances of $2,277 and $1,843 |       | 132,889                |        | 78,393                |       |
| Related parties                                  |       | 3,518                  |        | 3,112                 |       |
| Other                                            |       | 2,627                  |        | 5,907                 |       |
| Inventories                                      |       | 233,746                |        | 279,023               |       |
| Prepaid expenses and other                       |       | 4,753                  |        | 1,296                 |       |
|                                             |       | 591,662                |        | 643,534               |       |
|                                             |       |                   |        |                  |       |
| **Property**                                     |       |                   |        |                  |       |
| Property and equipment, net                      |       | 275,364                |        | 291,999               |       |
| Timber deposits                                  |       | 7,931                  |        | 8,632                 |       |
|                                             |       | 283,295                |        | 300,631               |       |
|                                             |       |                   |        |                  |       |
| **Investment in equity affiliate**               |       | 78,822                 |        | 20,985                |       |
| **Deferred financing costs**                     |       | 6,064                  |        | 7,862                 |       |
| **Goodwill**                                     |       | 12,170                 |        | 12,170                |       |
| **Intangible assets, net**                       |       | 8,955                  |        | 9,248                 |       |
| **Other assets**                                 |       | 9,038                  |        | 6,009                 |       |
| **Total assets**                                 | ** ** | **$**                  | **990,006** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

3

----

Tableof Contents

 

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

**Consolidated Balance Sheets (continued)**

(unaudited)

 
| ** **                                                                                                                                        | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2009**               | ** **  | **2008**              | ** ** |
| ** **                                                                                                                                        | ** ** | **(thousands)**        | ** **  |
| **LIABILITIES AND CAPITAL**                                                                                                                       |       |                   |        |                  |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Current**                                                                                                                                       |       |                   |        |                  |       |
| Accounts payable                                                                                                                                  |       |                   |        |                  |       |
| Trade                                                                                                                                             |       | $                      | 108,205     |                  | $          | 69,478 |   |
| Related parties                                                                                                                                   |       | 2,286                  |        | 2,195                 |       |
| Accrued liabilities                                                                                                                               |       |                   |        |                  |       |
| Compensation and benefits                                                                                                                         |       | 31,744                 |        | 38,228                |       |
| Interest payable                                                                                                                                  |       | 7,698                  |        | 3,930                 |       |
| Other                                                                                                                                             |       | 19,576                 |        | 30,893                |       |
|                                                                                                                                              |       | 169,509                |        | 144,724               | ** ** |
|                                                                                                                                              |       |                   |        |                  |       |
| **Debt**                                                                                                                                          |       |                   |        |                  |       |
| Long-term debt                                                                                                                                    |       | 303,146                |        | 315,000               |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Other**                                                                                                                                         |       |                   |        |                  |       |
| Compensation and benefits                                                                                                                         |       | 124,073                |        | 172,275               |       |
| Other long-term liabilities                                                                                                                       |       | 13,367                 |        | 12,125                |       |
|                                                                                                                                              |       | 137,440                |        | 184,400               |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Redeemable equity units**                                                                                                                       |       |                   |        |                  |       |
| Series B equity units — 2,764,854 units and 2,920,574  units outstanding                                                      |       | 2,765                  |        | 2,920                 |       |
| Series C equity units — 16,270,616 units and 11,016,668  units outstanding                                                    |       | 4,768                  |        | 3,037                 |       |
|                                                                                                                                              |       | 7,533                  |        | 5,957                 |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Commitments and contingent liabilities**                                                                                                        |       |                   |        |                  |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Capital**                                                                                                                                       |       |                   |        |                  |       |
| Series A equity units — no par value; 66,000,000 units  authorized and outstanding                                                 |       | 87,185                 |        | 81,967                |       |
| Series B equity units — no par value; 550,000,000 units  authorized and 532,558,673 units and 532,414,853 units outstanding        |       | 285,193                |        | 268,391               |       |
| Series C equity units — no par value; 44,000,000 units  authorized and 11,951,751 units and 11,183,000 units outstanding |       | —                 |        | —                |       |
| **Total capital**                                                                                                                                 |       | 372,378                |        | 350,358               |       |
|                                                                                                                                              |       |                   |        |                  |       |
| **Total liabilities and capital**                                                                                                                 | ** ** | **$**                  | **990,006** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

4

----

Tableof Contents

 

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

**Consolidated Statements of Cash Flows**

(unaudited)

 
| ** **                                                                       | ** ** | **Nine Months Ended********September 30** | ** **  |
|----------------------------------------------------------------------------------|------------|------------------------------------------------|-------------|
| ** **                                                                       | ** ** | **2009**                                       | ** **  | **2008** | ** ** |
| ** **                                                                       | ** ** | **(thousands)**                                | ** **  |
| **Cash provided by (used for)  operations**                                      |       |                                           |        |   |   |
| Net loss                                                                         |       | $                                              | (52,665     | ) | $ | (247,474 | ) |
| Items in net loss not using (providing) cash                                     |       |                                           |        |   |   |
| Equity in net (income) loss of affiliate                                         |       | (61,536                                        | )           | 15,249 |   |
| Gain on sale of shares of equity affiliate                                       |       | (997                                           | )           | — |   |
| Impairment of investment in equity affiliate                                     |       | 43,039                                         |        | 208,074 |   |
| Depreciation, depletion, and amortization of  deferred financing costs and other |       | 34,469                                         |        | 28,630 |   |
| Related-party interest income                                                    |       | —                                         |        | (2,760 | ) |
| Pension and other postretirement benefit expense                                 |       | 10,002                                         |        | 10,616 |   |
| Change in fair value of contingent value rights                                  |       | (194                                           | )           | 1,803 |   |
| Change in fair value of interest rate swaps                                      |       | —                                         |        | 6,284 |   |
| Management equity units expense, excluding expense  related to the Sale     |       | 2,306                                          |        | 1,349 |   |
| Gain on repurchase of long-term debt                                             |       | (6,026                                         | )           | — |   |
| Gain on sale of assets, net                                                      |       | (322                                           | )           | (10,871 | ) |
| Facility closure and curtailment costs                                           |       | 1,968                                          |        | 1,965 |   |
| Loss on sale of note receivable from related party                               |       | —                                         |        | 8,357 |   |
| Other                                                                            |       | (1,106                                         | )           | 149 |   |
| Decrease (increase) in working capital, net of  acquisitions and dispositions    |       |                                           |        |   |   |
| Receivables                                                                      |       | (54,591                                        | )           | (62,069 | ) |
| Inventories                                                                      |       | 46,114                                         |        | 39,982 |   |
| Prepaid expenses and other                                                       |       | (2,059                                         | )           | 2,068 |   |
| Accounts payable and accrued liabilities                                         |       | 39,602                                         |        | (6,322 | ) |
| Pension and other postretirement benefit payments                                |       | (28,080                                        | )           | (20,820 | ) |
| Current and deferred income taxes                                                |       | 15                                             |        | (969 | ) |
| Other                                                                            |       | (3,044                                         | )           | 1,396 |   |
| Cash used for operations                                                         |       | (33,105                                        | )           | (25,363 | ) |
|                                                                             |       |                                           |        |   |   |
| **Cash provided by (used for)  investment**                                      |       |                                           |        |   |   |
| Proceeds from sale of assets, net of cash  contributed                           |       | 315                                            |        | 1,269,081 |   |
| Proceeds from sale of shares of equity affiliate                                 |       | 3,032                                          |        | — |   |
| Proceeds from sale of note receivable from related  party, net                   |       | —                                         |        | 52,737 |   |
| Expenditures for property and equipment                                          |       | (12,932                                        | )           | (36,748 | ) |
| Acquisition of businesses and facilities                                         |       | (4,598                                         | )           | — |   |
| Increase in restricted cash                                                      |       | —                                         |        | (183,290 | ) |
| Decrease in restricted cash                                                      |       | —                                         |        | 183,290 |   |
| Other                                                                            |       | 1,964                                          |        | 1,556 |   |
| Cash provided by (used for) investment                                           |       | (12,219                                        | )           | 1,286,626 |   |
|                                                                             |       |                                           |        |   |   |
| **Cash provided by (used for)  financing**                                       |       |                                           |        |   |   |
| Issuances of long-term debt                                                      |       | 60,000                                         |        | 240,000 |   |
| Payments of long-term debt                                                       |       | (65,627                                        | )           | (1,085,563 | ) |
| Short-term borrowings                                                            |       | —                                         |        | (10,500 | ) |
| Tax distributions to members                                                     |       | (10,705                                        | )           | (128,024 | ) |
| Repurchase of management equity units                                            |       | (18                                            | )           | (28,634 | ) |
| Cash paid for termination of interest rate swaps                                 |       | —                                         |        | (11,918 | ) |
| Other                                                                            |       | —                                         |        | (4,155 | ) |
| Cash used for financing                                                          |       | (16,350                                        | )           | (1,028,794 | ) |
|                                                                             |       |                                           |        |   |   |
| **Increase (decrease) in cash and  cash equivalents**                            |       | (61,674                                        | )           | 232,469 |   |
|                                                                             |       |                                           |        |   |   |
| **Balance at beginning of the  period**                                          |       | 275,803                                        |        | 57,623 |   |
|                                                                             |       |                                           |        |   |   |
| **Balance at end of the period**                                                 | ** ** | **$**                                          | **214,129** | ** ** | **$** | **290,092** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

5

----

Table of Contents

 

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

**Consolidated Statements of Capital**

(unaudited)

 
| ** **                                                      | ** ** | **Series A********Equity Units** | ** ** | **Series B********Equity Units** | ** ** | **Series C********Equity Units** | ** **  | **Total**  | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|---------------------------------------|-------------|------------|------------|
| ** **                                                      | ** ** | **Units**                             | ** ** | **Amount**                            | ** ** | **Units**                             | ** **  | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Capital** | ** ** |
|                                                            |       | **(thousands)**                       |       |
|                                                            |       |                                  |       |                                  |       |                                  |        |       |       |   |   |   |   |   |   |
| Balance at  December 31, 2007                              |       | 66,000                                |       | $                                     | 78,463     |                                  | 530,357     |       | $          | 876,693 |   | — |   | $ | 10,268 |   | $ | 965,424 |   |
|                                                            |       |                                  |       |                                  |       |                                  |        |       |       |   |   |   |   |   |   |
| Net loss (a)                                                    |       | —                                |       | —                                |       | —                                |        | (287,978   | )          | — |   | — |   | (287,978 | ) |
| Other comprehensive income (loss), net of tax (a) (b) |       |                                  |       |                                  |       |                                  |        |       |       |   |   |   |   |   |   |
| Cash flow hedges                                                |       | —                                |       | —                                |       | —                                |        | (133       | )          | — |   | — |   | (133 | ) |
| Unfunded accumulated benefit obligation                         |       | —                                |       | —                                |       | —                                |        | (151,773   | )          | — |   | — |   | (151,773 | ) |
| Equity in other comprehensive loss of equity affiliate     |       | —                                |       | —                                |       | —                                |        | (41,984    | )          | — |   | — |   | (41,984 | ) |
| Paid-in-kind dividend                                           |       | —                                |       | 6,246                                 |       | —                                |        | (6,246     | )          | — |   | — |   | — |   |
| Tax distributions to members                                    |       | —                                |       | (2,742                                | )          | —                                |        | (128,945   | )          | — |   | — |   | (131,687 | ) |
| Allocation of  profit interest to Series B equity units    |       | —                                |       | —                                |       | —                                |        | 10,268     |       | — |   | (10,268 | ) | — |   |
| Fair market value  adjustment of redeemable equity units        |       | —                                |       | —                                |       | —                                |        | (11,338    | )          | — |   | — |   | (11,338 | ) |
| Allocation of  redeemable equity units to Capital               |       | —                                |       | —                                |       | 2,058                                 |        | 6,923      |       | 11,183 |   | — |   | 6,923 |   |
| Other                                                           |       | —                                |       | —                                |       | —                                |        | 2,904      |       | — |   | — |   | 2,904 |   |
| **Balance  at December 31, 2008** (c)                      |       | 66,000                                |       | 81,967                                |       | 532,415                               |        | 268,391    |       | 11,183 |   | — |   | 350,358 |   |
|                                                            |       |                                  |       |                                  |       |                                  |        |       |       |   |   |   |   |   |   |
| Net loss (a)                                                    |       | —                                |       | —                                |       | —                                |        | (52,665    | )          | — |   | — |   | (52,665 | ) |
| Other comprehensive income (loss), net of tax (a) (b) |       |                                  |       |                                  |       |                                  |        |       |       |   |   |   |   |   |   |
| Unfunded accumulated benefit obligation                         |       | —                                |       | —                                |       | —                                |        | 31,970     |       | — |   | — |   | 31,970 |   |
| Equity in other comprehensive income of equity affiliate        |       | —                                |       | —                                |       | —                                |        | 864        |       | — |   | — |   | 864 |   |
| Impairment of investment in equity affiliate                    |       | —                                |       | —                                |       | —                                |        | 40,824     |       | — |   | — |   | 40,824 |   |
| Paid-in-kind dividend                                           |       | —                                |       | 4,984                                 |       | —                                |        | (4,984     | )          | — |   | — |   | — |   |
| Tax distributions to members                                    |       | —                                |       | 234                                   |       | —                                |        | 91         |       | — |   | — |   | 325 |   |
| Allocation of  redeemable equity units to Capital               |       | —                                |       | —                                |       | 144                                   |        | 340        |       | 769 |   | — |   | 340 |   |
| Other                                                           |       | —                                |       | —                                |       | —                                |        | 362        |       | — |   | — |   | 362 |   |
| **Balance  at September 30, 2009** (c)                     | ** ** | **66,000**                            | ** ** | **$**                                 | **87,185** | ** **                            | **532,559** | ** ** | **$**      | **285,193** | ** ** | **11,952** | ** ** | **$** | **—** | ** ** | **$** | **372,378** | ** ** |

 

----

| (a)    | Total  comprehensive income (loss) for the three and nine months ended  September 30, 2009, was $25.3 million and $21.0 million,  compared with $(207.8) million and $(283.6) million for the three  and nine months ended September 30, 2008.     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                             |
| (b)    | Total  other comprehensive income (loss) for the three and nine months ended  September 30, 2009, was $(0.9) million and $73.7 million,  compared with $(0.2) million and $(36.1) million for the three and  nine months ended September 30, 2008. |
|   |                                                                                                                                                                                                                                                                             |
| (c)    | Accumulated  other comprehensive loss at September 30, 2009, and December 31,  2008, was $49.1 million and $122.8 million, respectively.                                                                                                                     |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

6

----

Table of Contents

 

***Notes to Unaudited QuarterlyConsolidated Financial Statements***

 

***1.******                                     ******Nature of Operations andBasis of Presentation***

 

*Nature ofOperations*

 

We are a buildingproducts company headquartered in Boise, Idaho. We manufacture engineered woodproducts, plywood, lumber, and particleboard and distribute a broad line ofbuilding materials, including wood products we manufacture. Our operationsbegan on October 29, 2004 (inception), when we acquired the forestproducts and paper assets of OfficeMax (the Forest Products Acquisition).Before the Forest Products Acquisition, OfficeMax was known as Boise CascadeCorporation. We acquired the name “Boise Cascade” as part of the ForestProducts Acquisition. As used in these consolidated financial statements, theterms “BC Holdings” and “we” refer to Boise Cascade Holdings, L.L.C., and itsconsolidated subsidiaries.

 

On February 22, 2008, Boise Cascade, L.L.C., our wholly owned directsubsidiary, sold its Paper and Packaging & Newsprint assets and mostof its Corporate and Other assets (the Sale) to Boise Inc. (formerlyAldabra 2 Acquisition Corp.) for cash and securities equal to$1.6 billion, plus working capital adjustments. Immediately following theSale, Boise Cascade, L.L.C., distributed the securities received in thetransaction to us. As a result, we have a significant indirect financialinterest in the results of the sold businesses. At September 30, 2009, we had a 46.0% ownershipinterest in Boise Inc. Assuming the vesting of all of Boise Inc.’srestricted stock, our ownership percentage on September 30, 2009, was42.5% on a fully diluted basis. The equity interest we own in Boise Inc. represents a significant continuinginvolvement*.*As a result, the Paper and Packaging &Newsprint segment results through February 21, 2008, are included in ourConsolidated Statement of Loss for the nine months ended September 30,2008, and the sold assets are not classified as discontinued operations.

 

After the Sale, we operate our business in the followingthree reportable segments: Building Materials Distribution, Wood Products, andCorporate and Other. See Note 17, Segment Information, for additionalinformation about our reportable segments.

 

*Basisof Presentation*

 

The quarterly consolidated financial statements havenot been audited by an independent registered public accounting firm but, inthe opinion of management, include all adjustments, consisting only of normal,recurring adjustments, necessary to present fairly the results for the periodspresented. The net income (loss) for the three and nine months ended September 30,2009 and 2008, involved estimates and assumptions about future events. Theseestimates and the underlying assumptions affect the amounts of assets and liabilitiesreported, disclosures about contingent assets and liabilities, and reportedamounts of revenues and expenses. Such estimates include the evaluation of our investment in Boise Inc. forother-than-temporary impairment; the valuation of accounts receivable,inventories, goodwill, intangible assets, and other long-lived assets; legalcontingencies; guarantee obligations; indemnifications; assumptions used inretirement and other postemployment benefits; and customer incentives, amongothers. These estimates and assumptions are based on management’s bestestimates and judgment. Management evaluates its estimates and assumptions onan ongoing basis using historical experience and other factors, including thecurrent economic environment, which management believes to be reasonable underthe circumstances. We adjust such estimates and assumptions when facts andcircumstances dictate. Illiquid credit markets; volatile equity, foreigncurrency, and energy markets; and declines in consumer spending have combinedto increase the uncertainty inherent in such estimates and assumptions. Asfuture events and their effects cannot be determined with precision, actualresults could differ significantly from these estimates. Changes in theseestimates resulting from continuing changes in the economic environment will bereflected in the consolidated financial statements in future periods. Quarterly results are not necessarilyindicative of results that may be expected for the full year.

 

7

----

Table of Contents

 

Certain amounts in prior periods’ consolidatedfinancial statements have been reclassified to conform with the current period’spresentation.

 

***2.******                                     ******Sale of Our Paper andPackaging & Newsprint Assets***

 

On February 22, 2008, Boise Cascade,L.L.C., our wholly owned direct subsidiary, sold its Paper and Packaging &Newsprint assets and most of its Corporate and Other assets to Boise Inc.for $1,277.2 million of cash consideration, $285.2 million of netstock consideration, and a $41.0 million paid-in-kind promissory notereceivable. We recorded a $5.9 million gain, of which we recognized$3.0 million in our Consolidated Statement of Loss for the nine monthsended September 30, 2008. In the first nine months of 2008, we deferred$2.9 million of the gain as a reduction of our investment inBoise Inc. In subsequent periods, the gain decreased to $5.7 millionprimarily due to transaction-related expenses and adjustments. For more information related to the Sale,see Note 3, Sale of Our Paper and Packaging & Newsprint Assets,of the Notes to Consolidated Financial Statements in “Item 8. FinancialStatements and Supplementary Data” in our 2008 Form 10-K.

 

***3.******                                     ******Investmentin Equity Affiliate***

 

In connection with the Sale, we received37.9 million, or 49%, of Boise Inc.’s shares. We recorded our investmentin “Investment in equity affiliate” on our Consolidated Balance Sheet. Ourownership interest provides us with the ability to exercise significantinfluence. Accordingly, we account for our investment in Boise Inc. underthe equity method of accounting. We adjust the amount of our investment monthlyfor our proportionate share of Boise Inc.’s net income or loss and our share ofother comprehensive income or loss based on the most recently availablefinancial statements. As a result, our aggregate investment in Boise Inc.is recorded in a combination of the “Investment in equity affiliate” and othercomprehensive income accounts within “Series B equity units” on ourConsolidated Balance Sheets. Our ownership interest, and consequently ourproportionate share of Boise Inc.’s net income or loss, changes when we orBoise Inc. engage in transactions of Boise Inc. common stock with thirdparties. At September 30, 2009, we owned 35.9 million shares, or46.0%, of Boise Inc. Assuming the vesting of all of Boise Inc.’srestricted stock, our ownership percentage on September 30, 2009, was42.5% on a fully diluted basis. Changes in ownership interest may also resultin our recording an ownership interest dilution gain or loss.

 

During the three and ninemonths ended September 30, 2009, we recorded income of $29.2 millionand $19.5 million, respectively, related to our investment in Boise Inc.in our Consolidated Statements of Income (Loss), compared with net expense of$205.9 million and $223.3 million during the three and nine monthsended September 30, 2008, as follows:

 
| ** **                                                 | ** ** | **Three  Months Ended  September 30** | ** ** | **Nine  Months Ended  September 30** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(thousands)**                            | ** ** |
|                                                       |       |                                       |       |                                      |       |   |   |   |   |
| Equity in net  income (loss) of Boise Inc.            |       | $                                          | 22,354     |                                      | $          | 2,126 |   | $ | 45,658 |   | $ | (15,359 | ) |
| Amortization of  basis differential (a)                    |       | 5,871                                      |       | 22                                        |       | 16,903 |   | 110 |   |
| Loss on shares  issued for settlement of CVR liability (b) |       | —                                     |       | —                                    |       | (1,025 | ) | — |   |
| Equity in net  income (loss) of affiliate                  |       | 28,225                                     |       | 2,148                                     |       | 61,536 |   | (15,249 | ) |
| Gain on sale of  shares of equity affiliate (c)            |       | 997                                        |       | —                                    |       | 997 |   | — |   |
| Impairment of  investment in equity affiliate (d)          |       | —                                     |       | (208,074                                  | )          | (43,039 | ) | (208,074 | ) |
| Total                                                      | ** ** | **$**                                      | **29,222** | ** **                                | **$**      | **(205,926** | **)** | **$** | **19,494** | ** ** | **$** | **(223,323** | **)** |

 

----

(a)                                  At September 30,2009, the carrying value of our investment in Boise Inc. was approximately$210.2 million less than our share of Boise Inc.’s underlying equityin net assets. The difference is due to the write-down of our investment inBoise Inc. We are amortizing the difference to income on a straight-linebasis over 9.1 years, which represents the remaining weighted-averageuseful life of Boise Inc.’s assets. The amortization of the basis differentialresulted in our recognizing $5.9 million and $16.9 million of incomein “Equity in net income (loss) of affiliate” in our Consolidated Statements ofIncome (Loss) for the three and nine months ended September 30, 2009, andwill result in our recognizing approximately $23.1 million of income peryear for the next 9.1 years, which will be increased or decreased by ourproportionate share of Boise Inc.’s net income or loss.

 

8

----

Table of Contents

 

(b)                                 During the ninemonths ended September 30, 2009, we settled our obligation related to thecontingent value rights (CVRs) we issued to holders of Boise Inc. commonstock. In connection with the settlement, in first quarter 2009, we transferredownership of 0.8 million Boise Inc. shares and recorded a$1.0 million loss in “Equity in net income (loss) of affiliate” in ourConsolidated Statement of Loss for the difference between the market price onthe date we settled our obligation with the shares and the carrying amount ofthe shares recorded on our Balance Sheet. For more information, seeNote 13, Financial Instrument Risk.

 

(c)                                  During the threeand nine months ended September 30, 2009, we sold 1.2 millionBoise Inc. shares and recorded a $1.0 million gain on the sale of theBoise Inc. shares in our Consolidated Statements of Income (Loss). Wecontributed substantially all of the cash proceeds from the sale of the sharesto our pension plans.

 

(d)                                 Quarterly, we compare the fair value ofthe Boise Inc. stock price with the carrying value of our investment to assessfor other than temporary impairment. The fair value of our investment in BoiseInc. is calculated based on the number of Boise Inc. shares we own andBoise Inc.’s stock price on the respective balance sheet date. Thecarrying value of our investment is calculated as the sum of (1) theamount recorded in “Investment in equity affiliate” on our Consolidated BalanceSheet and (2) the amount of accumulated other comprehensive income relatedto our investment in Boise Inc. recorded within “Series B equityunits” on our Consolidated Balance Sheet.

 

On March 31, 2009, and September 30,2008, we concluded that our investment in Boise Inc. met the definition ofother than temporarily impaired. We made the other than temporary impairmentdetermination based primarily on the length of time and extent to which thefair value of our investment had been trading below its carrying value. As of September 30,2008, Boise Inc.’s stock had traded below our carrying value for over sixmonths, and as of March 31, 2009, Boise Inc.’s stock had traded belowour carrying value since we wrote the investment down in September 2008.Accordingly, we recorded a $43.0 million impairment charge for the ninemonths ended September 30, 2009, and a $208.1 million impairmentcharge for the three and nine months ended September 30, 2008, in “Impairmentof investment in equity affiliate” in our Consolidated Statements of Loss. Forthe nine months ended September 30, 2009, we reduced by $40.8 millionour accumulated other comprehensive loss related to our investment in BoiseInc. (which was accumulated monthly from recording our proportionate share ofBoise Inc.’s other comprehensive income or loss). In addition, we decreased “Investmentin equity affiliate” $2.2 million to reduce the aggregate carrying valueof our investment recorded on our Consolidated Balance Sheet to its fair valueon March 31, 2009, of $0.61 per share.

 

On September 30,2009, we evaluated whether our investment in Boise Inc. was other thantemporarily impaired and concluded that it was not. The fair value of ourinvestment of $5.28 per share exceeded the carrying value of$2.20 per share on that date. We will continue to monitor the value ofBoise Inc.’s stock and our carrying value. Should market conditions and/orBoise Inc.’s financial performance deteriorate, it is possible that wewill be required to record a noncash impairment charge that could have amaterial impact on our Consolidated Statements of Income (Loss). As additionalinformation becomes known, we may change our estimates.

 

The following table presents summarizedincome statement information for Boise Inc. for the three and nine monthsended September 30, 2009 and 2008. Income statement information for theperiod of January 1 through February 21, 2008, is included in ourConsolidated Statement of Loss for the nine months ended September 30,2008, and therefore is not included in the amounts below:

 
| ** **             | ** ** | **Three  Months Ended********September 30** | ** ** | **Nine  Months Ended********September 30** | ** ** |
|------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **             | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|                   |       | **(thousands)**                                  |       |
|                   |       |                                             |       |                                            |       |   |   |   |   |
| Sales                  |       | $                                                | 508,265    |                                            | $          | 633,118 |   | $ | 1,487,917 |   | $ | 1,479,513 |   |
| Costs and expenses     |       | 414,789                                          |       | 603,028                                         |       | 1,276,428 |   | 1,451,074 |   |
| Income from operations |       | 93,476                                           |       | 30,090                                          |       | 211,488 |   | 28,439 |   |
| Net income (loss)      |       | 48,155                                           |       | 4,383                                           |       | 98,122 |   | (30,038 | ) |
|                        |            |                                                  |            |                                                 |            |  |  |  |  |  |  |  |  |

 

9

----

Table ofContents

 

***4.******                                     ******Transactions With RelatedParties***

 

*Sales*

 

During the three and nine months ended September 30,2009, we sold $6.5 million and $13.8 million of fiber toBoise Inc., compared with $18.0 million and $32.7 million duringthe three and nine months ended September 30, 2008. We also sell fiber toLouisiana Timber Procurement Company, L.L.C. (LTP), an unconsolidatedvariable-interest entity that is 50% owned by Boise Cascade, L.L.C.,and 50% owned by Boise Inc., at prices designed to approximate market. LTPprocures saw timber, pulpwood, residual chips, and other residual wood fiber tomeet the wood and fiber requirements of Boise Inc. and Boise Cascade.Boise Inc. is the primary beneficiary of LTP, as it absorbs more of itsindirect operating expenses. Accordingly, Boise Inc. consolidates LTP’sresults in its financial statements. During the three and nine months ended September 30,2009, we sold $4.9 million and $12.2 million of fiber to LTP,compared with $3.2 million and $8.0 million during the three and ninemonths ended September 30, 2008. The sales to Boise Inc. and LTP arechip and pulpwood sales from our Wood Products segment and are included in “Sales,Related parties” in the Consolidated Statements of Income (Loss).

 

Prior to the Sale,we sold paper and paper products to OfficeMax at sales prices that weredesigned to approximate market prices. For the nine months ended September 30,2008, sales to OfficeMax were $90.1 million. These sales are included in “Sales,Related parties” in the Consolidated Statement of Loss.

 

*Costs and Expenses*

 

During the three and nine months ended September 30,2009, we purchased $5.0 million and $21.4 million of fiber from LTP,compared with $17.4 million and $44.1 million during the three andnine months ended September 30, 2008. During the three and nine monthsended September 30, 2009, we purchased $0.6 million and$1.8 million of transportation services from Boise Inc., comparedwith $1.1 million and $2.8 million during the three and nine monthsended September 30, 2008. We purchased the fiber and transportationservices at prices that approximated market prices. These costs are recorded in“Materials, labor, and other operating expenses from related parties” in ourConsolidated Statements of Income (Loss).

 

In connection with the Sale, we entered into an OutsourcingServices Agreement under which Boise Inc. provides a number of corporate staffservices to us at cost. These services include information technology,accounting, and human resource services. The initial term of the agreement isfor three years. It will automatically renew for one-year terms unless eitherparty provides notice of termination to the other party at least 12 monthsin advance of the applicable term. The Outsourcing Services Agreement alsogives us (but not Boise Inc.) the right to terminate all or any portion of theservices provided to us on 30 days’ notice, subject to payment of anabsorption fee. The absorption fee of $3.0 million is allocated among theservices provided under the contract and declines to zero in total and on anallocable basis over the remaining term of the agreement. During the three andnine months ended September 30, 2009 and 2008, we recognized expensesrelated to the Outsourcing Services Agreement in our Consolidated Statements ofIncome (Loss) as follows:

 
| ** **                                                           | ** ** | **Three  Months Ended  September 30** | ** ** | **Nine  Months Ended  September 30** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                            | ** ** |
|                                                                 |       |                                       |       |                                      |       |   |   |   |   |
| Materials,  labor, and other operating expenses from related parties |       | $                                          | 491        |                                      | $          | 588 |   | $ | 1,444 |   | $ | 1,328 |   |
| Selling and  distribution expenses                                   |       | 676                                        |       | 657                                       |       | 2,026 |   | 1,733 |   |
| General and  administrative expenses from related party              |       | 2,682                                      |       | 2,506                                     |       | 7,618 |   | 6,010 |   |
| ** **                                                           | ** ** | **$**                                      | **3,849**  | ** **                                | **$**      | **3,751** | ** ** | **$** | **11,088** | ** ** | **$** | **9,071** | ** ** |

 

10

----

Table ofContents

 

*TaxDistributions*

 

We are a limited liability company, and the majorityof our businesses and assets are held and operated by limited liabilitycompanies, which are not subject to entity-level federal or state incometaxation. We make cash distributions to permit the members of BC Holdingsand affiliates to pay income taxes. During the nine months ended September 30,2009 and 2008, we made $10.7 million and $128.0 million of net cashtax distributions, which in both years primarily related to the net taxablegain on the Sale. During the nine months ended September 30, 2009 and2008, we paid $8.1 million and $105.0 million to Forest ProductsHoldings (FPH), our majority owner. FPH in turn paid $5.2 million and$94.2 million to Madison Dearborn Partners, our equity sponsor,$2.9 million and $10.4 million to management investors, and in 2008,$0.4 million to nonmanagement affiliates. For the nine months ended September 30,2009 and 2008, we paid $2.6 million and $23.0 million to OfficeMax tofund their tax obligations related to their investments in us.

 

***5.******                                     ******Vendorand Customer Rebates and Allowances***

 

We receive rebates andallowances from our vendors under a number of different programs, includingvendor marketing programs. At September 30, 2009, and December 31,2008, we had $1.2 million and $3.0 million, respectively, of vendorrebates and allowances recorded in “Receivables, Other” on the ConsolidatedBalance Sheets. Rebates and allowances received from our vendors are recognizedas a reduction of “Materials, labor, and other operating expenses” when theproduct is sold, unless the rebates and allowances are linked to a specificincremental cost to sell a vendor’s product. Amounts received from vendors thatare linked to specific selling and distribution expenses are recognized as areduction of “Selling and distribution expenses” in the period the expense isincurred.

 

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates are recorded as a decrease in sales. At September 30,2009, and December 31, 2008, we had $9.7 million and$11.4 million, respectively, of rebates payable to our customers recordedin “Accrued liabilities, Other” on our Consolidated Balance Sheets.

 

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

 

“Other(income) expense, net” includes miscellaneous income and expense items. Thecomponents of “Other (income) expense, net” in the Consolidated Statements ofIncome (Loss) are as follows:

 
| ** **                                                  | ** ** | **Three  Months Ended********September 30** | ** ** | **Nine  Months Ended********September 30** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                  | ** ** | **(thousands)**                                  | ** ** |
|                                                        |       |                                             |       |                                            |       |   |   |   |   |
| Facility closures and curtailments (a)                      |       | $                                                | (550       | )                                               | $          | 1,951 |   | $ | 3,194 |   | $ | 3,247 |   |
| Changes in pension plans (see Note 15)                 |       | —                                           |       | —                                          |       | (747 | ) | — |   |
| Loss on sale of note receivable from related party (b) |       | —                                           |       | 44                                              |       | — |   | 8,357 |   |
| Sales of assets, net (c)                                    |       | (74                                              | )          | (5,831                                          | )          | (329 | ) | (7,875 | ) |
| Other, net                                                  |       | 49                                               |       | 68                                              |       | (1,763 | ) | 196 |   |
| ** **                                                  | ** ** | **$**                                            | **(575**   | **)**                                           | **$**      | **(3,768** | **)** | **$** | **355** | ** ** | **$** | **3,925** | ** ** |

 

----

(a)                                  In June 2009,we closed the lumber manufacturing facility in La Grande, Oregon. Duringthe nine months ended September 30, 2009, we recorded $3.1 million ofexpense in “Other (income) expense, net,” $5.2 million of accelerateddepreciation in “Depreciation, amortization, and depletion,” and$0.6 million of expenses in “Materials, labor, and other operatingexpenses” in our Consolidated Statement of Loss.

 

In September 2008, we permanently closed our veneer operation inSt. Helens, Oregon, and recorded $2.1 million of expenses related tothe closure in “Other (income) expense, net” in our Consolidated Statements ofLoss for the three and nine months ended September 30, 2008. In addition,we recorded $0.7 million of expense for the write-down of log inventoriesin “Materials, labor, and other operating expenses.”

 

11

----

Table of Contents

 

(b)                                 In June 2008,we sold the note receivable from Boise Inc. for $52.7 million, afterselling expenses, and recorded an $8.4 million loss on the sale.

 

(c)                                  In July 2008,we sold our indirect wholly owned subsidiary in Brazil, Boise Cascade do BrasilLTDA., to Aracruz Celulose, S.A., for $45.5 million after sellingexpenses. For the three and nine months ended September 30, 2008, werecorded a $7.0 million and $5.7 million gain on the sale.

 

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

 

We lease a portionof our distribution centers as well as other property and equipment underoperating leases. For purposes of determining straight-line rent expense, thelease term is calculated from the date we first take possession of thefacility, including any periods of free rent and any option periods we arereasonably assured of exercising. Straight-line rent expense is also adjustedto reflect any allowances or reimbursements provided by the lessor. Rental expensefor operating leases was $3.3 million for each of the three months ended September 30,2009 and 2008, and $9.8 million and $12.0 million for the nine monthsended September 30, 2009 and 2008. Sublease rental income was not materialin any of the periods presented.

 

For noncancelableoperating leases with remaining terms of more than one year, the minimum leasepayment requirements are $2.9 million for the remainder of 2009,$11.0 million in 2010, $10.0 million in 2011, $9.2 million in2012, $7.9 million in 2013, and $6.8 million in 2014, with totalpayments thereafter of $31.8 million. These future minimum lease paymentrequirements have not been reduced by sublease rentals due in the future undernoncancelable subleases. Minimum sublease income received in the future is notexpected to be material.

 

Substantially all lease agreements have fixed paymentterms based on the passage of time. Some lease agreements provide us with theoption to purchase the leased property. Additionally, some agreements containrenewal options averaging approximately two years, with fixed paymentterms similar to those in the original lease agreements.

 

***8.******                                     ******Income Taxes***

 

*TaxDistributions*

 

We are a limited liability company, and the majority of ourbusinesses and assets are held and operated by limited liability companies,which are not subject to entity-level federal or state income taxation. Theincome taxes with respect to these operations are payable by our equity holdersin accordance with their respective ownership percentages. We make cashdistributions to permit the members of BC Holdings and affiliates to pay thesetaxes. Both our senior credit facilities and the indenture governing our notespermit these distributions. See Note 4, Transactions With Related Parties,for more information.

 

*Income Tax (Provision) Benefit*

 

Ourincome tax provision generally consists of income taxes payable to states thatdo not allow for the income tax liability to be passed through to our equityholders, as well as income taxes payable by our separate subsidiaries that aretaxed as corporations. For the three months ended September 30,2009 and 2008, income tax expense was $0.1 million and $0.4 million.Income tax expense was $0.6 million and $1.5 million for the ninemonths ended September 30, 2009 and 2008. During the three months ended September 30,2009 and 2008, our effective tax rates for our separate subsidiaries that aretaxed as corporations were 31.3% and 34.0%. Our effective tax rates were 31.9%and 35.2% for the nine months ended September 30, 2009 and 2008. The primary reason for the difference in tax rates is theeffect of state income taxes and the mix of domestic and foreign sources ofincome.

 

During the three months ended September 30, 2009and 2008, we paid an insignificant amount of income taxes, net of income taxesrefunded. We paid $0.6 million and $0.8 million of income taxes, netof refunds received, during the nine months ended September 30, 2009 and2008, respectively.

 

12

----

Table of Contents

 

BC Holdings, or oneof our subsidiaries, files federal income tax returns in the U.S. and Canadaand various state and foreign income tax returns in the major statejurisdictions of Alabama, Idaho, Louisiana, Oregon, Minnesota, Texas, andWashington. We are subject to tax examinations from October 29, 2004 (ourinception) to present. In 2008, the United States Internal Revenue Servicecompleted an audit of BC Holdings’ 2005 and 2006 tax years and issued afinal audit report with a proposed adjustment. We have responded with a requestto appeal the adjustment. If we do not prevail in appeals, any incremental taxowed from the adjustment would be payable by our equity holders in accordancewith their respective ownership percentages. We do not expect any cashdistributions to members of BC Holdings and affiliates resulting from theadjustment, if any, to be significant. Additionally, in third quarter 2007, theCanadian Revenue Agency began an audit of Boise AllJoist for tax years 2005 and2006.

 

***9.******                                     ******Inventories***

 

Inventories include the following:

 
| ** **                         | ** ** | **September 30,********2009** | ** **  | **December 31,********2008** | ** ** |
|------------------------------------|------------|------------------------------------|-------------|-----------------------------------|------------|
| ** **                         | ** ** | **(thousands)**                    | ** **  |
|                               |       |                               |        |                              |       |
| Finished goods and work in process |       | $                                  | 188,327     |                              | $          | 211,051 |   |
| Logs                               |       | 28,914                             |        | 50,930                            |       |
| Other raw materials and supplies   |       | 16,505                             |        | 17,042                            |       |
| ** **                         | ** ** | **$**                              | **233,746** | ** **                        | **$**      | **279,023** |   |

 

***10.******                              ******Property and Equipment,Net***

 

Property and equipment,net, consisted of the following asset classes:

 
| ** **                    | ** ** | **September 30,********2009** | ** **  | **December 31,********2008** | ** ** |
|-------------------------------|------------|------------------------------------|-------------|-----------------------------------|------------|
| ** **                    | ** ** | **(thousands)**                    | ** **  |
|                          |       |                               |        |                              |       |
| Land and land improvements    |       | $                                  | 36,551      |                              | $          | 36,089 |   |
| Buildings and improvements    |       | 109,733                            |        | 106,966                           |       |
| Machinery and equipment       |       | 267,828                            |        | 252,952                           |       |
| Construction in progress      |       | 13,495                             |        | 20,954                            |       |
|                          |       | 427,607                            |        | 416,961                           |       |
| Less accumulated depreciation |       | (152,243                           | )           | (124,962                          | )          |
| ** **                    | ** ** | **$**                              | **275,364** | ** **                        | **$**      | **291,999** |   |

 

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

 

Goodwill represents theexcess of purchase price and related costs over the value assigned to the nettangible and intangible assets of businesses acquired. At both September 30,2009, and December 31, 2008, we had $12.2 million of goodwillrecorded on our Consolidated Balance Sheet, of which $5.6 million wasrecorded in our Building Materials Distribution segment and $6.6 millionwas recorded in our Wood Products segment.

 

We assess goodwilland intangible assets with indefinite lives for impairment when events orchanges in circumstances indicate that the carrying value of the asset may notbe recoverable through future operations. Additionally, we test for impairmentannually, in the fourth quarter of each year, using a discounted cash flowapproach. We also evaluate the remaining useful lives of our finite-livedpurchased intangible assets to determine whether any adjustments to the usefullives are necessary. We maintain two reporting units for purposes of ourgoodwill and intangible asset impairment testing, Building MaterialsDistribution and Wood Products, which are the same as our operating segmentsdiscussed in Note 17, Segment Information. We completed our annual assessmentin fourth quarter 2008, which we

 

13

----

Table of Contents

 

updated in first quarter2009, and determined that there was no impairment. The impairment analysisrequires significant judgments and estimates to be made by management,including estimates of future cash flows that will result from our estimates offuture demand, pricing, and production costs, assuming certain levels of capitalexpenditures. As these factors change in future periods, we will update ourimpairment analyses to reflect our latest estimates and projections. Should themarkets for building products deteriorate further, should we make strategicdecisions in response to continued difficult economic and competitiveconditions, should we decide to invest capital differently, and should othercash flow assumptions change, it is reasonably possible that our determinationthat goodwill is not impaired could change in the near term. As additionalinformation becomes known, we may change our estimates.

 

At September 30, 2009, and December 31, 2008, intangible assetsrepresent the values assigned to trade names and trademarks, customerrelationships, and a noncompete agreement. The trade names and trademark assetshave an indefinite life and are not amortized. Customer relationships areamortized over five years, and the noncompete agreement is amortized over twoyears.

 

Intangible assets consisted of the following:

 
| ** **                 | ** ** | **September 30, 2009**           | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Gross Carrying********Amount** | ** ** | **Accumulated********Amortization** | ** ** | **Net Carrying********Amount** | ** ** |
| ** **                 | ** ** | **(thousands)**                       | ** ** |
|                       |       |                                  |       |   |   |   |   |
| Trade names and trademarks |       | $                                     | 8,900      |   | $ | — |   | $ | 8,900 |   |
| Customer relationships     |       | 2,100                                 |       | (2,067 | ) | 33 |   |
| Noncompete agreement       |       | 25                                    |       | (3 | ) | 22 |   |
| ** **                 | ** ** | **$**                                 | **11,025** | ** ** | **$** | **(2,070** | **)** | **$** | **8,955** |   |

 
| ** **                 | ** ** | **December 31, 2008**            | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Gross Carrying********Amount** | ** ** | **Accumulated********Amortization** | ** ** | **Net Carrying********Amount** | ** ** |
| ** **                 | ** ** | **(thousands)**                       | ** ** |
|                       |       |                                  |       |   |   |   |   |
| Trade names and trademarks |       | $                                     | 8,900      |   | $ | — |   | $ | 8,900 |   |
| Customer relationships     |       | 2,100                                 |       | (1,752 | ) | 348 |   |
| ** **                 | ** ** | **$**                                 | **11,000** | ** ** | **$** | **(1,752** | **)** | **$** | **9,248** |   |

 

Intangible assetamortization expense was $0.1 million for each of the three months ended September 30,2009 and 2008. For each of the nine months ended September 30, 2009 and2008, intangible asset amortization expense was $0.3 million. Amortizationexpense is not expected to be significant after 2009.

 

***12.******                              ******Debt***

 

At September 30,2009, and December 31, 2008, our long-term debt was as follows:

 
| ** **                                      | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                      | ** ** | **2009**               | ** **  | **2008**              | ** ** |
|                                            |       | **(thousands)**        |        |
|                                            |       |                   |        |                  |       |
| Asset-based revolving credit facility, due 2013 |       | $                      | 75,000      |                  | $          | 75,000 |   |
| 7.125% senior subordinated notes, due 2014      |       | 228,146                |        | 240,000               |       |
| Total long-term debt                            | ** ** | **$**                  | **303,146** | ** **            | **$**      | **315,000** | ** ** |

 

*Asset-Based Revolving CreditFacility*

 

On February 22, 2008, Boise Cascade, L.L.C., andits principal operating subsidiaries, Boise Building Solutions Manufacturing,L.L.C., and Boise Building Solutions Distribution, L.L.C., acting asborrowers, entered into a five-year $350 million senior securedasset-based revolving credit facility with Bank of America (Revolving CreditFacility). As part of the syndication process, the Revolving Credit

 

14

----

Table of Contents

 

Facility was amended in April 2008 to revise thepricing and incorporate additional covenants. In May 2009, we repaid, andsubsequently reborrowed, $60.0 million of outstanding borrowings under theRevolving Credit Facility, and we amended the Revolving Credit Facility topermanently reduce the lending commitments by $60 million, bringing thetotal commitments to $290 million. At both September 30, 2009, and December 31,2008, we had $75.0 million of borrowings outstanding under the RevolvingCredit Facility. Interest rates under the Revolving Credit Facility are basedon either the prime rate or the London Interbank Offered Rate (LIBOR). Pricingis subject to quarterly adjustment based on the average availability under theRevolving Credit Facility during the prior quarter. The range of borrowingcosts under the pricing grid is:  (i) primeplus 1.00% to 1.50% or (ii) LIBOR plus 2.50% to 3.00%. For the ninemonths ended September 30, 2009, the average interest rate for ourborrowings under the Revolving Credit Facility was 2.89%. Letters of credit aresubject to a 0.125% fronting fee payable to the issuing bank and a fee payableto the lenders equal to the product of the interest rate spread applicableto LIBOR borrowings under the Revolving Credit Facility and the daily averageamount available for drawing under the outstanding letters of credit. Theminimum and maximum borrowings under the Revolving Credit Facility were$15.0 million and $75.0 million during the nine months ended September 30,2009. The weighted average amount of borrowings outstanding under the RevolvingCredit Facility during the nine months ended September 30, 2009, was$73.7 million. The Revolving Credit Facility provides for a commitment feeof 0.50% per annum payable to the lenders on the average daily unused portionof the Revolving Credit Facility.

 

The Revolving CreditFacility is guaranteed by our domestic subsidiaries (other than the threeborrowers noted above) and is secured by a first-priority security interest inthe stock of our foreign subsidiaries and substantially all of our domesticassets, except for property, plant, and equipment. Borrowings under theRevolving Credit Facility are constrained by a borrowing base formula dependentupon levels of eligible inventory and receivables reduced by outstandingletters of credit and, when our fixed-charge coverage ratio is below 1:1, as itwas on September 30, 2009, by a further requirement that we maintain acombination of unrestricted cash and borrowing base, less outstanding loans, ator in excess of the greater of $45 million or 15% of the borrowing basedetermined under the Revolving Credit Facility. At September 30, 2009, ouraggregate liquidity from unrestricted cash and cash equivalents and unusedborrowing capacity under the Revolving Credit Facility totaled$279.1 million.

 

In addition, the Revolving Credit Facility contains a restriction oncapital investments that is applicable when a minimum availability threshold isnot met. That covenant was not applicable on September 30, 2009. TheRevolving Credit Facility also contains customary nonfinancial covenants,including a negative pledge covenant and restrictions on distributions toequity holders, acquisitions, and divestitures. These covenants will becomemore restrictive if a minimum availability threshold is not maintained.

 

*Letters of Credit*

 

At September 30, 2009, we had $19.5 millionof letters of credit outstanding. These letters of credit reduce our borrowingcapacity under the Revolving Credit Facility.

 

*Senior Subordinated Notes*

 

In October 2004, Boise Cascade, L.L.C., issued$400.0 million of 7.125% senior subordinated notes due in 2014. In July 2005,we completed an exchange offer whereby all of our senior subordinated noteswere exchanged for registered securities with identical terms (other than termsrelating to registration rights) to the notes issued in October 2004. Wemay redeem all or part of the notes at any time at redemption prices set forthin the indenture. If we sell specific assets or experience specific kinds ofchanges in control, we must offer to purchase the notes. In connection with the Sale, we repurchased$160.0 million of the notes at par during the nine months ended September 30,2008. During the nine months ended September 30, 2009, we repurchased$11.9 million of senior subordinated notes and recorded a$6.0 million gain in “Gain on repurchase of long-term debt” in ourConsolidated Statement of Loss.

 

15

----

Tableof Contents

* *

*Other*

 

For the nine months ended September 30, 2009 and 2008, cash paymentsfor interest, net of interest capitalized, were $11.1 million and$25.8 million, respectively. The decrease in cash interest payments in thefirst nine months of 2009, relative to the same period a year ago, relates tothe significant reduction in debt in February 2008 with the proceeds fromthe Sale.

 

At September 30,2009, the estimated current market value of our fixed-rate debt, based onthen-current interest rates for similar obligations with like maturities, wasapproximately $46.5 million less than the amount reported on ourConsolidated Balance Sheet.

 

***13.******                              ******Financial Instrument Risk***

 

In the normal course of business, we are exposed to financialrisks such as changes in interest rates, credit risk, changes in energy prices,and foreign currency exchange rates. We do not use derivative instruments forspeculative purposes, although derivative instruments purchased to minimizerisk, if any, may not qualify for hedge accounting.

 

*Interest Rate Risk*

 

We are exposed to interest rate risk arising from fluctuations in interestrates on our cash and cash equivalents and bank credit facility. In the firstnine months of 2009, we did not use any interest rate swap contracts to managethis risk.

 

In the first nine months of 2008, we significantly decreased ourvariable-rate debt with the proceeds from the Sale. As a result, we terminatedall of our interest rate swap agreements for approximately $11.9 million. The interest rate swaps were consideredeconomic hedges.During the nine months ended September 30,2008, we recorded the fair value of the interest rate swaps, or$6.3 million of expense, in “Change in fair value of interest rate swaps”in our Consolidated Statement of Loss.

 

*Concentration of Credit Risk*

 

We are exposed to credit risk related to customeraccounts receivable. In order to reduce this risk, we consider customerconcentrations and current economic trends and monitor the creditworthiness ofsignificant customers based on ongoing credit evaluations. At September 30,2009, and December 31, 2008, the receivables from a single customeraccounted for approximately 16% and 20% of total receivables, respectively. Noother customer accounted for 10% or more of total receivables.

 

*Foreign Currency Risk*

 

We have manufacturing operations in the United Statesand Canada. As a result, we are exposed to movements in the foreign currencyexchange rate in Canada. At September 30, 2009, we had no foreign currencyhedges.

 

*Energy Risk*

 

Generally, we purchasenatural gas at the prevailing market price at the time of delivery, and assuch, we are subject to fluctuations in market prices. Occasionally, we enterinto natural gas swaps, options, or a combination of these instruments to hedgethe variable cash flow risk of natural gas purchases at index prices. At September 30,2009, we had no material derivative instruments related to our forecastednatural gas purchases.

 

*ContingentValue Rights*

 

Aspart of the Sale, Terrapin Partners Venture Partnership and Boise Cascade,L.L.C., issued 21.2 million contingent value rights (CVRs) to holders ofBoise Inc. stock. During the nine months ended September 30, 2009, wesettled our obligation related to the CVRs using 0.8 million ofBoise Inc. shares and recorded a $1.0 million loss in “Equity in netincome (loss) of affiliate” in our Consolidated Statement 

 

16

----

Table ofContents

 

of Loss for thedifference between the market price on the date we settled our obligation withshares and the carrying amount of the shares recorded on our ConsolidatedBalance Sheet.

 

In 2008, we recorded thefair value of the CVR liability and associated expense based on a simulationanalysis that considered the likelihood of Boise Inc. investors receivingpayment under the Contingent Value Rights Agreement. We updated the simulationmodel each quarter and revalued the liability based on the results. For thethree and nine months ended September 30, 2008, we recognized$2.2 million of income and $1.8 million of expense in “Change in fairvalue of contingent value rights” in our Consolidated Statements of Loss.

 

***14.******                              ******Newand Recently Adopted Accounting Standards***

 

In August 2009, the Financial AccountingStandards Board (FASB) issued Accounting Standards Update (ASU) 2009-05, *Measuring Liabilities at Fair Value*. Thisupdate provides amendments to FASB Accounting Standards Codification (FASB ASC)820, *Fair Value Measurements and Disclosure,*for the fair value measurement of liabilities when a quoted price in an activemarket is not available. We will adopt ASU 2009-05 on October 1, 2009, andwe do not expect the adoption to have a material impact on our financialposition or results of operations.

 

In June 2009, theFASB issued Statement of Financial Accounting Standards (SFAS) No. 168(ASU 2009-01), *The FASB Accounting Standards CodificationTM**and theHierarchy of Generally Accepted Accounting Principles,*approving theFASB Accounting Standards Codification(Codification), which states that the Codification is the exclusiveauthoritative reference for U.S. generally accepted accounting principles(GAAP). The Codification does not change U.S. GAAP. We adopted ASU 2009-01 on September 15,2009, and the adoption did not have a material impact on our financial positionor results of operations.

 

In June 2009, the FASB issued SFAS No. 167,*Amendments to FASB InterpretationNo. 46(R) *(FASBASC 810),which amendsthe consolidation guidance applicable to variable-interest entities (VIEs).SFAS No. 167 requires that entities evaluate former qualifiedspecial-purpose entities for consolidation, changes the approach to determininga VIE’s primary beneficiary from a quantitative assessment to a qualitativeassessment, and increases the frequency of required reassessment to determinewhether a company is the primary beneficiary of a VIE. It also requiresadditional year-end and interim disclosures. We will adopt SFAS No. 167 onJanuary 1, 2010, and we do not expect the adoption to have a materialimpact on our financial position or results of operations.

 

In December 2008,FASB issued FASB Staff Position (FSP) FAS 132(R)-1, *Employer’s Disclosures About Postretirement BenefitPlan Assets*(FASB ASC 715*).* This FSP amends SFAS No. 132(revised 2003), *Employers’ Disclosures AboutPensions and Other Postretirement Benefits,*to provide guidance onan employer’s disclosures about plan assets of a defined benefit pension orother postretirement benefit plan. The FSP is effective for our 2009 Form 10-K.The adoption will affect our disclosures only and will have no impact on ourfinancial position or results of operations.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations*(FASB ASC 805)*,*and SFAS No. 160, *Accounting and Reporting of Noncontrolling Interests in ConsolidatedFinancial Statements, an Amendment of Accounting Research Bulletin No. 51*(FASB ASC 810)*.* These new standards significantly change theaccounting for and reporting of business combination transactions andnoncontrolling (minority) interests in consolidated financial statements. SFAS No. 141(R) could alsoaffect the assessment of goodwill for impairment. We adopted SFAS Nos. 141(R) and 160on January 1, 2009. Because the business combinations we have entered intoin 2009 have been relatively small, the adoption did not have a material impacton our financial position or results of operations. However, the accounting forfuture, potentially larger business combinations may be affected more by theadoption of the standard.

 

There were noother accounting standards recently issued that had or are expected to have amaterial impact on our financial position or results of operations.

 

17

----

Table of Contents

*** ***

***15.******                              ******Retirement and BenefitPlans***

 

On March 18, 2009, we amended our defined benefitpension plan for salaried employees (Salaried Plan) to freeze the Salaried Planso that no future benefits will accrue after December 31, 2009. Theamendment also freezes benefits in our nonqualified salaried pension plans.

 

The freeze had the following impact on ourconsolidated financial statements:

 

*Consolidated Statements of Income(Loss)*

 

We accounted for the amendment as a plan curtailment,and we recognized a net $0.7 million noncash curtailment gain, primarilyrelated to our nonqualified salaried pension plans. We recorded the gain in “Other(income) expense, net” in our Consolidated Statement of Loss for the ninemonths ended September 30, 2009. Because the Salaried Plan hasunrecognized losses, the curtailment gain associated with the amendment to theSalaried Plan was applied to partially offset the losses in the plan, resultingin no immediate gain recognition related to the Salaried Plan freeze.

 

As a result of the pension freeze, 2009 annual pensionexpense will decrease approximately $4.5 million. This reduction will bepartially offset by incremental pension expense recognized in connection withthe decision to indefinitely curtail lumber manufacturing at our facility inLa Grande, Oregon.

 

*Consolidated Balance Sheet*

 

As a result of the pension freeze, our pensionliabilities decreased a net $32.3 million, of which $42.2 millionresulted from (1) an increase in the discount rate from 6.1% at December 31,2008, to 6.9% at March 18, 2009, and (2) eliminating future salaryincreases from the liability measurement for the amended plans, as no futurebenefits will accrue in these plans after December 31, 2009. The$42.2 million decrease was partially offset by $9.9 million ofinvestment losses related to the amended plans, net of our expected long-termrate of return on plan assets.

 

We did not remeasure thebenefit obligations and pension expense related to our other plans (that werenot frozen). As such, the liability and expense related to these plans continueto be valued based on the December 31, 2008, actuarial assumptions disclosedin Note 13, Retirement and Benefit Plans, of the Notes to ConsolidatedFinancial Statements in “Item 8. Financial Statements and SupplementaryData” in our 2008 Form 10-K.

 

The following tablepresents the pension and postretirement benefit costs:

 
| ** **                                     | ** ** | **Pension  Benefits**                      | ** ** | **Other  Benefits**                        | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **Three  Months Ended  September 30** | ** ** | **Three  Months Ended  September 30** | ** ** |
| ** **                                     | ** ** | **2009**                                   | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(thousands)**                            | ** ** |
|                                           |       |                                       |       |                                       |       |   |   |   |   |
| Service cost                                   |       | $                                          | 2,487      |                                       | $          | 2,752 |   | $ | — |   | $ | — |   |
| Interest cost                                  |       | 4,886                                      |       | 4,615                                      |       | 2 |   | 2 |   |
| Expected return on  plan assets                |       | (4,605                                     | )          | (4,542                                     | )          | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | (289                                       | )          | (40                                        | )          | 3 |   | — |   |
| Amortization of  prior service costs and other |       | 45                                         |       | 32                                         |       | — |   | — |   |
| Company-sponsored  plans                       |       | 2,524                                      |       | 2,817                                      |       | 5 |   | 2 |   |
| Multiemployer  pension plans                   |       | —                                     |       | 10                                         |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                                      | **2,524**  | ** **                                 | **$**      | **2,827** | ** ** | **$** | **5** | ** ** | **$** | **2** | ** ** |

 

18

----

Table of Contents

 
| ** **                                     | ** ** | **Pension  Benefits**                     | ** ** | **Other  Benefits**                       | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                     | ** ** | **Nine  Months Ended  September 30** | ** ** | **Nine  Months Ended  September 30** | ** ** |
| ** **                                     | ** ** | **2009**                                  | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(thousands)**                           | ** ** |
|                                           |       |                                      |       |                                      |       |   |   |   |   |
| Service cost                                   |       | $                                         | 7,927      |                                      | $          | 9,821 |   | $ | — |   | $ | 1 |   |
| Interest cost                                  |       | 14,797                                    |       | 17,299                                    |       | 9 |   | 25 |   |
| Expected return  on plan assets                |       | (13,771                                   | )          | (17,078                                   | )          | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | (556                                      | )          | (244                                      | )          | 8 |   | (13 | ) |
| Amortization of  prior service costs and other |       | 136                                       |       | 288                                       |       | — |   | — |   |
| Curtailment loss                               |       | 1,452                                     |       | 404                                       |       | — |   | — |   |
| Company-sponsored  plans                       |       | 9,985                                     |       | 10,490                                    |       | 17 |   | 13 |   |
| Multiemployer  pension plans                   |       | —                                    |       | 113                                       |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                                     | **9,985**  | ** **                                | **$**      | **10,603** | ** ** | **$** | **17** | ** ** | **$** | **13** | ** ** |

 

In 2009, we wererequired to contribute $4.4 million to our pension plans, and in the firstnine months of 2009, we made $28.1 million of contributions, whichexceeded our 2009 legal funding requirements and improved the funded status ofthe plans.

 

***16.******                              ******Redeemable Equity Units***

 

In February 2009,FPH granted 9.0 million Series C equity units with a threshold equityvalue of $1.30 per unit, of which 2.9 million units were forfeited inthird quarter 2009. The Series C equity units are accounted for asrestricted stock. We recognize compensation expense for the Series C equityunits based on the fair value on the date of grant over the vesting period. Formore information related to the Management Equity Plan, see Note 14,Redeemable Equity Units, of the Notes to Consolidated Financial Statements in “Item 8.Financial Statements and Supplementary Data” in our 2008 Form 10-K.

 

The following summarizesthe activity of our redeemable equity units during the nine months ended September 30,2009 and year ended December 31, 2008.

 
| ** **                                              | ** ** | **Series B********Equity Units** | ** ** | **Series C********Equity Units** | ** ** | **Total  Redeemable** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **Units**                             | ** ** | **Amount**                            | ** ** | **Units**             | ** ** | **Amount** | ** ** | **Equity** | ** ** |
| ** **                                              | ** ** | **(thousands)**                       | ** ** |
|                                                    |       |                                  |       |                                  |       |                  |       |   |   |   |   |
| Balance at December 31, 2007                       |       | 16,622                                |       | $                                     | 16,992     |                  | 39,069     |   | $ | 9,489 |   | $ | 26,481 |   |
|                                                    |       |                                  |       |                                  |       |                  |       |   |   |   |   |
| Management equity units expense                         |       | —                                |       | —                                |       | —                |       | 634 |   | 634 |   |
| Fair market value adjustment of redeemable equity units |       | —                                |       | 9,415                                 |       | —                |       | 4,984 |   | 14,399 |   |
| Allocation of redeemable equity units to Capital        |       | (2,058                                | )          | (2,058                                | )          | (11,183               | )          | (4,865 | ) | (6,923 | ) |
| Repurchase of management equity units                   |       | (11,644                               | )          | (21,429                               | )          | (10,293               | )          | (7,205 | ) | (28,634 | ) |
| Forfeitures                                             |       | —                                |       | —                                |       | (6,576                | )          | — |   | — |   |
| **Balance at December 31, 2008**                   |       | 2,920                                 |       | 2,920                                 |       | 11,017                |       | 3,037 |   | 5,957 |   |
|                                                    |       |                                  |       |                                  |       |                  |       |   |   |   |   |
| Issued                                                  |       | —                                |       | —                                |       | 8,973                 |       | — |   | — |   |
| Management equity units expense                         |       | —                                |       | —                                |       | —                |       | 1,932 |   | 1,932 |   |
| Allocation of redeemable equity units to Capital        |       | (144                                  | )          | (144                                  | )          | (769                  | )          | (196 | ) | (340 | ) |
| Forfeitures                                             |       | —                                |       | —                                |       | (2,940                | )          | — |   | — |   |
| Other                                                   |       | (11                                   | )          | (11                                   | )          | (11                   | )          | (5 | ) | (16 | ) |
| **Balance at September 30, 2009**                  | ** ** | **2,765**                             | ** ** | **$**                                 | **2,765**  | ** **            | **16,270** | ** ** | **$** | **4,768** | ** ** | **$** | **7,533** | ** ** |

 

19

----

Table of Contents

 

***17.******                        ******Segment Information***

 

We operate our businessusing three reportable segments: Building Materials Distribution, Wood Products, and Corporate and Other.Prior to the Sale in February 2008, we operated our business using fivereportable segments:  Building MaterialsDistribution, Wood Products, Paper, Packaging & Newsprint, andCorporate and Other. There are no differences in our basis of measurement ofsegment profit or loss from those disclosed in Note 16, SegmentInformation, of the Notes to Consolidated Financial Statements in “Item 8.Financial Statements and Supplementary Data” in our 2008 Annual Report on Form 10-K.The equity interest we own in Boise Inc. after the Sale represents asignificant continuing involvement*.*As a result,the results of the Paper and Packaging & Newsprint segments through February 21,2008, are included in our first quarter 2008 results, and the sold assets arenot classified as discontinued operations.

 

An analysis of ouroperations by segment is as follows:

 
| ** **                                          | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|----------------|------------|-------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                          | ** ** | **Sales**      | ** ** | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | ** **     | ** ** | **Related** | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                          | ** ** | **Trade**      | ** ** | **Parties** | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                          | ** ** | **(millions)** | ** ** |
| **Three Months Ended September 30, 2009**      |       |           |       |        |       |              |       |       |       |       |       |              |       |       |       |
| Building Materials Distribution                     |       | $              | 472.1      |        | $          | —            |       | $          | 0.1        |       | $          | 472.2             |       | $          | 9.7        |   | $ | 1.9 |   | $ | 11.6 |   |
| Wood Products                                       |       | 95.5           |       | 11.4        |       | 56.3              |       | 163.2      |       | (4.2       | )          | 7.6               |       | 3.4        |       |
| Corporate and Other                            |       | —         |       | —      |       | —            |       | —     |       | (3.2       | )          | 0.1               |       | (3.1       | )          |
|                                                |       | 567.6          |       | 11.4        |       | 56.4              |       | 635.4      |       | 2.3        |       | 9.6               |       | 11.9       |       |
| Intersegment eliminations                           |       | —         |       | —      |       | (56.4             | )          | (56.4      | )          | —     |       | —            |       | —     |       |
| Equity in net income of affiliate (a)          |       | —         |       | —      |       | —            |       | —     |       | 28.2       |       | —            |       | 28.2       |       |
| Gain on sale of shares of equity affiliate (a) |       | —         |       | —      |       | —            |       | —     |       | 1.0        |       | —            |       | 1.0        |       |
| Interest expense                                    |       | —         |       | —      |       | —            |       | —     |       | (5.4       | )          | —            |       | —     |       |
| Interest income                                     |       | —         |       | —      |       | —            |       | —     |       | 0.2        |       | —            |       | —     |       |
|                                                |       | **$**          | **567.6**  |        | **$**      | **11.4**          |       | **$**      | **—** | ** ** | **$**      | **579.0**         |       | **$**      | **26.3**   | ** ** | **$** | **9.6** |   | **$** | **41.1** | ** ** |

 
| ** **                                       | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|----------------|------------|-------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                       | ** ** | **Sales**      | ** ** | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **     | ** ** | **Related** | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                       | ** ** | **Trade**      | ** ** | **Party**   | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                       | ** ** | **(millions)** | ** ** |
| **Three Months Ended September 30, 2008**   |       |           |       |        |       |              |       |       |       |       |       |              |       |       |       |
| Building Materials Distribution                  |       | $              | 583.5      |        | $          | —            |       | $          | 0.6        |       | $          | 584.1             |       | $          | 10.2       |   | $ | 1.9 |   | $ | 12.1 |   |
| Wood Products (b)                                |       | 122.4          |       | 21.2        |       | 71.5              |       | 215.1      |       | (3.1       | )          | 6.8               |       | 3.6        |       |
| Corporate and Other (c)                          |       | —         |       | —      |       | —            |       | —     |       | (5.9       | )          | 0.1               |       | (5.7       | )          |
|                                             |       | 705.9          |       | 21.2        |       | 72.1              |       | 799.2      |       | 1.2        |       | 8.8               |       | 10.0       |       |
| Intersegment eliminations                        |       | —         |       | —      |       | (72.1             | )          | (72.1      | )          | —     |       | —            |       | —     |       |
| Equity in net income of affiliate (a)       |       | —         |       | —      |       | —            |       | —     |       | 2.1        |       | —            |       | 2.1        |       |
| Impairment of investment in equity affiliate (a) |       | —         |       | —      |       | —            |       | —     |       | (208.1     | )          | —            |       | (208.1     | )          |
| Change in fair value of contingent value rights  |       | —         |       | —      |       | —            |       | —     |       | 2.2        |       | —            |       | 2.2        |       |
| Interest expense                            |       | —         |       | —      |       | —            |       | —     |       | (6.3       | )          | —            |       | —     |       |
| Interest income                                  |       | —         |       | —      |       | —            |       | —     |       | 1.5        | ** ** | —            |       | —     |       |
|                                             |       | **$**          | **705.9**  |        | **$**      | **21.2**          |       | **$**      | **—** | ** ** | **$**      | **727.1**         | ** ** | **$**      | **(207.2** | **)** | **$** | **8.8** |   | **$** | **(193.7** | **)** |

 

20

----

Tableof Contents

 
| ** **                                        | ** ** | ** **     | ** **  | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------|-------------|-------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                        | ** ** | **Sales**      | ** **  | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **     | ** **  | **Related** | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                        | ** ** | **Trade**      | ** **  | **Parties** | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                        | ** ** | **(millions)** | ** **  |
| **Nine Months  Ended September 30, 2009**    |       |           |        |        |       |              |       |       |       |       |       |              |       |       |       |
| Building Materials  Distribution                  |       | $              | 1,240.6     |        | $          | —            |       | $          | 0.3        |       | $          | 1,240.9           |       | $          | 8.8        |   | $ | 5.7 |   | $ | 14.5 |   |
| Wood Products (d)                            |       | 247.0          |        | 26.0        |       | 141.1             |       | 414.1      |       | (61.0      | )          | 26.1              |       | (34.9      | )          |
| Corporate and  Other                         |       | —         |        | —      |       | —            |       | —     |       | (9.2       | )          | 0.4               |       | (8.8       | )          |
|                                              |       | 1,487.6        |        | 26.0        |       | 141.4             |       | 1,655.0    |       | (61.4      | )          | 32.2              |       | (29.2      | )          |
| Intersegment  eliminations                        |       | —         |        | —      |       | (141.4            | )          | (141.4     | )          | —     |       | —            |       | —     |       |
| Equity  in net income of affiliate (a)       |       | —         |        | —      |       | —            |       | —     |       | 61.5       |       | —            |       | 61.5       |       |
| Gain  on sale of shares of equity affiliate (a)   |       | —         |        | —      |       | —            |       | —     |       | 1.0        |       | —            |       | 1.0        |       |
| Impairment  of investment in equity affiliate (a) |       | —         |        | —      |       | —            |       | —     |       | (43.0      | )          | —            |       | (43.0      | )          |
| Change  in fair value of contingent value rights  |       | —         |        | —      |       | —            |       | —     |       | 0.2        |       | —            |       | 0.2        |       |
| Gain  on repurchase of long-term debt             |       | —         |        | —      |       | —            |       | —     |       | 6.0        |       | —            |       | 6.0        |       |
| Interest expense                                  |       | —         |        | —      |       | —            |       | —     |       | (17.1      | )          | —            |       | —     |       |
| Interest income                                   |       | —         |        | —      |       | —            |       | —     |       | 0.8        |       | —            |       | —     |       |
| ** **                                        |       | **$**          | **1,487.6** |        | **$**      | **26.0**          |       | **$**      | **—** | ** ** | **$**      | **1,513.6**       | ** ** | **$**      | **(52.0**  | **)** | **$** | **32.2** |   | **$** | **(3.5** | **)** |

 
| ** **                                             | ** ** | ** **     | ** **  | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|----------------|-------------|-------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                             | ** ** | **Sales**      | ** **  | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | ** **     | ** **  | **Related** | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                             | ** ** | **Trade**      | ** **  | **Party**   | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                             | ** ** | **(millions)** | ** **  |
| **Nine Months  Ended September 30, 2008**         |       |           |        |        |       |              |       |       |       |       |       |              |       |       |       |
| Building Materials  Distribution        |       | $              | 1,697.1     |        | $          | —            |       | $          | 0.9        |       | $          | 1,698.0           |       | $          | 24.3       |   | $ | 5.8 |   | $ | 30.1 |   |
| Wood Products (b)                                      |       | 374.6          |        | 40.7        |       | 224.5             |       | 639.8      |       | (23.6      | )          | 21.0              |       | (2.7       | )          |
| Paper (e)                                              |       | 154.4          |        | 90.1        |       | 9.0               |       | 253.5      |       | 20.7       |       | 0.3               |       | 21.1       |       |
| Packaging &  Newsprint (e)               |       | 102.2          |        | —      |       | 11.3              |       | 113.5      |       | 5.7        |       | 0.1               |       | 5.7        |       |
| Corporate and Other (c)                           |       | 1.8            |        | —      |       | 6.8               |       | 8.6        |       | (20.2      | )          | 0.3               |       | (19.8      | )          |
|                                                   |       | 2,330.1        |        | 130.8       |       | 252.5             |       | 2,713.4    |       | 6.9        |       | 27.5              |       | 34.4       |       |
| Intersegment  eliminations                             |       | —         |        | —      |       | (252.5            | )          | (252.5     | )          | —     |       | —            |       | —     |       |
| Equity  in net loss of affiliate (a)              |       | —         |        | —      |       | —            |       | —     |       | (15.2      | )          | —            |       | (15.2      | )          |
| Impairment  of investment in equity affiliate (a)      |       | —         |        | —      |       | —            |       | —     |       | (208.1     | )          | —            |       | (208.1     | )          |
| Change  in fair value of contingent value rights  |       | —         |        | —      |       | —            |       | —     |       | (1.8       | )          | —            |       | (1.8       | )          |
| Change  in fair value of interest rate swaps (f)  |       | —         |        | —      |       | —            |       | —     |       | (6.3       | )          | —            |       | —     |       |
| Interest expense                                       |       | —         |        | —      |       | —            |       | —     |       | (28.1      | )          | —            |       | —     |       |
| Interest income                                        |       | —         |        | —      |       | —            |       | —     |       | 6.6        |       | —            |       | —     |       |
| ** **                                             |       | **$**          | **2,330.1** |        | **$**      | **130.8**         |       | **$**      | **—** | ** ** | **$**      | **2,460.9**       | ** ** | **$**      | **(246.0** | **)** | **$** | **27.5** |   | **$** | **(190.8** | **)** |

 

----

(a)                                  See Note 3,Investment in Equity Affiliate, for information related to our investment inBoise Inc.

 

(b)                                 The three andnine months ended September 30, 2008, included a $7.0 million and a$5.7 million net gain on the sale of our wholly owned subsidiary inBrazil. Both the three and nine months ended September 30, 2008, included$2.8 million of expenses related to the closure of our veneer operation inSt. Helens, Oregon.

 

21

----

Table of Contents

 

(c)                                  The nine months ended September 30, 2008,included an $8.4 million loss on the sale of the note receivable fromBoise Inc. See Note 6, Other (Income) Expense, Net, for moreinformation.The nine months ended September 30, 2008, included a$3.0 million gain on the Sale. The three months ended September 30,2008, included $1.7 million of expenses related to the Sale.

 

(d)                                 Included $8.9 million of expenses inincome (loss) before taxes for the nine months ended September 30, 2009,and $3.7 million of expenses in EBITDA for the nine months ended September 30,2009, related to the closure of the lumber manufacturing facility inLa Grande, Oregon.

 

(e)                                  As a result of the Sale, the nine months endedSeptember 30, 2008, include the results of the Paper and Packaging &Newsprint segments through February 21, 2008.

 

(f)                                    Included approximately $6.3 million ofexpense related to the change in the fair value of our interest rate swaps,which we terminated in February 2008. See Note 13, FinancialInstrument Risk, for more information.

 

(g)                                 EBITDA represents income (loss) beforeinterest (interest expense, interest income, and change in fair value ofinterest rate swaps), income taxes, and depreciation, amortization, anddepletion. EBITDA is the primary measure used by our chief operating decisionmakers to evaluate segment operating performance and to decide how to allocateresources to segments. We believe EBITDA is useful to investors because itprovides a means to evaluate the operating performance of our segments and ourcompany on an ongoing basis using criteria that are used by our internaldecision makers and because it is frequently used by investors and otherinterested parties in the evaluation of companies. We believe EBITDA is ameaningful measure because it presents a transparent view of our recurringoperating performance and allows management to readily view operating trends,perform analytical comparisons, and identify strategies to improve operatingperformance. For example, we believe that the inclusion of items such as taxes,interest expense, and interest income distorts management’s ability to assessand view the core operating trends in our segments. EBITDA, however, is not ameasure of our liquidity or financial performance under generally acceptedaccounting principles (GAAP) and should not be considered as an alternative tonet income (loss), income (loss) from operations, or any other performancemeasure derived in accordance with GAAP or as an alternative to cash flow fromoperating activities as a measure of our liquidity. The use of EBITDA insteadof net income (loss) or segment income (loss) has limitations as an analyticaltool, including the inability to determine profitability; the exclusion ofinterest expense, interest income, change in fair value of interest rate swaps,and associated significant cash requirements; and the exclusion ofdepreciation, amortization, and depletion. Management compensates for theselimitations by relying on our GAAP results. Our measures of EBITDA are notnecessarily comparable to other similarly titled captions of other companiesdue to potential inconsistencies in the methods of calculation.The following isa reconciliation of net income (loss) to EBITDA:

 
| ** **                                   | ** ** | **Three  Months Ended  September 30** | ** ** | **Nine  Months Ended  September 30** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(millions)**                             | ** ** |
|                                         |       |                                       |       |                                      |       |   |   |   |   |
| Net income  (loss)                           |       | $                                          | 26.2       |                                      | $          | (207.6 | ) | $ | (52.7 | ) | $ | (247.5 | ) |
| Change in fair  value of interest rate swaps |       | —                                     |       | —                                    |       | — |   | 6.3 |   |
| Interest expense                             |       | 5.4                                        |       | 6.3                                       |       | 17.1 |   | 28.1 |   |
| Interest income                              |       | (0.2                                       | )          | (1.5                                      | )          | (0.8 | ) | (6.6 | ) |
| Income tax  provision                        |       | 0.1                                        |       | 0.4                                       |       | 0.6 |   | 1.5 |   |
| Depreciation,  amortization, and depletion   |       | 9.6                                        |       | 8.8                                       |       | 32.2 |   | 27.5 |   |
| EBITDA                                       | ** ** | **$**                                      | **41.1**   | ** **                                | **$**      | **(193.7** | **)** | **$** | **(3.5** | **)** | **$** | **(190.8** | **)** |

 

22

----

Table of Contents

*** ***

***18.******                              ******Commitments and Guarantees***

*** ***

*Commitments*

* *

We have commitments for leases and long-term debt thatare discussed further in Note 7, Leases, and Note 12, Debt. We are aparty to a number of long-term log and fiber supply agreements and utilitypurchase contracts that are discussed in Note 17, Commitments andGuarantees, of the Notes toConsolidated Financial Statements in “Item 8. Financial Statements andSupplementary Data” inour 2008 Form 10-K. In addition, we have purchase obligations for goodsand services, capital expenditures, and raw materials entered into in thenormal course of business. At September 30, 2009, there have been nomaterial changes to our commitments outside the normal course of business,except as disclosed in Note 12, Debt, and Note 15, Retirement andBenefit Plans, of this Form 10-Q.

 

*Guarantees*

 

We provide guarantees, indemnifications, andassurances to others. Note 17,Commitments and Guarantees, of the Notes to Consolidated Financial Statementsin “Item 8. Financial Statements and Supplementary Data” in our 2008 Form 10-Kdescribes the nature of our guarantees, including the approximate terms of theguarantees, how the guarantees arose, the events or circumstances that wouldrequire us to perform under the guarantees, and the maximum potentialundiscounted amounts of future payments we could be required to make. As of September 30,2009, there have been no material changes to the guarantees disclosed in the2008 Form 10-K.

 

***19.******                              ******Subsequent Events***

 

On November 12, 2009, we announced our intent to sell 15 million ofthe 35.9 million shares we hold in Boise Inc. in a secondary offering being ledby Goldman, Sachs & Co. Our ownership interest and our proportionateshare of Boise Inc.’s net income or loss will decrease after the sale. Thefinal pricing and size of the offering will depend on market conditions. If theoffering is successful, we will be obligated under the indenture governing our7.125% senior subordinated notes due 2014 to use the net proceeds within oneyear to repay senior indebtedness, acquire additional assets, or make a tenderoffer at par for a portion of the senior subordinated notes.

 

We evaluated events and transactions subsequent to September 30, 2009,to November 13, 2009, the date these consolidated financial statements andnotes were included in this Form 10-Q and filed with the Securities andExchange Commission. Except as disclosed in the paragraph above, we have notidentified any other events that that would require recognition or disclosurein the consolidated financial statements and notes to the financial statements.

 

***20.******                              ******Consolidating Guarantorand Nonguarantor Financial Information***

*** ***

The following consolidating financial informationpresents the Statements of Income (Loss), Balance Sheets, and Cash Flowsrelated to our business. Certain amounts in prior periods’ consolidatingfinancial statements have been reclassified to conform with the current period’spresentation. The senior subordinated notes are guaranteed on a seniorsubordinated basis jointly and severally by BC Holdings and each of itsexisting and future subsidiaries (other than: (i) the co-issuers, Boise Cascade and Boise Cascade FinanceCorporation; (ii) our foreign subsidiaries; and (iii) Birch CreekInvestments L.L.C., which was dissolved on March 31, 2008). Other than theconsolidated financial statements and footnotes for BC Holdings, financialstatements and other disclosures concerning the guarantors have not beenpresented because management believes that such information is not material toinvestors.

 

23

----

Tableof Contents

 

**Boise Cascade Holdings, L.L.C.,and SubsidiariesConsolidating Statements of Income (Loss)For the Three Months Ended September 30, 2009**

** **
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                                                            |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                                 | 563,713    |             | $          | 3,930            |       | $ | — |   | $ | 567,643 |   |
| Intercompany                                                                         |       | —                                          |       | —                      |       | —                      |       | 2,548                             |       | (2,548           | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 11,364                      |       | —                            |       | —           |       | 11,364           |       |
|                                                                                 |       | —                                          |       | —                      |       | 575,077                     |       | 6,478                             |       | (2,548           | )          | 579,007          |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                          |       | —                      |       | 497,990                     |       | 6,644                             |       | (2,748           | )          | 501,886          |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                          |       | —                      |       | 6,094                       |       | —                            |       | —           |       | 6,094            |       |
| Depreciation, amortization, and depletion                                            |       | —                                          |       | 113                         |       | 9,047                       |       | 467                               |       | —           |       | 9,627            |       |
| Selling and distribution expenses                                                    |       | —                                          |       | —                      |       | 50,421                      |       | 293                               |       | —           |       | 50,714           |       |
| General and administrative expenses                                             |       | 1                                               |       | 905                         |       | 5,735                       |       | —                            |       | 200              |       | 6,841            |       |
| General and administrative expenses from  related party                         |       | —                                          |       | 2,682                       |       | —                      |       | —                            |       | —           |       | 2,682            |       |
| Other (income) expense, net                                                          |       | —                                          |       | 42                          |       | (544                        | )          | (73                               | )          | —           |       | (575             | )          |
|                                                                                 |       | 1                                               |       | 3,742                       |       | 568,743                     |       | 7,331                             |       | (2,548           | )          | 577,269          |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | (1                                              | )          | (3,742                      | )          | 6,334                       |       | (853                              | )          | —           |       | 1,738            |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                  |       | 28,225                                          |       | —                      |       | —                      |       | —                            |       | —           |       | 28,225           |       |
| Gain on sale of shares of equity affiliate  (Boise Inc.)                        |       | 997                                             |       | —                      |       | —                      |       | —                            |       | —           |       | 997              |       |
| Foreign exchange gain                                                                |       | —                                          |       | 364                         |       | 40                          |       | 117                               |       | —           |       | 521              |       |
| Interest expense                                                                     |       | —                                          |       | (5,389                      | )          | —                      |       | —                            |       | —           |       | (5,389           | )          |
| Interest income                                                                      |       | —                                          |       | 95                          |       | 90                          |       | —                            |       | —           |       | 185              |       |
|                                                                                 |       | 29,222                                          |       | (4,930                      | )          | 130                         |       | 117                               |       | —           |       | 24,539           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | 29,221                                          |       | (8,672                      | )          | 6,464                       |       | (736                              | )          | —           |       | 26,277           |       |
| Income tax provision                                                                 |       | —                                          |       | (20                         | )          | (52                         | )          | —                            |       | —           |       | (72              | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | 29,221                                          |       | (8,692                      | )          | 6,412                       |       | (736                              | )          | —           |       | 26,205           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (3,016                                          | )          | 5,676                       |       | —                      |       | —                            |       | (2,660           | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                           | **26,205** | ** **                  | **$**      | **(3,016**                  | **)**      | **$**                             | **6,412**  | ** **       | **$**      | **(736**         | **)**      | **$** | **(2,660** | **)** | **$** | **26,205** | ** ** |

 

24

----

Table ofContents

** **

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Three MonthsEnded September 30, 2008**

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** **   | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|--------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                             | ** **   |
| **Sales**                                                                            |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                                           | —       |                              | $          | —                      |       | $                                 | 702,604    |             | $          | 3,308            |       | $ | — |   | $ | 705,912 |   |
| Intercompany                                                                         |       | —                                                      |         | —                            |       | —                      |       | 4,147                             |       | (4,147           | )          | —           |       |
| Related parties                                                                      |       | —                                                      |         | —                            |       | 21,214                      |       | —                            |       | —           |       | 21,214           |       |
|                                                                                 |       | —                                                      |         | —                            |       | 723,818                     |       | 7,455                             |       | (4,147           | )          | 727,126          |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                      |         | (138                              | )          | 623,427                     |       | 8,265                             |       | (4,147           | )          | 627,407          |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                      |         | —                            |       | 19,045                      |       | —                            |       | —           |       | 19,045           |       |
| Depreciation, amortization, and depletion                                            |       | —                                                      |         | 88                                |       | 8,178                       |       | 485                               |       | —           |       | 8,751            |       |
| Selling and distribution expenses                                                    |       | —                                                      |         | —                            |       | 61,967                      |       | 570                               |       | —           |       | 62,537           |       |
| General and administrative expenses                                             |       | —                                                      |         | 1,115                             |       | 6,143                       |       | 1                                 |       | —           |       | 7,259            |       |
| General and administrative expenses from  related party                         |       | —                                                      |         | 2,506                             |       | —                      |       | —                            |       | —           |       | 2,506            |       |
| Loss on sale of Paper and Packaging &  Newsprint assets                     |       | —                                                      |         | 1,739                             |       | —                      |       | —                            |       | —           |       | 1,739            |       |
| Other (income) expense, net                                                          |       | 44                                                          |         | 92                                |       | (2,645                      | )          | (1,259                            | )          | —           |       | (3,768           | )          |
|                                                                                 |       | 44                                                          |         | 5,402                             |       | 716,115                     |       | 8,062                             |       | (4,147           | )          | 725,476          |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | (44                                                         | )            | (5,402                            | )          | 7,703                       |       | (607                              | )          | —           |       | 1,650            |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                  |       | 2,148                                                       |         | —                            |       | —                      |       | —                            |       | —           |       | 2,148            |       |
| Impairment of investment in equity affiliate  (Boise Inc.)                      |       | (208,074                                                    | )            | —                            |       | —                      |       | —                            |       | —           |       | (208,074         | )          |
| Foreign exchange gain (loss)                                                         |       | —                                                      |         | (343                              | )          | 42                          |       | (105                              | )          | —           |       | (406             | )          |
| Change in fair value of contingent value rights                                      |       | —                                                      |         | 2,227                             |       | —                      |       | —                            |       | —           |       | 2,227            |       |
| Interest expense                                                                     |       | —                                                      |         | (6,263                            | )          | —                      |       | —                            |       | —           |       | (6,263           | )          |
| Interest expense—intercompany                                                   |       | —                                                      |         | —                            |       | —                      |       | (15                               | )          | 15               |       | —           |       |
| Interest income                                                                      |       | —                                                      |         | 1,381                             |       | 88                          |       | —                            |       | —           |       | 1,469            |       |
| Interest income—intercompany                                                    |       | —                                                      |         | 15                                |       | —                      |       | —                            |       | (15              | )          | —           |       |
|                                                                                 |       | (205,926                                                    | )            | (2,983                            | )          | 130                         |       | (120                              | )          | —           |       | (208,899         | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | (205,970                                                    | )            | (8,385                            | )          | 7,833                       |       | (727                              | )          | —           |       | (207,249         | )          |
| Income tax provision                                                                 |       | —                                                      |         | (361                              | )          | (30                         | )          | —                            |       | —           |       | (391             | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | (205,970                                                    | )            | (8,746                            | )          | 7,803                       |       | (727                              | )          | —           |       | (207,640         | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (1,670                                                      | )            | 7,076                             |       | —                      |       | —                            |       | (5,406           | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                       | **(207,640** | **)**                             | **$**      | **(1,670**                  | **)**      | **$**                             | **7,803**  | ** **       | **$**      | **(727**         | **)**      | **$** | **(5,406** | **)** | **$** | **(207,640** | **)** |

 

25

----

Tableof Contents

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Nine Months EndedSeptember 30, 2009**

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** **  | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                             | ** **  |
| **Sales**                                                                            |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Trade                                                                                |       | $                                                           | —      |                              | $          | —                      |       | $                                 | 1,480,153   |             | $          | 7,461            |       | $ | — |   | $ | 1,487,614 |   |
| Intercompany                                                                         |       | —                                                      |        | —                            |       | 15                          |       | 6,516                             |        | (6,531           | )          | —           |       |
| Related parties                                                                      |       | —                                                      |        | —                            |       | 26,000                      |       | —                            |        | —           |       | 26,000           |       |
|                                                                                 |       | —                                                      |        | —                            |       | 1,506,168                   |       | 13,977                            |        | (6,531           | )          | 1,513,614        |       |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                      |        | —                            |       | 1,338,492                   |       | 15,010                            |        | (6,846           | )          | 1,346,656        |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                      |        | —                            |       | 24,716                      |       | —                            |        | —           |       | 24,716           |       |
| Depreciation, amortization, and depletion                                            |       | —                                                      |        | 340                               |       | 30,465                      |       | 1,389                             |        | —           |       | 32,194           |       |
| Selling and distribution expenses                                                    |       | —                                                      |        | —                            |       | 142,838                     |       | 888                               |        | —           |       | 143,726          |       |
| General and administrative expenses                                             |       | 1                                                           |        | 3,896                             |       | 16,417                      |       | —                            |        | 315              |       | 20,629           |       |
| General and administrative expenses from  related party                         |       | —                                                      |        | 7,618                             |       | —                      |       | —                            |        | —           |       | 7,618            |       |
| Other (income) expense, net                                                          |       | —                                                      |        | (1,829                            | )          | 2,479                       |       | (295                              | )           | —           |       | 355              |       |
|                                                                                 |       | 1                                                           |        | 10,025                            |       | 1,555,407                   |       | 16,992                            |        | (6,531           | )          | 1,575,894        |       |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Loss from operations**                                                             |       | (1                                                          | )           | (10,025                           | )          | (49,239                     | )          | (3,015                            | )           | —           |       | (62,280          | )          |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                  |       | 61,536                                                      |        | —                            |       | —                      |       | —                            |        | —           |       | 61,536           |       |
| Gain on sale of shares of equity affiliate (Boise  Inc.)                             |       | 997                                                         |        | —                            |       | —                      |       | —                            |        | —           |       | 997              |       |
| Impairment of investment in equity affiliate (Boise  Inc.)                           |       | (43,039                                                     | )           | —                            |       | —                      |       | —                            |        | —           |       | (43,039          | )          |
| Foreign exchange gain                                                                |       | —                                                      |        | 590                               |       | 173                         |       | 141                               |        | —           |       | 904              |       |
| Change in fair value of contingent value rights                                      |       | —                                                      |        | 194                               |       | —                      |       | —                            |        | —           |       | 194              |       |
| Gain on repurchase of long-term debt                                                 |       | —                                                      |        | 6,026                             |       | —                      |       | —                            |        | —           |       | 6,026            |       |
| Interest expense                                                                     |       | —                                                      |        | (17,140                           | )          | —                      |       | —                            |        | —           |       | (17,140          | )          |
| Interest income                                                                      |       | —                                                      |        | 490                               |       | 270                         |       | —                            |        | —           |       | 760              |       |
|                                                                                 |       | 19,494                                                      |        | (9,840                            | )          | 443                         |       | 141                               |        | —           |       | 10,238           |       |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | 19,493                                                      |        | (19,865                           | )          | (48,796                     | )          | (2,874                            | )           | —           |       | (52,042          | )          |
| Income tax provision                                                                 |       | —                                                      |        | (561                              | )          | (41                         | )          | (21                               | )           | —           |       | (623             | )          |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | 19,493                                                      |        | (20,426                           | )          | (48,837                     | )          | (2,895                            | )           | —           |       | (52,665          | )          |
|                                                                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (72,158                                                     | )           | (51,732                           | )          | —                      |       | —                            |        | 123,890          |       | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                       | **(52,665** | **)**                             | **$**      | **(72,158**                 | **)**      | **$**                             | **(48,837** | **)**            | **$**      | **(2,895**       | **)**      | **$** | **123,890** | ** ** | **$** | **(52,665** | **)** |

 

26

----

Table of Contents

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Nine Months EndedSeptember 30, 2008**

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** **   | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|--------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                             | ** **   |
| **Sales**                                                                            |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                                           | —       |                              | $          | —                      |       | $                                 | 2,316,309  |             | $          | 13,805           |       | $ | — |   | $ | 2,330,114 |   |
| Intercompany                                                                         |       | —                                                      |         | —                            |       | 2                           |       | 20,291                            |       | (20,293          | )          | —           |       |
| Related parties                                                                      |       | —                                                      |         | —                            |       | 130,782                     |       | —                            |       | —           |       | 130,782          |       |
|                                                                                 |       | —                                                      |         | —                            |       | 2,447,093                   |       | 34,096                            |       | (20,293          | )          | 2,460,896        |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                      |         | 1,673                             |       | 2,136,347                   |       | 35,298                            |       | (15,367          | )          | 2,157,951        |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                      |         | —                            |       | 48,234                      |       | —                            |       | —           |       | 48,234           |       |
| Depreciation, amortization, and depletion                                            |       | —                                                      |         | 348                               |       | 25,259                      |       | 1,863                             |       | —           |       | 27,470           |       |
| Selling and distribution expenses                                                    |       | —                                                      |         | —                            |       | 181,350                     |       | 2,152                             |       | —           |       | 183,502          |       |
| General and administrative expenses                                             |       | 1                                                           |         | 6,877                             |       | 27,581                      |       | 237                               |       | (4,926           | )          | 29,770           |       |
| General and administrative expenses from  related party                         |       | —                                                      |         | 6,010                             |       | —                      |       | —                            |       | —           |       | 6,010            |       |
| Gain on sale of Paper and Packaging &  Newsprint assets                     |       | —                                                      |         | (2,996                            | )          | —                      |       | —                            |       | —           |       | (2,996           | )          |
| Other (income) expense, net                                                          |       | 8,357                                                       |         | 354                               |       | (5,863                      | )          | 1,077                             |       | —           |       | 3,925            |       |
|                                                                                 |       | 8,358                                                       |         | 12,266                            |       | 2,412,908                   |       | 40,627                            |       | (20,293          | )          | 2,453,866        |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | (8,358                                                      | )            | (12,266                           | )          | 34,185                      |       | (6,531                            | )          | —           |       | 7,030            |       |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| Equity in net loss of affiliate (Boise Inc.)                                    |       | (15,249                                                     | )            | —                            |       | —                      |       | —                            |       | —           |       | (15,249          | )          |
| Impairment of investment in equity affiliate  (Boise Inc.)                      |       | (208,074                                                    | )            | —                            |       | —                      |       | —                            |       | —           |       | (208,074         | )          |
| Foreign exchange gain (loss)                                                         |       | —                                                      |         | (540                              | )          | (100                        | )          | 511                               |       | —           |       | (129             | )          |
| Change in fair value of contingent value rights                                      |       | —                                                      |         | (1,803                            | )          | —                      |       | —                            |       | —           |       | (1,803           | )          |
| Change in fair value of interest rate swaps                                          |       | —                                                      |         | (6,284                            | )          | —                      |       | —                            |       | —           |       | (6,284           | )          |
| Interest expense                                                                     |       | —                                                      |         | (27,226                           | )          | —                      |       | (845                              | )          | —           |       | (28,071          | )          |
| Interest expense—intercompany                                                   |       | —                                                      |         | (158                              | )          | (2                          | )          | (1,434                            | )          | 1,594            |       | —           |       |
| Interest income                                                                      |       | 2,760                                                       |         | 3,646                             |       | 209                         |       | 14                                |       | —           |       | 6,629            |       |
| Interest income—intercompany                                                    |       | —                                                      |         | 67                                |       | 1,527                       |       | —                            |       | (1,594           | )          | —           |       |
|                                                                                 |       | (220,563                                                    | )            | (32,298                           | )          | 1,634                       |       | (1,754                            | )          | —           |       | (252,981         | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | (228,921                                                    | )            | (44,564                           | )          | 35,819                      |       | (8,285                            | )          | —           |       | (245,951         | )          |
| Income tax provision                                                                 |       | —                                                      |         | (1,256                            | )          | (267                        | )          | —                            |       | —           |       | (1,523           | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | (228,921                                                    | )            | (45,820                           | )          | 35,552                      |       | (8,285                            | )          | —           |       | (247,474         | )          |
|                                                                                 |       |                                                        |         |                              |       |                        |       |                              |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (18,553                                                     | )            | 27,267                            |       | —                      |       | —                            |       | (8,714           | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                       | **(247,474** | **)**                             | **$**      | **(18,553**                 | **)**      | **$**                             | **35,552** | ** **       | **$**      | **(8,285**       | **)**      | **$** | **(8,714** | **)** | **$** | **(247,474** | **)** |

 

27

----

Table of Contents

 

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

**ConsolidatingBalance Sheets at September 30, 2009**

** **
| ** **                                       | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **(thousands)**                                 | ** **  |
| **ASSETS**                                       | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                             |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Current**                                      |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Cash and cash equivalents                        |       | $                                               | 1           |                              | $          | 214,009                     |       | $                                             | 19          |             | $          | 100              |       | $ | — |   | $ | 214,129 |   |
| Receivables                                      |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Trade, less allowances                           |       | —                                          |        | —                            |       | 131,017                     |       | 1,872                                         |        | —           |       | 132,889          |       |
| Related parties                                  |       | —                                          |        | 9                                 |       | 3,509                       |       | —                                        |        | —           |       | 3,518            |       |
| Intercompany                                     |       | —                                          |        | —                            |       | 56                          |       | 321                                           |        | (377             | )          | —           |       |
| Other                                            |       | —                                          |        | 42                                |       | 2,158                       |       | 427                                           |        | —           |       | 2,627            |       |
| Inventories                                      |       | —                                          |        | —                            |       | 229,756                     |       | 3,990                                         |        | —           |       | 233,746          |       |
| Prepaid expenses and other                       |       | —                                          |        | 2,266                             |       | 2,339                       |       | 148                                           |        | —           |       | 4,753            |       |
|                                             |       | 1                                               |        | 216,326                           |       | 368,854                     |       | 6,858                                         |        | (377             | )          | 591,662          |       |
|                                             |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Property**                                     |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Property and equipment, net                      |       | —                                          |        | 3,013                             |       | 259,706                     |       | 12,645                                        |        | —           |       | 275,364          |       |
| Timber deposits                                  |       | —                                          |        | —                            |       | 7,931                       |       | —                                        |        | —           |       | 7,931            |       |
|                                             |       | —                                          |        | 3,013                             |       | 267,637                     |       | 12,645                                        |        | —           |       | 283,295          |       |
| ** **                                       |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Investment in equity affiliate  (Boise Inc.)** |       | 78,822                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | 78,822           |       |
| **Deferred financing costs**                     |       | —                                          |        | 6,064                             |       | —                      |       | —                                        |        | —           |       | 6,064            |       |
| **Goodwill**                                     |       | —                                          |        | —                            |       | 12,170                      |       | —                                        |        | —           |       | 12,170           |       |
| **Intangible assets, net**                       |       | —                                          |        | —                            |       | 8,955                       |       | —                                        |        | —           |       | 8,955            |       |
| **Other assets**                                 |       | —                                          |        | 116                               |       | 8,922                       |       | —                                        |        | —           |       | 9,038            |       |
| **Investments in affiliates**                    |       | 301,088                                         |        | 542,592                           |       | —                      |       | —                                        |        | (843,680         | )          | —           |       |
| **Total assets**                                 | ** ** | **$**                                           | **379,911** | ** **                        | **$**      | **768,111**                 | ** ** | **$**                                         | **666,538** | ** **       | **$**      | **19,503**       | ** ** | **$** | **(844,057** | **)** | **$** | **990,006** | ** ** |

 

28

----

Table of Contents

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at September 30, 2009 (continued)**

 
| ** **                                  | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **(thousands)**                                 | ** **  |
| **LIABILITIES AND CAPITAL**                 | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Current**                                 |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Accounts payable                            |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Trade                                       |       | $                                               | —      |                              | $          | 6,456                       |       | $                                             | 100,772     |             | $          | 977              |       | $ | — |   | $ | 108,205 |   |
| Related parties                             |       | —                                          |        | 1,696                             |       | 590                         |       | —                                        |        | —           |       | 2,286            |       |
| Intercompany                                |       | —                                          |        | —                            |       | 321                         |       | 56                                            |        | (377             | )          | —           |       |
| Accrued liabilities                         |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Compensation and benefits                   |       | —                                          |        | 12,315                            |       | 19,193                      |       | 236                                           |        | —           |       | 31,744           |       |
| Interest payable                            |       | —                                          |        | 7,698                             |       | —                      |       | —                                        |        | —           |       | 7,698            |       |
| Other                                       |       | —                                          |        | 1,715                             |       | 17,278                      |       | 583                                           |        | —           |       | 19,576           |       |
|                                        |       | —                                          |        | 29,880                            |       | 138,154                     |       | 1,852                                         |        | (377             | )          | 169,509          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Debt**                                    |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Long-term debt                              |       | —                                          |        | 303,146                           |       | —                      |       | —                                        |        | —           |       | 303,146          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Other**                                   | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| Compensation and benefits                   |       | —                                          |        | 124,073                           |       | —                      |       | —                                        |        | —           |       | 124,073          |       |
| Other long-term liabilities                 |       | —                                          |        | 9,924                             |       | 3,443                       |       | —                                        |        | —           |       | 13,367           |       |
|                                        |       | —                                          |        | 133,997                           |       | 3,443                       |       | —                                        |        | —           |       | 137,440          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Redeemable equity units**                 |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Series B equity  units                 |       | 2,765                                           |        | —                            |       | —                      |       | —                                        |        | —           |       | 2,765            |       |
| Series C equity  units                 |       | 4,768                                           |        | —                            |       | —                      |       | —                                        |        | —           |       | 4,768            |       |
| Redeemable equity units                     |       | —                                          |        | 7,533                             |       | —                      |       | —                                        |        | (7,533           | )          | —           |       |
|                                        |       | 7,533                                           |        | 7,533                             |       | —                      |       | —                                        |        | (7,533           | )          | 7,533            |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Commitments and contingent  liabilities** | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| ** **                                  | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                 | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| Series A equity units                  |       | 87,185                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | 87,185           |       |
| Series B equity units                  |       | 285,193                                         |        | —                            |       | —                      |       | —                                        |        | —           |       | 285,193          |       |
| Series C equity units                  |       | —                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | —           |       |
| Subsidiary equity                           |       | —                                          |        | 293,555                           |       | 524,941                     |       | 17,651                                        |        | (836,147         | )          | —           |       |
| **Total capital**                           |       | 372,378                                         |        | 293,555                           |       | 524,941                     |       | 17,651                                        |        | (836,147         | )          | 372,378          |       |
| **Total liabilities and capital**           | ** ** | **$**                                           | **379,911** | ** **                        | **$**      | **768,111**                 | ** ** | **$**                                         | **666,538** | ** **       | **$**      | **19,503**       | ** ** | **$** | **(844,057** | **)** | **$** | **990,006** | ** ** |

 

29

----

Table of Contents

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at December 31, 2008**

 
| ** **                                       | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **(thousands)**                                 | ** **  |
| **ASSETS**                                       | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                             |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Current**                                      |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Cash and cash equivalents                        |       | $                                               | 1           |                              | $          | 275,726                     |       | $                                             | 20          |             | $          | 56               |       | $ | — |   | $ | 275,803 |   |
| Receivables                                      |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Trade, less allowances                           |       | —                                          |        | —                            |       | 78,211                      |       | 182                                           |        | —           |       | 78,393           |       |
| Related parties                                  |       | —                                          |        | 126                               |       | 2,986                       |       | —                                        |        | —           |       | 3,112            |       |
| Intercompany                                     |       | —                                          |        | —                            |       | 56                          |       | 34                                            |        | (90              | )          | —           |       |
| Other                                            |       | —                                          |        | 1,269                             |       | 4,324                       |       | 314                                           |        | —           |       | 5,907            |       |
| Inventories                                      |       | —                                          |        | —                            |       | 272,992                     |       | 6,031                                         |        | —           |       | 279,023          |       |
| Prepaid expenses and other                       |       | —                                          |        | (295                              | )          | 1,558                       |       | 33                                            |        | —           |       | 1,296            |       |
|                                             |       | 1                                               |        | 276,826                           |       | 360,147                     |       | 6,650                                         |        | (90              | )          | 643,534          |       |
|                                             |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Property**                                     |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Property and equipment, net                      |       | —                                          |        | 3,204                             |       | 275,499                     |       | 13,296                                        |        | —           |       | 291,999          |       |
| Timber deposits                                  |       | —                                          |        | —                            |       | 8,632                       |       | —                                        |        | —           |       | 8,632            |       |
|                                             |       | —                                          |        | 3,204                             |       | 284,131                     |       | 13,296                                        |        | —           |       | 300,631          |       |
| ** **                                       |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Investment in equity affiliate  (Boise Inc.)** |       | 20,985                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | 20,985           |       |
| **Deferred financing costs**                     |       | —                                          |        | 7,862                             |       | —                      |       | —                                        |        | —           |       | 7,862            |       |
| **Goodwill**                                     |       | —                                          |        | —                            |       | 12,170                      |       | —                                        |        | —           |       | 12,170           |       |
| **Intangible assets, net**                       |       | —                                          |        | —                            |       | 9,248                       |       | —                                        |        | —           |       | 9,248            |       |
| **Other assets**                                 |       | —                                          |        | 105                               |       | 5,904                       |       | —                                        |        | —           |       | 6,009            |       |
| **Investments in affiliates**                    |       | 335,329                                         |        | 583,238                           |       | —                      |       | —                                        |        | (918,567         | )          | —           |       |
| **Total assets**                                 | ** ** | **$**                                           | **356,315** | ** **                        | **$**      | **871,235**                 | ** ** | **$**                                         | **671,600** | ** **       | **$**      | **19,946**       | ** ** | **$** | **(918,657** | **)** | **$** | **1,000,439** | ** ** |

 

30

----

Table of Contents

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at December 31, 2008 (continued)**

 
| ** **                                     | ** ** | **Boise********Cascade********Holdings,********L.L.C.********(Parent)** | ** **  | **Boise********Cascade,********L.L.C.** | ** ** | **Guarantor********Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------------------|-------------|-----------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **(thousands)**                                                         | ** **  |
| **LIABILITIES AND CAPITAL**                    | ** ** | ** **                                                              | ** **  | ** **                              | ** ** | ** **                        | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                           |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| **Current**                                    |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| Accounts payable                               |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| Trade                                          |       | $                                                                       | —      |                                    | $          | 6,928                             |       | $                                             | 62,345      |             | $          | 205              |       | $ | — |   | $ | 69,478 |   |
| Related parties                                |       | —                                                                  |        | 1,427                                   |       | 768                               |       | —                                        |        | —           |       | 2,195            |       |
| Intercompany                                   |       | —                                                                  |        | —                                  |       | 34                                |       | 56                                            |        | (90              | )          | —           |       |
| Accrued liabilities                            |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| Compensation and benefits                      |       | —                                                                  |        | 14,396                                  |       | 23,660                            |       | 172                                           |        | —           |       | 38,228           |       |
| Interest payable                               |       | —                                                                  |        | 3,930                                   |       | —                            |       | —                                        |        | —           |       | 3,930            |       |
| Other                                          |       | —                                                                  |        | 13,736                                  |       | 16,455                            |       | 702                                           |        | —           |       | 30,893           |       |
|                                           |       | —                                                                  |        | 40,417                                  |       | 103,262                           |       | 1,135                                         |        | (90              | )          | 144,724          |       |
|                                           |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| **Debt**                                       |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| Long-term debt                                 |       | —                                                                  |        | 315,000                                 |       | —                            |       | —                                        |        | —           |       | 315,000          |       |
|                                           |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| **Other**                                      |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       | ** **       |       |
| Compensation and benefits                      |       | —                                                                  |        | 172,275                                 |       | —                            |       | —                                        |        | —           |       | 172,275          |       |
| Other long-term liabilities                    |       | —                                                                  |        | 8,214                                   |       | 3,911                             |       | —                                        |        | —           |       | 12,125           |       |
|                                           |       | —                                                                  |        | 180,489                                 |       | 3,911                             |       | —                                        |        | —           |       | 184,400          |       |
|                                           |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| **Redeemable equity units**                    |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| Series B equity  units                    |       | 2,920                                                                   |        | —                                  |       | —                            |       | —                                        |        | —           |       | 2,920            |       |
| Series C equity  units                    |       | 3,037                                                                   |        | —                                  |       | —                            |       | —                                        |        | —           |       | 3,037            |       |
| Redeemable equity units                        |       | —                                                                  |        | 5,957                                   |       | —                            |       | —                                        |        | (5,957           | )          | —           |       |
|                                           |       | 5,957                                                                   |        | 5,957                                   |       | —                            |       | —                                        |        | (5,957           | )          | 5,957            |       |
|                                           |       |                                                                    |        |                                    |       |                              |       |                                          |        |             |       |             |       |
| **Commitments and****contingent  liabilities** | ** ** | ** **                                                              | ** **  | ** **                              | ** ** | ** **                        | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| ** **                                     | ** ** | ** **                                                              | ** **  | ** **                              | ** ** | ** **                        | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                    | ** ** | ** **                                                              | ** **  | ** **                              | ** ** | ** **                        | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| Series A equity units                     |       | 81,967                                                                  |        | —                                  |       | —                            |       | —                                        |        | —           |       | 81,967           |       |
| Series B equity units                     |       | 268,391                                                                 |        | —                                  |       | —                            |       | —                                        |        | —           |       | 268,391          |       |
| Series C equity units                     |       | —                                                                  |        | —                                  |       | —                            |       | —                                        |        | —           |       | —           |       |
| Subsidiary equity                              |       | —                                                                  |        | 329,372                                 |       | 564,427                           |       | 18,811                                        |        | (912,610         | )          | —           |       |
| **Total capital**                              |       | 350,358                                                                 |        | 329,372                                 |       | 564,427                           |       | 18,811                                        |        | (912,610         | )          | 350,358          |       |
| **Total liabilities and capital**              | ** ** | **$**                                                                   | **356,315** | ** **                              | **$**      | **871,235**                       | ** ** | **$**                                         | **671,600** | ** **       | **$**      | **19,946**       | ** ** | **$** | **(918,657** | **)** | **$** | **1,000,439** | ** ** |

 

31

----

Table of Contents

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Nine Months Ended September 30, 2009**

 
| ** **                                                                                        | ** ** | **Boise********Cascade********Holdings,********L.L.C.********(Parent)** | ** ** | **Boise********Cascade,********L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                        |       | **(thousands)**                                                         |       |
| **Cash provided by (used for) operations**                                                   |       |                                                                    |       |                                    |       |                        |       |                                          |       |             |       |             |       |
| Net income (loss)                                                                                 |       | $                                                                       | (52,665    | )                                       | $          | (72,158                     | )          | $                                             | (48,837    | )                | $          | (2,895           | )          | $ | 123,890 |   | $ | (52,665 | ) |
| Items in net income (loss) not using (providing)  cash                                            |       |                                                                    |       |                                    |       |                        |       |                                          |       |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                               |       | (61,536                                                                 | )          | —                                  |       | —                      |       | —                                        |       | —           |       | (61,536          | )          |
| Gain on sale of shares of equity affiliate  (Boise Inc.)                                     |       | (997                                                                    | )          | —                                  |       | —                      |       | —                                        |       | —           |       | (997             | )          |
| Impairment of investment in equity affiliate  (Boise Inc.)                                   |       | 43,039                                                                  |       | —                                  |       | —                      |       | —                                        |       | —           |       | 43,039           |       |
| Equity in net (income) loss of affiliates                                                         |       | 72,158                                                                  |       | 51,732                                  |       | —                      |       | —                                        |       | (123,890         | )          | —           |       |
| Depreciation, depletion, and amortization of   deferred  financing costs and other |       | —                                                                  |       | 2,615                                   |       | 30,465                      |       | 1,389                                         |       | —           |       | 34,469           |       |
| Pension and other postretirement benefit expense                                                  |       | —                                                                  |       | 10,002                                  |       | —                      |       | —                                        |       | —           |       | 10,002           |       |
| Change in fair value of contingent rights                                                         |       | —                                                                  |       | (194                                    | )          | —                      |       | —                                        |       | —           |       | (194             | )          |
| Management equity units expense                                                              |       | —                                                                  |       | 2,306                                   |       | —                      |       | —                                        |       | —           |       | 2,306            |       |
| Gain on repurchase of long-term debt                                                              |       | —                                                                  |       | (6,026                                  | )          | —                      |       | —                                        |       | —           |       | (6,026           | )          |
| Gain on sale of assets, net                                                                       |       | —                                                                  |       | —                                  |       | (326                        | )          | 4                                             |       | —           |       | (322             | )          |
| Facility closure and curtailment costs                                                            |       | —                                                                  |       | —                                  |       | 1,968                       |       | —                                        |       | —           |       | 1,968            |       |
| Other                                                                                             |       | —                                                                  |       | (590                                    | )          | (371                        | )          | (145                                          | )          | —           |       | (1,106           | )          |
| Decrease (increase) in working capital, net ofacquisitions and  dispositions                      |       |                                                                    |       |                                    |       |                        |       |                                          |       |             |       |             |       |
| Receivables                                                                                       |       | —                                                                  |       | 747                                     |       | (53,535                     | )          | (2,090                                        | )          | 287              |       | (54,591          | )          |
| Inventories                                                                                       |       | —                                                                  |       | —                                  |       | 44,073                      |       | 2,041                                         |       | —           |       | 46,114           |       |
| Prepaid expenses and other                                                                        |       | —                                                                  |       | (1,167                                  | )          | (781                        | )          | (111                                          | )          | —           |       | (2,059           | )          |
| Accounts payable and accrued liabilities                                                     |       | —                                                                  |       | 2,976                                   |       | 36,196                      |       | 717                                           |       | (287             | )          | 39,602           |       |
| Pension and other postretirement benefitpayments                                                  |       | —                                                                  |       | (28,080                                 | )          | —                      |       | —                                        |       | —           |       | (28,080          | )          |
| Current and deferred income taxes                                                                 |       | —                                                                  |       | (25                                     | )          | 40                          |       | —                                        |       | —           |       | 15               |       |
| Other                                                                                             |       | —                                                                  |       | (24                                     | )          | (3,020                      | )          | —                                        |       | —           |       | (3,044           | )          |
| Cash provided by (used for) operations                                                            |       | (1                                                                      | )          | (37,886                                 | )          | 5,872                       |       | (1,090                                        | )          | —           |       | (33,105          | )          |
| **Cash provided by (used  for) investment**                                                  |       |                                                                    |       |                                    |       |                        |       |                                          |       |             |       |             |       |
| Proceeds from sale of assets, net                                                                 |       | —                                                                  |       | —                                  |       | 315                         |       | —                                        |       | —           |       | 315              |       |
| Proceeds from sale of shares of equity affiliate  (Boise Inc.)                               |       | 3,032                                                                   |       | —                                  |       | —                      |       | —                                        |       | —           |       | 3,032            |       |
| Expenditures for property and equipment                                                      |       | —                                                                  |       | (6                                      | )          | (12,166                     | )          | (760                                          | )          | —           |       | (12,932          | )          |
| Acquisition of businesses and facilities                                                          |       | —                                                                  |       | —                                  |       | (4,598                      | )          | —                                        |       | —           |       | (4,598           | )          |
| Other                                                                                             |       | —                                                                  |       | 580                                     |       | 1,225                       |       | 159                                           |       | —           |       | 1,964            |       |
| Cash provided by (used for) investment                                                       |       | 3,032                                                                   |       | 574                                     |       | (15,224                     | )          | (601                                          | )          | —           |       | (12,219          | )          |
| **Cash provided by (used for)  financing**                                                        | ** ** | ** **                                                              | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                                    | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of long-term debt                                                                       |       | —                                                                  |       | 60,000                                  |       | —                      |       | —                                        |       | —           |       | 60,000           |       |
| Payments of long-term debt                                                                        |       | —                                                                  |       | (65,627                                 | )          | —                      |       | —                                        |       | —           |       | (65,627          | )          |
| Tax distributions to members                                                                      |       | (10,705                                                                 | )          | —                                  |       | —                      |       | —                                        |       | —           |       | (10,705          | )          |
| Repurchase of management equity units                                                             |       | (18                                                                     | )          | —                                  |       | —                      |       | —                                        |       | —           |       | (18              | )          |
| Due to (from) affiliates                                                                          |       | 7,692                                                                   |       | (18,778                                 | )          | 9,351                       |       | 1,735                                         |       | —           |       | —           |       |
| Cash provided by (used for) financing                                                        |       | (3,031                                                                  | )          | (24,405                                 | )          | 9,351                       |       | 1,735                                         |       | —           |       | (16,350          | )          |
| **Increase (decrease) in cash and  cash equivalents**                                        |       | —                                                                  |       | (61,717                                 | )          | (1                          | )          | 44                                            |       | —           |       | (61,674          | )          |
| **Balance at beginning of the period**                                                            |       | 1                                                                       |       | 275,726                                 |       | 20                          |       | 56                                            |       | —           |       | 275,803          |       |
| **Balance at end of the period**                                                                  | ** ** | **$**                                                                   | **1**      | ** **                              | **$**      | **214,009**                 | ** ** | **$**                                         | **19**     | ** **       | **$**      | **100**          | ** ** | **$** | **—** | ** ** | **$** | **214,129** | ** ** |

 

32

----

Table of Contents

 

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Nine Months Ended September 30, 2008**

** **
| ** **                                                                                        | ** ** | **Boise********Cascade********Holdings,********L.L.C.********(Parent)** | ** ** | **Boise********Cascade,********L.L.C.** | ** ** | **Guarantor********Subsidiaries** | ** ** | **Non-********guarantor********Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                        | ** ** | ** **                                                              | ** ** | ** **                              | ** ** | **(thousands)**                   | ** ** | ** **                                    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash provided by (used for) operations**                                                   |       |                                                                    |       |                                    |       |                              |       |                                          |       |             |       |             |       |
| Net income (loss)                                                                                 |       | $                                                                       | (247,474   | )                                       | $          | (18,553                           | )          | $                                             | 35,552     |             | $          | (8,285           | )          | $ | (8,714 | ) | $ | (247,474 | ) |
| Items in net income (loss) not using (providing)  cash                                            |       |                                                                    |       |                                    |       |                              |       |                                          |       |             |       |             |       |
| Equity in net loss of affiliate (Boise Inc.)                                                 |       | 15,249                                                                  |       | —                                  |       | —                            |       | —                                        |       | —           |       | 15,249           |       |
| Impairment of investment in equity affiliate  (Boise Inc.)                                   |       | 208,074                                                                 |       | —                                  |       | —                            |       | —                                        |       | —           |       | 208,074          |       |
| Equity in net (income) loss of affiliates                                                         |       | 18,553                                                                  |       | (27,267                                 | )          | —                            |       | —                                        |       | 8,714            |       | —           |       |
| Depreciation, depletion, and amortization of   deferred  financing costs and other |       | —                                                                  |       | 1,494                                   |       | 25,259                            |       | 1,877                                         |       | —           |       | 28,630           |       |
| Related-party interest expense                                                                    |       | —                                                                  |       | 158                                     |       | 2                                 |       | 1,434                                         |       | (1,594           | )          | —           |       |
| Related-party interest income                                                                     |       | (2,760                                                                  | )          | (67                                     | )          | (1,527                            | )          | —                                        |       | 1,594            |       | (2,760           | )          |
| Pension and other postretirement benefit expense                                                  |       | —                                                                  |       | 10,616                                  |       | —                            |       | —                                        |       | —           |       | 10,616           |       |
| Change in fair value of contingent rights                                                         |       | —                                                                  |       | 1,803                                   |       | —                            |       | —                                        |       | —           |       | 1,803            |       |
| Change in fair value of interest rate swaps                                                       |       | —                                                                  |       | 6,284                                   |       | —                            |       | —                                        |       | —           |       | 6,284            |       |
| Management equity units expense, excluding  expense related to the Sale                      |       | —                                                                  |       | 1,349                                   |       | —                            |       | —                                        |       | —           |       | 1,349            |       |
| Gain on sale of assets, net                                                                       |       | —                                                                  |       | (2,996                                  | )          | (7,875                            | )          | —                                        |       | —           |       | (10,871          | )          |
| Facility closure and curtailment costs                                                            |       | —                                                                  |       | —                                  |       | 1,965                             |       | —                                        |       |             |       | 1,965            |       |
| Loss on sale of note receivable from related party                                                |       | 8,357                                                                   |       | —                                  |       | —                            |       | —                                        |       | —           |       | 8,357            |       |
| Other                                                                                             |       | —                                                                  |       | 583                                     |       | 77                                |       | (511                                          | )          | —           |       | 149              |       |
| Decrease (increase) in working capital, netof dispositions                                        |       |                                                                    |       |                                    |       |                              |       |                                          |       |             |       |             |       |
| Receivables                                                                                       |       | —                                                                  |       | (8,554                                  | )          | (372,577                          | )          | 319,062                                       |       | —           |       | (62,069          | )          |
| Inventories                                                                                       |       | —                                                                  |       | 5,611                                   |       | 29,112                            |       | 5,259                                         |       | —           |       | 39,982           |       |
| Prepaid expenses                                                                                  |       | —                                                                  |       | 1,151                                   |       | 415                               |       | 502                                           |       | —           |       | 2,068            |       |
| Accounts payable and accrued liabilities                                                     |       | —                                                                  |       | (9,586                                  | )          | 10,610                            |       | (7,346                                        | )          | —           |       | (6,322           | )          |
| Pension and other postretirement benefitpayments                                                  |       | —                                                                  |       | (20,820                                 | )          | —                            |       | —                                        |       | —           |       | (20,820          | )          |
| Current and deferred income taxes                                                                 |       | —                                                                  |       | (514                                    | )          | 203                               |       | (658                                          | )          | —           |       | (969             | )          |
| Other                                                                                             |       | —                                                                  |       | 5,956                                   |       | (4,332                            | )          | (228                                          | )          | —           |       | 1,396            |       |
| Cash provided by (used for) operations                                                            |       | (1                                                                      | )          | (53,352                                 | )          | (283,116                          | )          | 311,106                                       |       | —           |       | (25,363          | )          |
| **Cash provided by (used  for) investment**                                                  |       |                                                                    |       |                                    |       |                              |       |                                          |       |             |       |             |       |
| Proceeds from sale of assets, net of cash  contributed                                            |       | —                                                                  |       | 1,200,795                               |       | 22,750                            |       | 45,536                                        |       | —           |       | 1,269,081        |       |
| Proceeds from sale of note receivable from related  party, net                                    |       | 52,737                                                                  |       | —                                  |       | —                            |       | —                                        |       | —           |       | 52,737           |       |
| Expenditures for property and equipment                                                      |       | —                                                                  |       | (905                                    | )          | (32,998                           | )          | (2,845                                        | )          | —           |       | (36,748          | )          |
| Increase in restricted cash                                                                       |       | —                                                                  |       | (183,290                                | )          | —                            |       | —                                        |       | —           |       | (183,290         | )          |
| Decrease in restricted cash                                                                       |       | —                                                                  |       | 183,290                                 |       | —                            |       | —                                        |       | —           |       | 183,290          |       |
| Other                                                                                             |       | —                                                                  |       | 137                                     |       | 1,446                             |       | (27                                           | )          | —           |       | 1,556            |       |
| Cash provided by (used for) investment                                                       |       | 52,737                                                                  |       | 1,200,027                               |       | (8,802                            | )          | 42,664                                        |       | —           |       | 1,286,626        |       |
| **Cash provided by (used for)  financing**                                                        | ** ** | ** **                                                              | ** ** | ** **                              | ** ** | ** **                        | ** ** | ** **                                    | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of long-term debt                                                                       |       | —                                                                  |       | 115,000                                 |       | —                            |       | 125,000                                       |       | —           |       | 240,000          |       |
| Payments of long-term debt                                                                        |       | —                                                                  |       | (920,563                                | )          | —                            |       | (165,000                                      | )          | —           |       | (1,085,563       | )          |
| Short-term borrowings                                                                             |       | —                                                                  |       | (10,500                                 | )          | —                            |       | —                                        |       | —           |       | (10,500          | )          |
| Tax distributions to members                                                                      |       | (128,024                                                                | )          | —                                  |       | —                            |       | —                                        |       | —           |       | (128,024         | )          |
| Repurchase of management equity units                                                             |       | (28,634                                                                 | )          | —                                  |       | —                            |       | —                                        |       | —           |       | (28,634          | )          |
| Cash paid for termination of interest  rate swaps                                            |       | —                                                                  |       | (11,918                                 | )          | —                            |       | —                                        |       | —           |       | (11,918          | )          |
| Due to (from) affiliates                                                                          |       | 103,922                                                                 |       | (81,099                                 | )          | 291,917                           |       | (314,740                                      | )          | —           |       | —           |       |
| Other                                                                                             |       | —                                                                  |       | (4,155                                  | )          | —                            |       | —                                        |       | —           |       | (4,155           | )          |
| Cash provided by (used for) financing                                                        |       | (52,736                                                                 | )          | (913,235                                | )          | 291,917                           |       | (354,740                                      | )          | —           |       | (1,028,794       | )          |
| **Increase (decrease) in cash and  cash****equivalents**                                          |       | —                                                                  |       | 233,440                                 |       | (1                                | )          | (970                                          | )          | —           |       | 232,469          |       |
| **Balance at beginning of the period**                                                            |       | 1                                                                       |       | 56,588                                  |       | 21                                |       | 1,013                                         |       | —           |       | 57,623           |       |
| **Balance at end of the period**                                                                  | ** ** | **$**                                                                   | **1**      | ** **                              | **$**      | **290,028**                       | ** ** | **$**                                         | **20**     | ** **       | **$**      | **43**           | ** ** | **$** | **—** | ** ** | **$** | **290,092** | ** ** |

 

33

----

Tableof Contents

 

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

 

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

** **

***ITEM2.******                                                ******MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS***

 

***Understanding Our FinancialInformation***

 

The following discussion and analysis providesinformation management believes to be relevant to understanding our financialcondition and results of operations. We recommend that you read this Management’sDiscussion and Analysis of Financial Condition and Results of Operations inconjunction with our consolidated financial statements and notes to unauditedquarterly consolidated financial statements included in “Item 1. FinancialStatements” of this Form 10-Q, as well as our 2008 Form 10-K as filedwith the Securities and Exchange Commission (SEC). This Management’s Discussionand Analysis of Financial Condition and Results of Operations is not acomprehensive discussion and analysis of our financial condition and results ofoperations but rather updates disclosures made in our 2008 Form 10-K.

 

This discussion and analysis includes statementsregarding our expectations with respect to our future performance, liquidity,and capital resources. Such statements, along with any other nonhistoricalstatements in the discussion, are forward-looking. These forward-lookingstatements include, without limitation, any statement that may predict, indicate,or imply future results, performance, or achievements and may contain the words“may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate,” and othersimilar expressions. All of these forward-looking statements are based onestimates and assumptions made by our management that, although believed by usto be reasonable, are inherently uncertain. These forward-looking statementsare subject to numerous risks and uncertainties, including, but not limited to,the risks and uncertainties described in “Part I, Item 1A. RiskFactors” in our 2008 Form 10-K, as well as the factors listed in otherdocuments we file with the SEC. There have been no material changes to our riskfactors during the nine months ended September 30, 2009, from those listedin our 2008 Form 10-K. We do not assume an obligation to update anyforward-looking statement as a result of new information, future events, orotherwise. Our future actual results may differ materially from those containedin or implied by any of the forward-looking statements in this Form 10-Q.

 

*Overview*

 

We begin this discussion and analysis with a generalbackground related to our company. “Recent Trends and Operational Outlook” and “FactorsThat Affect Our Operating Results” are intended to give the reader context thatmay be helpful in understanding the opportunities and challenges our businessesface as we compete in the marketplace. The analysis then reviews “Our OperatingResults” for the three and nine months ended September 30, 2009, comparedwith the same periods in 2008.

 

We discuss our balance sheet, cash flows, andfinancial commitments in the section entitled “Liquidity and Capital Resources.”The analysis then refers you to “Contractual Obligations” and “CriticalAccounting Estimates” that are discussed in further detail in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K and in “Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour Quarterly Report on Form 10-Q for the quarter ended March 31,2009. Critical accounting estimates are those estimates that our managementbelieves are important to understanding the assumptions and judgmentsincorporated in our reported financial results.

 

***Background***

 

Our operations began on October 29, 2004 (inception),when we acquired the forest products and paper assets of OfficeMax (the ForestProducts Acquisition). Before the Forest Products Acquisition, OfficeMax wasknown as Boise Cascade Corporation. We acquired the name “Boise Cascade” aspart of the Forest Products Acquisition.

 

34

----

Tableof Contents

 

On February 22, 2008, Boise Cascade, L.L.C., our wholly owneddirect subsidiary, sold its Paper and Packaging & Newsprint assets andmost of its Corporate and Other assets (the Sale) to Boise Inc. (formerlyAldabra 2 Acquisition Corp.) for cash and securities equal to$1.6 billion, plus working capital adjustments. Immediately following the Sale, Boise Cascade, L.L.C.,distributed the securities received in the transaction to us. The equity interest we own in Boise Inc. represents a significant continuinginterest*.*As a result, the Paper and Packaging &Newsprint segment results for the period of January 1 through February 21,2008, are included in our Consolidated Statement of Loss for the nine monthsended September 30, 2008, and the sold assets are not classified asdiscontinued operations. For more information related to the Sale, seeNote 3, Sale of Our Paper and Packaging & Newsprint Assets, ofthe Notes to Consolidated Financial Statements in “Item 8. FinancialStatements and Supplementary Data” in our 2008 Form 10-K.

 

After the Sale, we became a focused building products company headquartered in Boise,Idaho. We manufacture engineered wood products, plywood, lumber, andparticleboard and distribute a broad line of building materials, including woodproducts we manufacture. We operate our business in the following threereportable segments:  Building MaterialsDistribution, Wood Products, and Corporate and Other. See Note 17, SegmentInformation, of the Notes to Unaudited Quarterly Consolidated FinancialStatements in “Item 1. Financial Statements” of this Form 10-Q foradditional information about our reportable segments.

 

***Recent Trends and OperationalOutlook***

 

The U.S. economy declined dramatically late in 2008and the first part of 2009, and although real gross domestic product growthturned positive in third quarter 2009, the economy remains weak. The nationalunemployment rate continues to be high. The unemployment rate increased to 9.8%at September 30, 2009, compared with 6.2% at September 30, 2008.Concerns continue over the availability and cost of credit, the volatility andstrength of the capital and credit markets, unemployment, and consumer andbusiness confidence, which all affect the business and economic environment inwhich we operate.

 

As of October 2009,the Blue Chip Economic Indicators consensus forecast for 2009 single- andmultifamily housing starts in the U.S. was approximately 0.58 millionunits, and the U.S. Census Bureau reported 2008 housing starts in the U.S. at0.91 million units. These amounts are significantly below historicaltrends of approximately 1.7 million units over the ten years prior to2008. The inventory of unsold homes is elevated relative to the number of homesbeing sold, and foreclosure rates have increased as unemployment rates haveincreased and home prices have declined in many parts of the United States. Asa general rule, those markets that experienced the highest growth and priceappreciation have experienced the biggest declines in price and resultingdeclines in housing starts.

 

Our results areprincipally driven by new single-family home construction and, to a lesserextent, by repair-and-remodel activities as well as light commercialconstruction. Single-family housing starts decreased approximately 17% in thirdquarter 2009 to an annualized rate of 0.50 million units, compared with0.60 million units in third quarter 2008. The decrease is due to an excesssupply of homes, tight credit conditions, and an increase in foreclosures.Consumer spending for large repair-and-remodel projects also decreased due togeneral economic conditions, among other factors. Demand for building productscontinues to be weak, and there is ongoing pricing pressure as supplierscompete for the limited business available.

 

The major costs in our Wood Products segment arelabor, wood fiber, energy, and chemicals. Our input costs have declined overthe last several quarters with the slowdown in global economic activity. Wehave benefited from unit cost declines in glues, resins, and logs. We havemanaged our labor costs during this uncertain economic environment byimplementing pay freezes for our salaried employees until we have evidence ofimproved business conditions. In addition, in first quarter 2009, we amendedour benefit plans to freeze the pension benefits for all salaried employeeseffective December 31, 2009, and suspended the $0.70 company matchcomponent of our 401(k) plan for salaried employees effective April 1,2009.

 

Despite a modestimprovement in demand due to seasonal weather factors in some of our markets,overall market conditions continued to be difficult in the third quarter. Wecontinued to take rolling curtailments at a number of our wood productsoperations to maintain appropriate inventory levels, while trying to minimizethe negative impact of the curtailments on our employees and our operating

 

35

----

Table of Contents

 

results. We have alsopermanently closed some facilities. It is likely that we will need to continueour practice of rolling curtailments in a manner that allows us to retain ourskilled workforce and keep our inventories in balance with demand. We willcontinue to evaluate the long-term viability and value to our business strategyof our remaining operating facilities and may conclude that additionalfacilities should be curtailed or sold in response to market conditions, as webelieve the level of end product demand will remain depressed throughout theremainder of the year. It is unclear when a turnaround may occur, and thereremains a high degree of uncertainty around new residential demand for 2010.However, along with many forecasters, we believe U.S. housing demand willimprove in the longer term based on population demographics and a variety ofother factors.

 

***Factors That Affect Our OperatingResults***

 

Our results of operations and financial performanceare influenced by a variety of factors, including the following:

 

·                  General economic conditions, including but not limitedto housing starts, repair-and-remodel activities and nonresidentialconstruction, foreclosure rates, interest rates, unemployment rates, andrelative currency values;

 

·                  Mortgage pricing and availability, as well as otherconsumer financing mechanisms, that ultimately affect demand for our products;

 

·                  Availability and affordability of raw materials,including wood fiber, energy, and chemicals;

 

·                  The commodity nature of our products and their pricemovements, which are driven largely by supply and demand;

 

·                  Pricing volatility;

 

·                  Industry cycles and capacity utilization rates;

 

·                  The cost and ability to obtain necessary financing;

 

·                  Continued compliance with government regulations;

 

·                  Legislative or regulatory environments, requirements,or changes affecting the businesses in which we are engaged;

 

·                  Labor and personnel relations and shortages of skilledand technical labor;

 

·                  The financial condition and creditworthiness of ourcustomers;

 

·                  Major equipment failure;

 

·                  Severe weather phenomena such as drought, hurricanes,tornadoes, and fire;

 

·                  Our ability to implement our strategies;

 

·                  Actions of suppliers, customers, andcompetitors, including merger and acquisition activities;

 

·                  Financial results of Boise Inc., which weaccount for under the equity method of accounting;

 

·                  Boise Inc.’s performance under the OutsourcingServices Agreement; and

 

·                  The other factors described in “Part 1,Item 1A. Risk Factors” in our 2008 Form 10-K.

 

*Commodityand Differentiated Products and Services*

 

Many of the products wemanufacture and distribute are widely available and can be readily produced ordistributed by our competitors. Because commodity products have fewdistinguishing qualities from producer to producer, competition for theseproducts is primarily based on price, which is determined by supply relative todemand. Generally, market conditions beyond our control determine the price forour commodity products, and the price for any one or more of these products mayfall below our cash production costs or our cost of procurement. Therefore, ourprofitability with respect to these products depends on managing our coststructure, particularly raw material and energy costs, which also exhibitcommodity characteristics.

 

36

----

Tableof Contents

 

Not all of our productsare viewed as commodities in the marketplace. Our engineered wood products(EWP) are differentiated from competing products based on quality and productdesign, as well as related customer service. In the case of EWP products, weare generally able to influence price based on the strength of differentiationand levels of customer service and are generally able to sell these products athigher margins than our commodity products. A fundamental component of ourstrategy is to grow EWP as a share of our total Wood Products segment sales. Webelieve this product is less susceptible to commodity pricing dynamics.

 

During the nine monthsended September 30, 2009 and 2008, sales of EWP from our Wood Productssegment were 34% of segment sales in both periods. The ongoing weakness in newresidential construction has impeded our ability to grow our EWP sales.Comparing the nine months ended September 30, 2009, with the same periodin 2008, our laminated veneer lumber (LVL) and I-joist sales volumes decreased33%.

 

Our Building MaterialsDistribution segment distributes a significant number of commodity and brandedbuilding materials. While we must be competitive on price, our associates andmanagement team understand the positive impact excellent customer service,process innovation, and local market adaptation can have on differentiating ourfunction in the marketplace and generating superior returns on investedcapital.

 

*Demand*

 

Historically,demand for the products we manufacture, as well as the products we purchase anddistribute, has been closely correlated with new residential construction inthe United States and, to a lesser extent, light commercial construction andrepair-and-remodel activities. Demand for new residential construction isinfluenced by seasonal weather factors, mortgage availability and rates,unemployment levels, household formation rates, immigration rates, homeownervacancies, demand for second homes, existing home prices, consumer confidence,and other general economic factors. Industry supply is influenced primarily byoperating rates of existing facilities but is also influenced over time by theintroduction of new product technologies and capacity additions. The balance ofsupply and demand in the U.S. is also heavily influenced by imported products,principally from Canada.

 

Housing starts in theU.S. have fallen dramatically since early 2006, resulting in much lowerbuilding products shipments and pricing for us and many others in the industry.The length and magnitude of industry cycles have varied over time, and we areuncertain as to how long the current supply-demand imbalances will persist.Many of the wood products we produce or distribute, including oriented strandboard (OSB), plywood, lumber, and particleboard, are commodities that arewidely available from other producers or distributors. Even our noncommodityproducts, such as EWP, are affected by commodity prices since the cost ofproducing EWP is affected by veneer and OSB prices. Commodity products have fewdistinguishing qualities from producer to producer, and as a result,competition for these products is based primarily on price, which is determinedby supply relative to demand.

 

*Supply*

 

Industrysupply of wood products is affected by the number of operational or idledfacilities, the building of new capacity, and the shutting down of existingcapacity. Capacity also tends to increase gradually over time withoutsignificant capital expenditures, as manufacturers improve production efficiencies.Generally, more capacity is added or employed when supply is tight and marginsare relatively high, and capacity is idled or eliminated when capacitysignificantly exceeds demand and margins are poor.

 

While new capacityadditions are constrained by the high capital investment and long lead timesrequired to plan, obtain regulatory approvals for, and build a new mill, afavorable pricing environment may prompt manufacturers to initiate expansionprojects.

 

Industrysupply of wood products is also influenced by the level of imports and overseasproduction capacity, which has grown in recent years. The relative weakness ofthe U.S. dollar has mitigated the level of imports in recent years.

 

37

----

Tableof Contents

 

Basedon company news releases and financial analyst reports, we believe all majorproducers of wood products in North America have reduced their production oflumber, OSB, plywood, engineered wood products, and particleboard in responseto the weak market conditions.

 

*OperatingCosts*

 

Ourmajor costs in our Wood Products segment are labor, wood fiber, energy, andchemicals. Given the significance of raw material and energy costs to our totaloperating expenses and our limited ability to control these costs, volatilityin these costs can materially affect our margins. In addition, the timing anddegree of price cycles of raw materials and energy differ with respect to eachtype of raw material and energy we use.

 

In our Building Materials Distribution segment, theprimary cost is for products procured for resale. After considering discountsand rebates, our products procured for resale represent about 88% of our totalcosts and expenses. Occupancy, labor, and delivery costs are also importantfactors that affect our earnings in this segment.

 

*Labor.*  Generally, our labor coststend to increase steadily due to inflation in healthcare and wage costs.However, as discussed above, we are managing our labor costs during thisuncertain economic environment by implementing pay freezes for our salariedemployees until we have evidence of improved business conditions. In addition,in first quarter 2009, we amended our benefit plans to freeze the pensionbenefits for all salaried employees effective December 31, 2009, andsuspended the $0.70 company match component of our 401(k) plan forsalaried employees effective April 1, 2009.

 

As of September 30,2009, we had approximately 4,300 employees. Approximately 1,500, or 35%, ofthese employees work pursuant to collective bargaining agreements. Laborcontracts covering approximately 700 employees with the CarpentersIndustrial Council expired on July 15, 2009, at our Florien and Oakdale,Louisiana, plywood plants. We opened discussions with the union in late secondquarter. We do not expect material work interruptions or increases in our costsduring the course of the negotiations with our collective bargaining units.Nevertheless, if our expectations are not accurate, we could experience amaterial labor disruption or significantly increased labor costs at one or moreof our facilities, any of which could prevent us from meeting customer demandor reduce our sales and profitability.

 

*Woodfiber*.  Our primary raw material is wood fiber. Forthe nine months ended September 30, 2009 and 2008, wood fiber accountedfor approximately 38% and 39% of materials, labor, and other operatingexpenses, including from related parties, in our Wood Products segment.

 

Our primary sources oflogs and wood fiber are timber and byproducts of timber, such as wood shavingsand sawdust. Our wood fiber costs also include purchases of semifinishedmaterials, such as OSB and lumber, for use in EWP production. We acquire substantiallyall of our fiber from outside sources. In our Wood Products segment, we convertlogs into lumber and veneer, and in turn, we convert veneer into EWP andplywood. Logs are a lower percentage of the total cost of materials, labor, andother operating expenses in producing EWP than commodity products, such aslumber and plywood. While log costs are still a significant component of costs,as we produce more EWP relative to commodity products over time, direct logcosts decline as a percentage of the total cost of materials, labor, and otheroperating expenses. We also convert residual wood fiber from our operations, aswell as from third parties, into particleboard.

 

*Other rawmaterials and energy purchasing and pricing. *Wepurchase other raw materials and energy used to manufacture our products inboth the open market and through long-term contracts. These contracts aregenerally with regional suppliers who agree to supply all of our needs for acertain raw material or energy at one of our facilities. These contractsnormally contain minimum purchase requirements and are for terms of variouslengths. They also contain price adjustment mechanisms that take into accountchanges in market prices. Therefore, although our long-term contracts provideus with supplies of raw materials and energy that are more stable thanopen-market purchases, in many cases, they may not alleviate fluctuations inmarket prices.

 

Our costs for raw materials are influenced by increases in energycosts. Specifically, some of our key chemicals, including glues and resinsconsumed in our Wood Products segment, are heavily influenced by energy costs.For our commodity products, the relationship between industry supply and demand,rather than changes in the cost of raw materials, determines our ability toincrease prices. Consequently, we may be unable to pass increases in ouroperating costs to our customers in the short term.

 

38

----

Table of Contents

 

*Energy. *Prices for energy, particularly electricity, naturalgas, and diesel, have been volatile in recent years, at times substantiallyexceeding historical averages. For the nine months ended September 30,2009 and 2008, energy costs represented approximately 4% and 5%, respectively,of materials, labor, and other operating expenses, including from relatedparties, in our Wood Products segment. Our energy costs in wood productsmanufacturing declined during the first nine months of 2009, compared with thesame period in 2008, due to reduced manufacturing activity as well as lowerunit costs for natural gas. Building Materials Distribution and Wood Productshave also experienced reductions in inbound and outbound freight costs due tolower diesel prices.

 

*Chemicals. *Important chemicals we use in theproduction of our wood products are resins and glues. For the nine months endedSeptember 30, 2009 and 2008, purchases of chemicals representedapproximately 5% and 7%, respectively, of materials, labor, and other operatingexpenses, including from related parties, in our Wood Products segment.Chemical unit costs were lower in thefirst nine months of 2009, compared with the first nine months of 2008, due primarily to chemical marketsupply and demand dynamics and lower energy input costs for chemical suppliers.

 

39

----

Table of Contents

 

***OurOperating Results***

 

The following tables set forth our operating resultsin dollars and as a percentage of sales for the three and nine months ended September 30,2009 and 2008:

 
| ** **                                                             | ** ** | **Three  Months Ended********September 30** | ** ** | **Nine  Months Ended********September 30** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                             |       | **(millions)**                                   |       |
| **Sales**                                                              |       |                                             |       |                                            |       |   |   |   |   |
| Trade                                                                  |       | $                                                | 567.6      |                                            | $          | 705.9 |   | $ | 1,487.6 |   | $ | 2,330.1 |   |
| Related parties                                                        |       | 11.4                                             |       | 21.2                                            |       | 26.0 |   | 130.8 |   |
|                                                                   |       | 579.0                                            |       | 727.1                                           |       | 1,513.6 |   | 2,460.9 |   |
|                                                                   |       |                                             |       |                                            |       |   |   |   |   |
| **Costs and expenses**                                                 |       |                                             |       |                                            |       |   |   |   |   |
| Materials, labor, and other operating expenses                         |       | 501.9                                            |       | 627.4                                           |       | 1,346.7 |   | 2,158.0 |   |
| Materials, labor, and other operating expenses from related parties    |       | 6.1                                              |       | 19.0                                            |       | 24.7 |   | 48.2 |   |
| Depreciation, amortization, and depletion                              |       | 9.6                                              |       | 8.8                                             |       | 32.2 |   | 27.5 |   |
| Selling and distribution expenses                                      |       | 50.7                                             |       | 62.5                                            |       | 143.7 |   | 183.5 |   |
| General and administrative expenses                                    |       | 6.9                                              |       | 7.3                                             |       | 20.6 |   | 29.8 |   |
| General and administrative expenses from related party                 |       | 2.7                                              |       | 2.5                                             |       | 7.6 |   | 6.0 |   |
| (Gain) loss on sale of Paper and Packaging & Newsprint assets |       | —                                           |       | 1.7                                             |       | — |   | (3.0 | ) |
| Other (income) expense, net                                            |       | (0.6                                             | )          | (3.8                                            | )          | 0.4 |   | 3.9 |   |
|                                                                   |       | 577.3                                            |       | 725.4                                           |       | 1,575.9 |   | 2,453.9 |   |
|                                                                   |       |                                             |       |                                            |       |   |   |   |   |
| **Income (loss) from operations**                                      | ** ** | **$**                                            | **1.7**    | ** **                                      | **$**      | **1.7** | ** ** | **$** | **(62.3** | **)** | **$** | **7.0** | ** ** |

 
| ** **                                                                 | ** ** | **(percentage  of sales)** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                 |       |                       |       |   |   |   |   |   |   |
| **Sales**                                                                  |       |                       |       |   |   |   |   |   |   |
| Trade                                                                      |       | 98.0                       | %          | 97.1 | % | 98.3 | % | 94.7 | % |
| Related parties                                                            |       | 2.0                        |       | 2.9 |   | 1.7 |   | 5.3 |   |
|                                                                       |       | 100.0                      | %          | 100.0 | % | 100.0 | % | 100.0 | % |
|                                                                       |       |                       |       |   |   |   |   |   |   |
| **Costs and expenses**                                                     |       |                       |       |   |   |   |   |   |   |
| Materials, labor, and other operating expenses, including related  parties |       | 87.7                       | %          | 88.9 | % | 90.6 | % | 89.6 | % |
| Depreciation, amortization, and depletion                                  |       | 1.7                        |       | 1.2 |   | 2.1 |   | 1.1 |   |
| Selling and distribution expenses                                          |       | 8.8                        |       | 8.6 |   | 9.5 |   | 7.4 |   |
| General and administrative expenses, including related party               |       | 1.6                        |       | 1.3 |   | 1.9 |   | 1.5 |   |
| Gain on sale of Paper and Packaging & Newsprint assets            |       | —                     |       | 0.3 |   | — |   | (0.1 | ) |
| Other (income) expense, net                                                |       | (0.1                       | )          | (0.5 | ) | — |   | 0.2 |   |
|                                                                       |       | 99.7                       | %          | 99.8 | % | 104.1 | % | 99.7 | % |
|                                                                       |       |                       |       |   |   |   |   |   |   |
| I**ncome (loss) from operations**                                          | ** ** | **0.3**                    | **%**      | **0.2** | **%** | **(4.1** | **)%** | **0.3** | **%** |

 

40

----

Table of Contents

 

***Sales Volumes and Prices***

 

Setforth below are sales mix information for our Building Materials Distributionsegment and segment sales volumes and average net selling prices for theprincipal products sold by our Wood Products segment for the three and ninemonths ended September 30, 2009 and 2008.

 
| ** **                       | ** ** | **Three Months Ended********September 30** | ** ** | **Nine Months Ended********September 30** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                        | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                       |       | **(millions)**                                  |       |
| ** **                       |       |                                            |       |                                           |       |   |   |   |   |
| **Segment Sales**                |       |                                            |       |                                           |       |   |   |   |   |
| Building Materials  Distribution |       | $                                               | 472.2      |                                           | $          | 584.1 |   | $ | 1,240.9 |   | $ | 1,698.0 |   |
| Wood Products                    |       | 163.2                                           |       | 215.1                                          |       | 414.1 |   | 639.8 |   |
|                                  |            |                                                 |            |                                                |            |  |  |  |  |  |  |  |  |

 
| ** **                           | ** ** | **(percentage  of Building Materials********Distribution sales)** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                           | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Product  Line Sales**              |       |                                                              |       |   |   |   |   |   |   |
| **Building  Materials Distribution** | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commodity                            |       | 45.4                                                              | %          | 47.1 | % | 45.8 | % | 45.5 | % |
| Engineered  wood                     |       | 11.9                                                              |       | 12.2 |   | 10.8 |   | 12.1 |   |
| General  line                        |       | 42.7                                                              |       | 40.7 |   | 43.4 |   | 42.4 |   |

 
| ** **                                  | ** ** | **(millions)** | ** ** |
|---------------------------------------------|------------|----------------|------------|
| ** **                                  | ** ** | ** **     | ** ** |
| **Sales  Volumes**                          |       |           |       |   |   |   |   |   |   |
| **Wood  Products**                          |       |           |       |   |   |   |   |   |   |
| Laminated  veneer lumber (LVL) (cubic feet) |       | 1.7            |       | 2.0 |   | 4.2 |   | 6.2 |   |
| I-joists  (equivalent lineal feet)          |       | 27             |       | 31 |   | 65 |   | 98 |   |
| Plywood  (sq. ft.) (3/8” basis)        |       | 261            |       | 311 |   | 753 |   | 941 |   |
| Lumber  (board feet)                        |       | 45             |       | 48 |   | 110 |   | 155 |   |
| Particleboard  (sq. ft.) (3/4” basis)  |       | 22             |       | 29 |   | 61 |   | 83 |   |

 
| ** **                                       | ** ** | **(dollars  per unit)** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Average Net Selling Prices**                   | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Wood Products**                                | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer lumber  (LVL) (100 cubic feet)  |       | $                       | 1,508      |   | $ | 1,569 |   | $ | 1,520 |   | $ | 1,595 |   |
| I-joists (1,000  equivalent lineal feet)         |       | 908                     |       | 937 |   | 907 |   | 953 |   |
| Plywood (1,000 sq. ft.)  (3/8” basis)       |       | 226                     |       | 261 |   | 212 |   | 254 |   |
| Lumber (1,000 board feet)                        |       | 374                     |       | 368 |   | 337 |   | 374 |   |
| Particleboard (1,000 sq.  ft.) (3/4” basis) |       | 332                     |       | 368 |   | 340 |   | 359 |   |
|                                                  |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

***Operating Results***

 

# ***Sales***

# * *

For the three monthsended September 30, 2009, total sales decreased $148.1 million, or20%, to $579.0 million from $727.1 million during the three monthsended September 30, 2008. For the nine months ended September 30,2009, total sales decreased $947.3 million, or 38%, to$1,513.6 million from $2,460.9 million in the prior year. In bothperiods, the decrease in sales was attributable to weaker product demand andprices, as U.S. new residential housing demand declined. Our sales areprincipally driven by single-family housing starts, which decreased 17% to anannualized rate of 0.50 million units, compared with 0.60 millionunits in third quarter 2008. Relative to the nine months ended September 30,2008, the decrease also resulted from the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. These operations had sales of $359.9million for the period of January 1 through February 21, 2008.

 

*Building Materials Distribution.* Sales decreased $111.9 million, or 19%, to $472.2 million for the three months ended September 30,2009, from $584.1 million for the three months ended September 30,2008. During the nine months ended September 30, 2009, sales decreased$457.1 million, or 27%, to $1,240.9 million from$1,698.0 million in the prior year. The decrease in sales in both comparison periods resulted fromlower sales volumes and prices due to decreased demand in new residentialconstruction markets. Compared with the three and nine months ended September 30,2008, sales volumes in our distribution business decreased 13% and 23%,respectively, and average net selling prices decreased 7% and 5%, respectively.

 

41

----

Table of Contents

 

*WoodProducts.* Sales decreased $51.9 million, or 24%, to$163.2 million for thethree months ended September 30, 2009, from $215.1 million for thethree months ended September 30, 2008. During the nine months ended September 30,2009, sales decreased $225.7 million, or 35%, to $414.1 million from$639.8 million in the same period a year ago. The decrease in sales forthe three and nine months ended September 30, 2009, resulted from reducedvolumes and prices for our major product categories, including plywood, EWP,and particleboard.

 

##### ***Costsand Expenses***

##### *** ***

Materials, labor, andother operating expenses, including from related parties, decreased$138.4 million, or 21%, to $508.0 million for the three months ended September 30, 2009, compared with$646.4 million during the same period in the prior year. For the ninemonths ended September 30, 2009, these expenses decreased$834.8 million, or 38%, to $1,371.4 million, compared with$2,206.2 million in the same period in the prior year. Materials, labor,and other operating expenses, including from related parties, in our BuildingMaterials Distribution segment decreased $101.7 million and$416.0 million, compared with the three and nine months ended September 30,2008, respectively, due primarily to lower purchased materials costs due tolower sales volumes. Materials, labor, and other operating expenses, includingfrom related parties, in our Wood Products segment decreased $52.4 millionand $192.3 million, compared with the three and nine months ended September 30,2008, respectively, due to reduced manufacturing volumes in response to weakersales activity as well as lower prices for key production inputs, includingfiber, chemicals, and energy. Compared with the nine months ended September 30,2008, the decrease also resulted from the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. These operations had materials, labor,and other operating expenses of $321.6 million for the period of January 1through February 21, 2008.

 

Depreciation, amortization, and depletion expenses increased $0.8 million, or 10%, to $9.6 million for the three months ended September 30,2009, compared with $8.8 million for the same period in the prior year.Relative to the nine months ended September 30, 2008, these expensesincreased $4.7 million, or 17%, to $32.2 million, compared with$27.5 million in the prior year. Compared with the nine months ended September 30,2008, the increase in expense relates to recognizing $5.2 million ofincremental expense as a result of accelerating depreciation on the assets atour La Grande, Oregon, lumber manufacturing facility following our decision toclose the operations.

 

Selling and distribution expenses decreased$11.8 million, or 19%, to $50.7 million for the three months ended September 30, 2009, compared with$62.5 million for the same period in the prior year. During the ninemonths ended September 30, 2009, these costs decreased $39.8 million,or 22%, to $143.7 million, compared with $183.5 million during thesame period a year ago. Compared with the nine months ended September 30,2008, approximately $9.1 million of the decrease related to the sale ofour Paper and Packaging & Newsprint assets in first quarter 2008. Forboth comparison periods, selling and distribution expenses declined in ourBuilding Materials Distribution and Wood Products segments due to lower salesactivity and our continued focus on reducing costs. While total selling anddistribution expenses decreased, the costs increased as a percent of sales, asthese costs did not decline at the same pace as sales.

 

General andadministrative expenses, including from related party, decreased $0.2 million, or 2%, to$9.6 million for the threemonths ended September 30, 2009, compared with $9.8 million for thesame period in the prior year. For the nine months ended September 30,2009, general and administrative expenses decreased $7.6 million, or 21%,to $28.2 million, compared with $35.8 million a year ago. For thenine months ended September 30, 2009, the decrease was driven primarily bythe sale of our Paper and Packaging & Newsprint assets in firstquarter 2008. These operations reported $6.6 million of expenses for theperiod of January 1 through February 21, 2008. In both periods, thedecrease in general and administrative expenses related to lower wage andbenefit expenses and a decline in miscellaneous other general andadministrative areas as a result of cost-control efforts.

 

42

----

Tableof Contents

 

“Other(income) expense, net” includes miscellaneous income and expense items. Thecomponents of “Other (income) expense, net” in the Consolidated Statements ofIncome (Loss) are as follows:

 
| ** **                                                  | ** ** | **Three  Months Ended********September 30** | ** ** | **Nine  Months Ended********September 30** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                  | ** ** | **(millions)**                                   | ** ** |
|                                                        |       |                                             |       |                                            |       |   |   |   |   |
| Facility closures and curtailments (a)                      |       | $                                                | (0.5       | )                                               | $          | 2.0 |   | $ | 3.2 |   | $ | 3.2 |   |
| Changes in pension plans                                    |       | —                                           |       | —                                          |       | (0.7 | ) | — |   |
| Loss on sale of note receivable from related party (b) |       | —                                           |       | —                                          |       | — |   | 8.4 |   |
| Sale of assets, net (c)                                     |       | (0.1                                             | )          | (5.8                                            | )          | (0.3 | ) | (7.9 | ) |
| Other, net                                                  |       | —                                           |       | —                                          |       | (1.8 | ) | 0.2 |   |
| ** **                                                  | ** ** | **$**                                            | **(0.6**   | **)**                                           | **$**      | **(3.8** | **)** | **$** | **0.4** | ** ** | **$** | **3.9** | ** ** |

 

----

(a)                                  In June 2009,we closed the lumber manufacturing facility in La Grande, Oregon. Duringthe nine months ended September 30, 2009, we recorded $3.1 million ofexpense in “Other (income) expense, net,” $5.2 million of accelerateddepreciation in “Depreciation, amortization, and depletion,” and$0.6 million of expenses in “Materials, labor, and other operatingexpenses” in our Consolidated Statement of Loss.

 

In September 2008, we permanently closed our veneer operation inSt. Helens, Oregon, and recorded $2.1 million of expenses related tothe closure in “Other (income) expense, net” in our Consolidated Statements ofLoss for the three and nine months ended September 30, 2008. In addition,we recorded $0.7 million of expense for the write-down of log inventoriesin “Materials, labor, and other operating expenses.”

 

(b)                                 In June 2008,we sold the note receivable from Boise Inc. for $52.7 million, afterselling expenses, and recorded an $8.4 million loss on the sale.

 

(c)                                  In July 2008,we sold our indirect wholly owned subsidiary in Brazil, Boise Cascade do BrasilLTDA., to Aracruz Celulose, S.A., for $45.5 million after sellingexpenses. For the three and nine months ended September 30, 2008, werecorded a $7.0 million and $5.7 million gain on the sale.

 

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

 

Income from operationswas $1.7 million for each of the three months ended September 30, 2009 and2008. Income (loss) from operations decreased $69.3 million to a$62.3 million loss for the nine months ended September 30, 2009,compared with $7.0 million of income during the same period in the prioryear. Relative to the three and nine months ended September 30, 2008, wereported lower operating income in the Building Materials Distribution and WoodProducts segments due to declines in housing construction and demand for ourproducts, which are discussed in more detail below. Relative to the nine monthsended September 30, 2008, the decrease also resulted from the sale of ourPaper and Packaging & Newsprint assets in first quarter 2008. Thesebusinesses reported $23.1 million of income from operations during theperiod of January 1 through February 21, 2008.

 

*BuildingMaterials Distribution.*  Segment income decreased$0.5 million to $9.7 million for the three months ended September 30,2009, from $10.2 million for the three months ended September 30,2008. During the nine months ended September 30, 2009, segment incomedecreased $15.5 million to $8.8 million from $24.3 million ofincome in the same period a year ago. In both periods, the decrease was drivenprimarily by fewer gross margin dollars available to cover relatively fixedexpenses such as occupancy, payroll, and delivery costs, as sales volumesdeclined from the same periods a year ago. However, compared with the three andnine months ended September 30, 2008, over 90% and 60%, respectively, ofthe decline in gross profit dollars was favorably offset by lower operatingcosts and cost-reduction initiatives implemented over the last year.

 

*WoodProducts. *Segment loss increased $1.1 million to$4.2 million for the threemonths ended September 30, 2009,compared with a $3.1 million loss for the three months ended September 30,2008. During the nine monthsended September 30, 2009, segment loss increased $37.4 million to$61.0 million, compared with a $23.6 million loss in the same perioda year ago. The increase in segment loss was driven primarily by pricing andvolume declines for plywood, compared with the same periods a year ago. Thesedeclines were partially offset by favorable input costs, primarily wood costs;productivity improvements; and curtailments at facilities previously generatingcash losses.

 

43

----

Table of Contents

 

*Other*

 

*Investmentin equity affiliate*.  We account for our investment in Boise Inc.under the equity method of accounting. We adjust the amount of our investment monthly for ourproportionate share of Boise Inc.’s net income or loss and our share of othercomprehensive income or loss based on the most recently available financialstatements. As a result, our aggregate investment in Boise Inc. isrecorded in a combination of the “Investment in equity affiliate” and othercomprehensive income accounts within “Series B equity units” on ourConsolidated Balance Sheets. Our ownership interest, and consequently ourproportionate share of Boise Inc.’s net income or loss, changes when we orBoise Inc. engage in transactions of Boise Inc. common stock withthird parties. At September 30, 2009, we owned 35.9 million shares,or 46.0%, of Boise Inc. Assuming the vesting of all of Boise Inc.’srestricted stock, our ownership percentage on September 30, 2009, was42.5% on a fully diluted basis. Changes in ownership interest may also resultin our recording an ownership interest dilution gain or loss.

 

During the three and ninemonths ended September 30, 2009, we recorded income of $29.2 millionand $19.5 million, respectively, related to our investment inBoise Inc. in our Consolidated Statements of Income (Loss), compared withnet expense of $205.9 million and $223.3 million during the three andnine months ended September 30, 2008, as follows:

 
| ** **                                                 | ** ** | **Three  Months Ended  September 30** | ** ** | **Nine  Months Ended  September 30** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(millions)**                             | ** ** |
|                                                       |       |                                       |       |                                      |       |   |   |   |   |
| Equity in net  income (loss) of Boise Inc.            |       | $                                          | 22.4       |                                      | $          | 2.1 |   | $ | 45.7 |   | $ | (15.4 | ) |
| Amortization of  basis differential (a)                    |       | 5.9                                        |       | —                                    |       | 16.9 |   | 0.1 |   |
| Loss on shares  issued for settlement of CVR liability (b) |       | —                                     |       | —                                    |       | (1.0 | ) | — |   |
| Equity in net  income (loss) of affiliate                  |       | 28.2                                       |       | 2.1                                       |       | 61.5 |   | (15.2 | ) |
| Gain on sale of  shares of equity affiliate (c)            |       | 1.0                                        |       | —                                    |       | 1.0 |   | — |   |
| Impairment of  investment in equity affiliate (d)          |       | —                                     |       | (208.1                                    | )          | (43.0 | ) | (208.1 | ) |
| Total                                                      | ** ** | **$**                                      | **29.2**   | ** **                                | **$**      | **(205.9** | **)** | **$** | **19.5** | ** ** | **$** | **(223.3** | **)** |

 

----

(a)                                  At September 30,2009, the carrying value of our investment in Boise Inc. was approximately$210.2 million less than our share of Boise Inc.’s underlying equityin net assets. The difference is due to the write-down of our investment inBoise Inc. We are amortizing the difference to income on a straight-linebasis over 9.1 years, which represents the remaining weighted-averageuseful life of Boise Inc.’s assets. The amortization of the basisdifferential resulted in our recognizing $5.9 million and$16.9 million of income in “Equity in net income (loss) of affiliate” inour Consolidated Statements of Income (Loss) for the three and nine monthsended September 30, 2009, and will result in our recognizing approximately$23.1 million of income per year for the next 9.1 years, which willbe increased or decreased by our proportionate share of Boise Inc.’s netincome or loss.

 

(b)                                 During the ninemonths ended September 30, 2009, we settled our obligation related to thecontingent value rights (CVRs) we issued to holders of Boise Inc. common stock.In connection with the settlement, in first quarter 2009, we transferredownership of 0.8 million Boise Inc. shares and recorded a$1.0 million loss in “Equity in net income (loss) of affiliate” in ourConsolidated Statement of Loss for the difference between the market price onthe date we settled our obligation with the shares and the carrying amount ofthe shares recorded on our Balance Sheet. For more information, see Note 13, Financial Instrument Risk,of the Notes to Unaudited Quarterly Consolidated Financial Statements in “Item 1.Financial Statements” of this Form 10-Q.

 

(c)                                  During the threeand nine months ended September 30, 2009, we sold 1.2 millionBoise Inc. shares and recorded a $1.0 million gain on the sale of theBoise Inc. shares in our Consolidated Statements of Income (Loss). Wecontributed substantially all of the cash proceeds from the sale of the sharesto our pension plans.

 

(d)                                 Quarterly, wecompare the fair value of the Boise Inc. stock price with the carrying value ofour investment to assess for other than temporary impairment. On March 31,2009, and September 30, 2008, we concluded that our investment in BoiseInc. met the definition of other than temporarily impaired. Accordingly, werecorded a $43.0 million impairment charge for the nine months ended September 30,2009, and a $208.1 million impairment charge for the three and nine monthsended September 30, 2008, in “Impairment of investment in equity affiliate”in our Consolidated Statements of Loss. For more information, see Note 3,Investment in Equity Affiliate, of the Notes to Unaudited QuarterlyConsolidated Financial Statements in “Item 1. Financial Statements” ofthis Form 10-Q.

 

44

----

Table of Contents

 

On September 30, 2009, we evaluated whether ourinvestment in Boise Inc. was other than temporarily impaired and concludedthat it was not. The fair value of our investment of $5.28 per share exceededthe carrying value of $2.20 per share on that date. We will continue to monitorthe value of Boise Inc.’s stock and our carrying value. Should marketconditions and/or Boise Inc.’s financial performance deteriorate, it ispossible that we will be required to record a noncash impairment charge thatcould have a material impact on our Consolidated Statements of Income (Loss).As additional information becomes known, we may change our estimates.

 

*Changein fair value of contingent value rights. *The nine months ended September 30,2009 and 2008, and the three months ended September 30, 2008, included$0.2 million of income, $1.8 million of expense, and$2.2 million of income, respectively, related to the change in the fairvalue of the contingent value rights (CVRs) that we and Terrapin PartnersVenture Partnership granted to certain Boise Inc. investors. For moreinformation related to the CVRs, see Note 13, Financial Instrument Risk,of the Notes to Unaudited Quarterly Consolidated Financial Statements in “Item 1.Financial Statements” of this Form 10-Q.

 

*Changein fair value of interest rate swaps. *The nine months ended September 30, 2008,included $6.3 million of expense related to changes in the fair value ofour interest rate swaps, which were terminated in February 2008.

 

*Gain on repurchase of long-termdebt. *During the nine months ended September 30, 2009,we repurchased $11.9 million of senior subordinated notes and recorded a$6.0 million gain.

 

*Interest expense. *For the three months ended September 30, 2009,interest expense was $5.4 million, compared with $6.3 million for thesame period a year ago. For the nine months ended September 30, 2009,interest expense was $17.1 million, compared with $28.1 million forthe same period in 2008. The decrease in interest expense is primarilyattributable to the reduction of long-term debt. For more information, see “Financing Activities” under“Liquidity and Capital Resources” in “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in our 2008 Form 10-K.

 

*Income tax provision.* Our income tax provision generally consists of income taxes payable tostates that do not allow for the income tax liability to be passed through toour equity holders, as well as income taxes payable by our separatesubsidiaries that are taxed as corporations. For the three months ended September 30,2009 and 2008, income tax expense was $0.1 million and $0.4 million.Income tax expense was $0.6 million and $1.5 million for the ninemonths ended September 30, 2009 and 2008. During the three months ended September 30,2009 and 2008, our effective tax rates for our separate subsidiaries that aretaxed as corporations were 31.3% and 34.0%. Our effective tax rates were 31.9%and 35.2% for the nine months ended September 30, 2009 and 2008. Theprimary reason for the difference in tax rates is the effect of state incometaxes and the mix of domestic and foreign sources of income.

 

***Liquidity and Capital Resources***

 

In response to the continued economic uncertainty andto enhance our liquidity, we have and will continue to aggressively manageworking capital and match production with market demand, as well as suspend allnoncritical capital projects. At September 30, 2009, we had$214.1 million of cash and cash equivalents, compared with$275.8 million at December 31, 2008. The credit quality of ourportfolio of short-term investments remains strong, with the majority of ourcash and cash equivalents invested in money market funds that are broadlydiversified and invest in high-quality, short-duration securities, includingcommercial paper, certificates of deposit, U.S. government agency securities,and similar instruments. We believe that our cash flows from operations,combined with our current cash levels and available borrowing capacity, will beadequate to fund debt service requirements and provide cash, as required, tosupport our ongoing operations, capital expenditures, lease obligations, andworking capital needs for at least the next 12 months.

 

The credit markets have experienced difficultconditions that may adversely affect the ability of our lenders to fulfilltheir commitment under our five-year $290 million senior secured asset-basedrevolving credit facility (Revolving Credit Facility). We continuously monitorthe credit quality of the banks that participate in our Revolving CreditFacility. Based on information available to us as of the filing date of this Form 10-Q,we have no indications that the financial institutions included in ourRevolving Credit

 

45

----

Table of Contents

 

Facility would be unable to fulfill their commitments.At September 30, 2009, a total of ten lenders participated in theRevolving Credit Facility, and the largest single commitment under theRevolving Credit Facility was $117.7 million.

 

On November 12, 2009, we announced our intent to sell 15 million ofthe 35.9 million shares we hold in Boise Inc. in a secondary offering being ledby Goldman, Sachs & Co. Our ownership interest and our proportionateshare of Boise Inc.’s net income or loss will decrease after the sale. Thefinal pricing and size of the offering will depend on market conditions. If theoffering is successful, we will be obligated under the indenture governing our7.125% senior subordinated notes due 2014 to use the net proceeds within oneyear to repay senior indebtedness, acquire additional assets, or make a tenderoffer at par for a portion of the senior subordinated notes.

 

***OperatingActivities***

 

We operate in a cyclical industry, and our operating cash flows varyaccordingly. Ourprincipal operating cash expenditures are for purchased inventories in ourBuilding Materials Distribution segment and expenditures related to themanufacture of building products, including fiber, energy, labor, andchemicals, in our Wood Products segment. For the nine months ended September 30, 2009 and 2008, our operatingactivities used $33.1 million and $25.4 million of cash,respectively. Comparedwith the nine months ended September 30, 2008, the increase in cash usedby operations relates primarily to the following:

 

·                  *A decrease in income in ourBuilding Materials Distribution segment and an increase in losses in our WoodProducts segment. *As discussed under “Operating Results” above, thelower results for the nine months ended September 30, 2009, were theresult of fewer grossmargin dollars available in our Building Materials Distribution segment tocover relatively fixed expenses, such as occupancy, payroll, and deliverycosts, as sales volumes declined from the same period a year ago. Also, in ourWood Products segment, the increased loss was driven primarily by pricing andvolume declines for plywood, which were partially offset by favorable inputcosts, primarily wood costs; productivity improvements; and curtailments atfacilities previously generating cash losses.

 

·*                 **More cash contributions to ourpension and postretirement benefit plans.*  During the nine months ended September 30, 2009,we used $28.1 million of cash to make pension contributions and otherpostretirement benefit payments, compared with $20.8 million during thenine months ended September 30, 2008.

 

·                  *The increase in cash usedfor the items discussed above was partially offset by $29.1 million ofcash generated by the reduction of working capital during the nine months endedSeptember 30, 2009, compared with $26.3 million of cash used in thesame period a year ago for increases in working capital.*  Working capital is subject to cyclical operatingneeds, the timing of the collection of receivables, the payment of payables andexpenses, and to a lesser extent, seasonal fluctuations in our operations. Thedecrease in working capital during the nine months ended September 30,2009, was primarily attributable to a decrease in inventory in our WoodProducts segment, which reflects seasonality as well as reduced inventory aspart of our effort to manage to the current weakened demand environment in thehousing market, and seasonally higher accounts payable and accrued liabilitiesin our Building Materials Distribution segment. These positive working capitalchanges were partially offset by higher receivables in our Building MaterialsDistribution and Wood Products segments, which primarily reflect increasedsales of approximately 45% and 41%, comparing sales for the month of September 2009with sales for the month of December 2008.

 

***Investment Activities***

 

During the nine months ended September 30, 2009,we used approximately $12.9 million of cash for purchases of property andequipment, which included expenditures for a new dryer in Medford, Oregon, aswell as costs related to other replacement projects and ongoing environmentalcompliance. In addition, we spent $4.6 million for the acquisition ofbusinesses and facilities. We purchased a sawmill in Pilot Rock, Oregon, whichwill improve our regional fiber integration in our Wood Products segment and atruss assembly operation and EWP sales office in Saco and Biddeford, Maine,respectively, which has allowed our Building Materials Distribution segment tomove into the truss market in the Northeast. We received $3.0 million ofnet proceeds from the sale of 1.2 million Boise Inc. shares, of whichwe contributed substantially all of the cash proceeds from the sale of theshares to our pension plans.

 

We expect capital investments in 2009 to totalapproximately $15 million to $20 million, excluding acquisitions.This level of capital expenditures could increase or decrease as a result of anumber of factors, including our financial results, future economic conditions,and timing of equipment purchases. Our capital spending in 2009 will beprimarily for efficiency projects, replacement projects, and ongoingenvironmental compliance.

 

46

----

Table of Contents

 

During the nine months ended September 30, 2008,investing activities provided $1,286.6 million of cash. The$1,286.6 million consisted of $1,269.1 million of net proceeds fromasset sales (most of which related to the sale of our Paper and Packaging &Newsprint assets) and $52.7 million of net proceeds from the sale of thenote receivable from Boise Inc., partially offset by $36.7 million ofcash used for purchases of property and equipment ($10.2 million of whichwas invested in the Paper and Packaging & Newsprint businesses we soldin February 2008).

 

***Financing Activities***

 

The following provides a summary of our financingactivities during the nine months ended September 30, 2009 and 2008. Formore information related to our debt structure, see the discussion under “Part II,Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations” in our 2008 Form 10-K. Except as updated inNote 12, Debt, of the Notes to Unaudited Quarterly Financial Statements in“Item 1. Financial Statements” of this Form 10-Q, as of September 30,2009, there have been no material changes to our debt structure.

 

*2009*

 

Cash used for financing activities was$16.4 million for the nine months ended September 30, 2009, comparedwith $1,028.8 million during the same period in 2008. During the nine monthsended September 30, 2009, we repurchased $11.9 million of seniorsubordinated notes for $5.6 million, plus accrued interest. In addition,we repaid, and subsequently reborrowed, $60.0 million of outstandingborrowings under the Revolving Credit Facility. In connection with the$60.0 million payment on the Revolving Credit Facility, we amended theRevolving Credit Facility to permanently reduce the lending commitments by$60.0 million, bringing the total commitments from $350 million to $290 million.This debt reduction, in combination with capital spending, fulfills ourobligations under the senior subordinated notes indenture with respect to netavailable cash received in connection with the June 2008 sale of the notereceivable from Boise Inc. and the July 2008 sale of our Braziliansubsidiary.

 

During the nine months ended September 30, 2009,we also made $10.7 million of tax distributions to equity holders, most ofwhich related to the taxable gain on the Sale.

 

*2008*

 

With the proceeds fromthe Sale and borrowings of approximately $240.0 million of debt during thenine months ended September 30, 2008, we repaid $160.0 million of our7.125% senior subordinated notes; all of the borrowings under the previousrevolving credit facility, Tranche E term loan, and delayed-draw termloan; and the borrowings secured by our receivables, which totaled$1,085.6 million, and we terminated those credit facilities. In addition,we (1) contributed $20.8 million to our pension plans (as indicatedin “Operating Activities” above), (2) repaid $10.5 million ofshort-term borrowings, (3) terminated all of our interest rate swapagreements using approximately $11.9 million of cash, (4) made$128.0 million of tax distributions to our equity holders, (5) paid$28.6 million to repurchase equity units from management investors, and (6) fundedworking capital and other operating requirements.

 

***Contractual Obligations***

 

For information on contractual obligations, seeContractual Obligations in “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations” in our 2008 Annual Report on Form 10-K.At September 30, 2009, there have beenno material changes to our contractual obligations outside the normal course ofbusiness, except asdisclosed in Note 12, Debt, and Note 15, Retirement and BenefitPlans, of the Notes to Unaudited Quarterly Financial Statements in “Item 1. Financial Statements” of this Form 10-Q. During the nine months ended September 30,2009, we repurchased $11.9 million of senior subordinated notes, and wedecreased our pension obligation approximately $50.1 million.

 

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

 

At September 30,2009, we had no material off-balance-sheet arrangements with unconsolidatedentities.

 

47

----

Table of Contents

 

***Guarantees***

 

Note 17, Commitments and Guarantees,of the Notes to Consolidated Financial Statements in “Item 8. FinancialStatements and Supplementary Data” in our 2008 Form 10-K describes thenature of our guarantees, including the approximate terms of the guarantees,how the guarantees arose, the events or circumstances that would require us toperform under the guarantees, and the maximum potential undiscounted amounts offuture payments we could be required to make. As of September 30, 2009,there have been no material changes to the guarantees disclosed in our 2008 Form 10-K.

 

***Seasonal and Inflationary Influences***

 

We are exposed tofluctuations in quarterly sales volumes and expenses due to seasonal factors.These seasonal factors are common in the building products industry. Seasonalchanges in levels of building activity affect our building products businesses,which are dependent on housing starts, repair-and-remodel activities, and lightcommercial and industrial conversion activities. We typically report lowersales in the first and fourth quarters due to the impact of poor weather on theconstruction market, and we generally have higher sales in the second and thirdquarters, reflecting an increase in construction due to more favorable weatherconditions. We typically have higher working capital in the second and thirdquarters due to the summer building season. Although we generally expect thesetrends to continue for the foreseeable future, we have reduced our inventory aspart of our effort to manage to the current weakened demand environment in thehousing market. Additionally, our accounts receivable balance has declined dueto the weakened demand environment for the products we manufacture anddistribute. Seasonally cold weather increases costs, especially energyconsumption, at most of our manufacturing facilities.

 

Our major costs of production are labor, wood fiber,energy, and chemicals. Energy costs, particularly for electricity, natural gas,and fuel oil, have been volatile in recent years. We also experienced highervolatility in chemical costs in 2008, compared with historical trends, dueprimarily to chemical market supply and demand dynamics and the impact ofenergy markets on chemical producers. Energy and chemical costs are currentlylower than in 2008 in response to global economic weakness.

 

***Environmental***

 

For information on environmental issues, seeEnvironmental in “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in our 2008 Form 10-K.

 

***Critical Accounting Estimates***

 

Critical accounting estimates are those that are most important to theportrayal of our financial condition and results. These estimates requiremanagement’s most difficult, subjective, or complex judgments, often as aresult of the need to estimate matters that are inherently uncertain. We reviewthe development, selection, and disclosure of our critical accounting estimateswith the Audit Committee of our board of directors. For information aboutcritical accounting estimates, see Critical Accounting Estimates in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K and updated in “Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour Quarterly Report on Form 10-Q for the quarter ended March 31,2009. As of September 30, 2009, there have been no material changes tocritical accounting estimates disclosed in the aforementioned filings.

 

***New and Recently Adopted Accounting Standards***

 

In August 2009, the Financial AccountingStandards Board (FASB) issued Accounting Standards Update (ASU) 2009-05, *Measuring Liabilities at Fair Value*. Thisupdate provides amendments to FASB Accounting Standards Codification (FASB ASC)820, *Fair Value Measurements and Disclosure,*for the fair value measurement of liabilities when a quoted price in an activemarket is not available. We will adopt ASU 2009-05 on October 1, 2009, andwe do not expect the adoption to have a material impact on our financialposition or results of operations.

 

In June 2009, theFASB issued Statement of Financial Accounting Standards (SFAS) No. 168(ASU 2009-01), *The FASB Accounting Standards Codification**and the Hierarchy of Generally Accepted AccountingPrinciples,*approving the FASBAccounting Standards CodificationTM (Codification), which

 

48

----

Table of Contents

 

states that the Codification is the exclusiveauthoritative reference for U.S. generally accepted accounting principles(GAAP). The Codification does not change U.S. GAAP. We adopted ASU 2009-01 on September 15,2009, and the adoption did not have a material impact on our financial positionor results of operations.

 

In June 2009, the FASB issued SFAS No. 167,*Amendments to FASB InterpretationNo. 46(R) *(FASBASC 810),which amendsthe consolidation guidance applicable to variable-interest entities (VIEs).SFAS No. 167 requires that entities evaluate former qualifiedspecial-purpose entities for consolidation, changes the approach to determininga VIE’s primary beneficiary from a quantitative assessment to a qualitativeassessment, and increases the frequency of required reassessment to determinewhether a company is the primary beneficiary of a VIE. It also requiresadditional year-end and interim disclosures. We will adopt SFAS No. 167 onJanuary 1, 2010, and we do not expect the adoption to have a materialimpact on our financial position or results of operations.

 

In December 2008,FASB issued FASB Staff Position (FSP) FAS 132(R)-1, *Employer’s Disclosures About Postretirement BenefitPlan Assets*(FASB ASC 715*).* This FSP amends SFAS No. 132(revised 2003), *Employers’ Disclosures AboutPensions and Other Postretirement Benefits,*to provide guidance onan employer’s disclosures about plan assets of a defined benefit pension orother postretirement benefit plan. The FSP is effective for our 2009 Form 10-K.The adoption will affect our disclosures only and will have no impact on ourfinancial position or results of operations.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations*(FASB ASC 805)*,*and SFAS No. 160, *Accounting and Reporting of Noncontrolling Interests in ConsolidatedFinancial Statements, an Amendment of Accounting Research Bulletin No. 51*(FASB ASC 810)*.* These new standards significantly change theaccounting for and reporting of business combination transactions andnoncontrolling (minority) interests in consolidated financial statements. SFAS No. 141(R) could alsoaffect the assessment of goodwill for impairment. We adopted SFAS Nos. 141(R) and 160on January 1, 2009. Because the business combinations we have entered intoin 2009 have been relatively small, the adoption did not have a material impacton our financial position or results of operations. However, the accounting forfuture, potentially larger business combinations may be affected more by theadoption of the standard.

 

There were noother accounting standards recently issued that had or are expected to have amaterial impact on our financial position or results of operations.

 

***ITEM3.              QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK***

 

For information relatingto quantitative and qualitative disclosures about market risk, see thediscussion under “Part II, Item 7A. Quantitative and QualitativeDisclosures About Market Risk” under the heading “Disclosures of FinancialMarket Risks” in “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in our 2008 Form 10-K.Except as updated in Note 13, Financial Instrument Risk, of the Notes toUnaudited Quarterly Financial Statements in “Item 1. Financial Statements” of this Form 10-Q, as of September 30, 2009, therehave been no material changes in our exposure to market risk from thosedisclosed in our 2008 Form 10-K.

 

***ITEM4T.            CONTROLS AND PROCEDURES***

 

Attached asexhibits to this Form 10-Q are certifications of our chief executiveofficer and chief financial officer. Rule 13a-14 of the SecuritiesExchange Act of 1934, as amended, requires that we include these certificationswith this report. This Controls and Procedures section includes informationconcerning the disclosure controls and procedures referred to in the certifications.You should read this section in conjunction with the certifications.

 

*Evaluation of Disclosure Controls and Procedures*

 

We maintain “disclosure controls andprocedures,” as Rule 13a-15(e) under the Securities Exchange Act of1934, as amended, defines such term. We have designed these controls andprocedures to reasonably assure that information required to be disclosed inour reports filed under the Exchange Act, such as this Form 10-Q, isrecorded, processed, summarized, and reported within the time

 

49

----

Table of Contents

 

periods specified in the Securities and Exchange Commission’s rules andforms. We have also designed our disclosure controls to provide reasonableassurance that such information is accumulated and communicated to our seniormanagement, including the chief executive officer (CEO) and chief financialofficer (CFO), as appropriate, to allow them to make timely decisions regardingour required disclosures.

 

We evaluate the effectiveness of our disclosure controls andprocedures on at least a quarterly basis. A number of key components in ourinternal control system assist us in these evaluations. Since the company’sinception, we have had a disclosure committee. The committee meets regularlyand includes input from our senior management, general counsel, internal auditstaff, and independent accountants. This committee is charged with consideringand evaluating the materiality of information and reviewing the company’sdisclosure obligations on a timely basis. Our internal audit department alsoevaluates components of our internal controls on an ongoing basis. To assist inits evaluations, the internal audit staff identifies, documents, and tests ourcontrols and procedures. Our intent is to maintain disclosure controls andprocedures as dynamic processes that change as our business and workingenvironments change.

 

Our management, with the participation of our CEO and CFO, hasevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the quarter covered by this quarterlyreport on Form 10-Q. Based on that evaluation, our CEO and CFO haveconcluded that, as of such date, our disclosure controls and procedures wereeffective in meeting the objectives for which they were designed and wereoperating at a reasonable assurance level.

 

*Limitations on the Effectiveness of Controls andProcedures*

 

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

 

*Changes in Internal Control Over FinancialReporting*

 

Our management identified no changes during the threemonths ended September 30, 2009, that materially affected, or would bereasonably likely to materially affect, our internal controls over financialreporting.

 

50

----

Table of Contents

 

**PART II—OTHER INFORMATION**

 

***ITEM 1.              LEGALPROCEEDINGS***

 

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

 

***ITEM 1A.           RISKFACTORS***

 

Thisreport on Form 10-Q contains forward-looking statements. Statements thatare not historical or current facts, including statements about ourexpectations, anticipated financial results, projected capital expenditures,and future business prospects, are forward-looking statements. You can identifythese statements by our use of words such as “may,” “will,” “expect,” “believe,”“should,” “plan,” “anticipate,” and other similar expressions. You can findexamples of these statements throughout this report, including “Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” We cannot guarantee that our actual results will be consistentwith the forward-looking statements we make in this report. You should reviewcarefully the risk factors listed in “Item 1A. Risk Factors” in our 2008 Form 10-K,as well as those factors listed in other documents we file with the Securitiesand Exchange Commission (SEC). There have been no material changes to our riskfactors during the nine months ended September 30, 2009, from those listedin our 2008 Form 10-K. We do not assume an obligation to update anyforward-looking statement.

 

***ITEM 2.              UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS***

 

None.

 

***ITEM 3.              DEFAULTSUPON SENIOR SECURITIES***

 

None.

 

***ITEM 4.              SUBMISSION OFMATTERS TO A VOTE OF SECURITYHOLDERS***

 

Not applicable.

 

***ITEM 5.              OTHERINFORMATION***

 

None.

 

***ITEM 6.              EXHIBITS***

 

Required exhibits arelisted in the Index to Exhibits and are incorporated by reference.

 

51

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                               | BOISE CASCADE HOLDINGS,  L.L.C.        |
|------------------------------------|----------------------------------------|
|                               |                                   |
|                               |                                   |
|                               | /s/ Bernadette  Madarieta              |
|                               | Bernadette Madarieta                   |
|                               | Vice President and  Controller         |
|                               | (As Duly Authorized  Officer and Chief |
|                               | Accounting Officer)                    |
|                               |                                   |
| Date:  November 13, 2009 |                                   |

 

52

----

Table of Contents

 

**BOISECASCADE HOLDINGS, L.L.C.**

 

**INDEX TO EXHIBITS**

 

Filed With theQuarterly Report on Form 10-Q for the Quarter Ended September 30,2009

 
| **Number** | ** ** | **Description**                                                                                                                                                |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                           |
| 10.1*      |       | Second Amendment to  Employment Agreement effective August 16, 2009, between Boise Cascade,  L.L.C., and Duane McDougall                                  |
|       |       |                                                                                                                                                           |
| 10.2*      |       | Amendment No. 1 to  Management Equity Agreement effective August 16, 2009, between Duane C.  McDougall and Forest Products Holdings, L.L.C.          |
|       |       |                                                                                                                                                           |
| 10.3*      |       | Letter Agreement  effective August 16, 2009, Amending Severance Agreement between Wayne  Rancourt and Boise Cascade, L.L.C.                               |
|       |       |                                                                                                                                                           |
| 10.4*      |       | Form of Retention  Award Agreement effective August 16, 2009, between Boise Cascade,  L.L.C., and certain officers (Stanley Bell and Thomas Lovlien) |
|       |       |                                                                                                                                                           |
| 31.1       |       | CEO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                              |
|       |       |                                                                                                                                                           |
| 31.2       |       | CFO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                              |

 

----

* These agreements were reported in the company’s Form 8-KCurrent Report filed August 12, 2009.

 

53

----