**Table of Contents**

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**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 June 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 90days.     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.

 

 

 

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**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 |   | 9 |
|                                     |   |   | 5. |   | Vendor and  Customer Rebates and Allowances |   | 10 |
|                                     |   |   | 6. |   | Other (Income)  Expense, Net |   | 11 |
|                                     |   |   | 7. |   | Leases |   | 11 |
|                                     |   |   | 8. |   | Income Taxes |   | 12 |
|                                     |   |   | 9. |   | Inventories |   | 12 |
|                                     |   |   | 10. |   | Property and  Equipment, Net |   | 13 |
|                                     |   |   | 11. |   | Goodwill and  Intangible Assets |   | 13 |
|                                     |   |   | 12. |   | Debt |   | 14 |
|                                     |   |   | 13. |   | Financial  Instrument Risk |   | 15 |
|                                     |   |   | 14. |   | New and  Recently Adopted Accounting Standards |   | 17 |
|                                     |   |   | 15. |   | Retirement and  Benefit Plans |   | 18 |
|                                     |   |   | 16. |   | Redeemable Equity  Units |   | 19 |
|                                     |   |   | 17. |   | Segment Information |   | 19 |
|                                     |   |   | 18. |   | Commitments and  Guarantees |   | 22 |
|                                     |   |   | 19. |   | Consolidating  Guarantor and Nonguarantor Financial Information |   | 23 |
|                                     |   |   | 20. |   | 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 |   | 47 |
|                                     |   |   | 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 |   | 50 |
|                                     |   |   |   |   |
| **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 |
|                                          |  |  |  |  |  |  |  |  |  |  |

 

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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.

 

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**PART 1—FINANCIAL INFORMATION**

 

***ITEM1.******                                                ******FINANCIAL STATEMENTS***

 

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

**(unaudited)**

 
| ** **                                                           | ** ** | **Three Months Ended  June 30** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                      | ** ** |
| **Sales**                                                            | ** ** | ** **                           |       |   |   |
| Trade                                                                |       | $                                    | 512,247    |   | $ | 743,402 |   |
| Related  parties                                                     |       | 8,933                                |       | 13,786 |   |
|                                                                 |       | 521,180                              |       | 757,188 |   |
|                                                                 |       |                                 |       |   |   |
| **Costs and expenses**                                               | ** ** | ** **                           |       |   |   |
| Materials,  labor, and other operating expenses                      |       | 463,699                              |       | 649,886 |   |
| Materials,  labor, and other operating expenses from related parties |       | 6,332                                |       | 23,009 |   |
| Depreciation,  amortization, and depletion                           |       | 11,448                               |       | 8,684 |   |
| Selling  and distribution expenses                                   |       | 47,771                               | * *   | 57,600 | * * |
| General  and administrative expenses                                 |       | 6,863                                |       | 7,859 |   |
| General  and administrative expenses from related party              |       | 2,503                                |       | 2,526 |   |
| Loss  on sale of Paper and Packaging & Newsprint assets     |       | —                               |       | 3,328 |   |
| Other  (income) expense, net                                         |       | (1,751                               | )          | 8,635 |   |
|                                                                 |       | 536,865                              |       | 761,527 |   |
|                                                                 | ** ** | ** **                           |       |   |   |
| **Loss from operations**                                             |       | (15,685                              | )          | (4,339 | ) |
|                                                                 |       |                                 |       |   |   |
| Equity  in net income (loss) of affiliate                            |       | 30,306                               |       | (8,845 | ) |
| Foreign  exchange gain                                               |       | 715                                  |       | 890 |   |
| Change  in fair value of contingent value rights                     |       | —                               |       | 743 |   |
| Interest  expense                                                    |       | (6,135                               | )          | (6,427 | ) |
| Interest  income                                                     |       | 178                                  |       | 2,559 |   |
|                                                                 |       | 25,064                               |       | (11,080 | ) |
| ** **                                                           |       |                                 |       |   |   |
| **Income (loss) before income taxes**                                |       | 9,379                                |       | (15,419 | ) |
| Income  tax (provision) benefit                                      |       | (68                                  | )          | 23 |   |
| **Net income (loss)**                                                | ** ** | **$**                                | **9,311**  | ** ** | **$** | **(15,396** | **)** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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

**(unaudited)**

** **
| ** **                                                           | ** ** | **Six Months Ended  June 30** | ** **  |
|----------------------------------------------------------------------|------------|------------------------------------|-------------|
| ** **                                                           | ** ** | **2009**                           | ** **  | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                    | ** **  |
| **Sales**                                                            |       |                               |        |   |   |
| Trade                                                                |       | $                                  | 919,971     |   | $ | 1,624,202 |   |
| Related  parties                                                     |       | 14,636                             |        | 109,568 |   |
|                                                                 |       | 934,607                            |        | 1,733,770 |   |
|                                                                 |       |                               |        |   |   |
| **Costs and expenses**                                               | ** ** | ** **                         |        |   |   |
| Materials,  labor, and other operating expenses                      |       | 844,770                            |        | 1,530,544 |   |
| Materials,  labor, and other operating expenses from related parties |       | 18,622                             |        | 29,189 |   |
| Depreciation,  amortization, and depletion                           |       | 22,567                             |        | 18,719 |   |
| Selling  and distribution expenses                                   |       | 93,012                             | * *    | 120,965 | * * |
| General  and administrative expenses                                 |       | 13,788                             |        | 22,511 |   |
| General  and administrative expenses from related party              |       | 4,936                              |        | 3,504 |   |
| Gain  on sale of Paper and Packaging & Newsprint assets     |       | —                             |        | (4,735 | ) |
| Other  (income) expense, net                                         |       | 930                                |        | 7,693 |   |
|                                                                 |       | 998,625                            |        | 1,728,390 |   |
|                                                                 | ** ** | ** **                         |        |   |   |
| **Income (loss) from operations**                                    |       | (64,018                            | )           | 5,380 |   |
|                                                                 |       |                               |        |   |   |
| Equity  in net income (loss) of affiliate                            |       | 33,311                             |        | (17,397 | ) |
| Impairment  of investment in equity affiliate                        |       | (43,039                            | )           | — |   |
| Foreign  exchange gain                                               |       | 383                                |        | 277 |   |
| Change  in fair value of contingent value rights                     |       | 194                                |        | (4,030 | ) |
| Change  in fair value of interest rate swaps                         |       | —                             |        | (6,284 | ) |
| Gain  on repurchase of long-term debt                                |       | 6,026                              |        | — |   |
| Interest  expense                                                    |       | (11,751                            | )           | (21,808 | ) |
| Interest  income                                                     |       | 575                                |        | 5,160 |   |
|                                                                 |       | (14,301                            | )           | (44,082 | ) |
| ** **                                                           |       |                               |        |   |   |
| **Loss before income taxes**                                         |       | (78,319                            | )           | (38,702 | ) |
| Income  tax provision                                                |       | (551                               | )           | (1,132 | ) |
| **Net loss**                                                         | ** ** | **$**                              | **(78,870** | **)** | **$** | **(39,834** | **)** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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

**Consolidated Balance Sheets**

(unaudited)

 
| ** **                                       | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                       | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                       | ** ** | **(thousands)**   | ** **  |
| **ASSETS**                                       |       |              |        |                  |       |
| ** **                                       |       |              |        |                  |       |
| **Current**                                      |       |              |        |                  |       |
| Cash and cash equivalents                        |       | $                 | 204,590     |                  | $          | 275,803 |   |
| Receivables                                      |       |              |        |                  |       |
| Trade, less allowances of $2,002 and $1,843 |       | 133,715           |        | 78,393                |       |
| Related parties                                  |       | 2,075             |        | 3,112                 |       |
| Other                                            |       | 2,286             |        | 5,907                 |       |
| Inventories                                      |       | 239,957           |        | 279,023               |       |
| Prepaid expenses and other                       |       | 6,062             |        | 1,296                 |       |
|                                             |       | 588,685           |        | 643,534               |       |
|                                             |       |              |        |                  |       |
| **Property**                                     |       |              |        |                  |       |
| Property and equipment, net                      |       | 279,371           |        | 291,999               |       |
| Timber deposits                                  |       | 7,827             |        | 8,632                 |       |
|                                             |       | 287,198           |        | 300,631               |       |
|                                             |       |              |        |                  |       |
| **Investment in equity affiliate**               |       | 53,156            |        | 20,985                |       |
| **Deferred financing costs**                     |       | 6,391             |        | 7,862                 |       |
| **Goodwill**                                     |       | 12,170            |        | 12,170                |       |
| **Intangible assets, net**                       |       | 9,063             |        | 9,248                 |       |
| **Other assets**                                 |       | 8,621             |        | 6,009                 |       |
| **Total assets**                                 | ** ** | **$**             | **965,284** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

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

**Consolidated Balance Sheets (continued)**

(unaudited)

 
| ** **                                                                                                                                   | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                                                                                                                   | ** ** | **(thousands)**   | ** **  |
| **LIABILITIES AND CAPITAL**                                                                                                                  |       |              |        |                  |       |
| ** **                                                                                                                                   |       |              |        |                  |       |
| **Current**                                                                                                                                  |       |              |        |                  |       |
| Accounts payable                                                                                                                             |       |              |        |                  |       |
| Trade                                                                                                                                        |       | $                 | 118,678     |                  | $          | 69,478 |   |
| Related parties                                                                                                                              |       | 2,792             |        | 2,195                 |       |
| Accrued liabilities                                                                                                                          |       |              |        |                  |       |
| Compensation and benefits                                                                                                                    |       | 30,349            |        | 38,228                |       |
| Interest payable                                                                                                                             |       | 3,632             |        | 3,930                 |       |
| Other                                                                                                                                        |       | 16,410            |        | 30,893                |       |
|                                                                                                                                         |       | 171,861           |        | 144,724               |       |
|                                                                                                                                         |       |              |        |                  |       |
| **Debt**                                                                                                                                     |       |              |        |                  |       |
| Long-term debt                                                                                                                               |       | 303,146           |        | 315,000               |       |
|                                                                                                                                         |       |              |        |                  |       |
| **Other**                                                                                                                                    |       |              |        |                  |       |
| Compensation and benefits                                                                                                                    |       | 123,885           |        | 172,275               |       |
| Other long-term liabilities                                                                                                                  |       | 12,584            |        | 12,125                |       |
|                                                                                                                                         |       | 136,469           |        | 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 — 19,171,470 units and 11,016,668  units outstanding                                               |       | 3,958             |        | 3,037                 |       |
|                                                                                                                                         |       | 6,723             |        | 5,957                 |       |
| ** **                                                                                                                                   |       |              |        |                  |       |
| **Commitments and contingent liabilities**                                                                                                   |       |              |        |                  |       |
|                                                                                                                                         |       |              |        |                  |       |
| **Capital**                                                                                                                                  |       |              |        |                  |       |
| Series A equity units — no par value; 66,000,000 units  authorized and outstanding                                            |       | 85,462            |        | 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   |       | 261,623           |        | 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**                                                                                                                            |       | 347,085           |        | 350,358               |       |
| ** **                                                                                                                                   |       |              |        |                  |       |
| **Total liabilities and capital**                                                                                                            | ** ** | **$**             | **965,284** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

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

**Consolidated Statements of Cash Flows**

(unaudited)

** **
| ** **                                                                       |       | **Six  Months Ended****June 30** |        |
|----------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                       |       | **2009**                         |        | **2008** |   |
| ** **                                                                       |       | **(thousands)**                  |        |
| **Cash provided by (used for)  operations**                                      |       |                             |        |   |   |
| Net loss                                                                         |       | $                                | (78,870     | ) | $ | (39,834 | ) |
| Items in net loss not using (providing) cash                                     |       |                             |        |   |   |
| Equity in net (income) loss of affiliate                                         |       | (33,311                          | )           | 17,397 |   |
| Impairment of investment in equity affiliate                                     |       | 43,039                           |        | — |   |
| Depreciation, depletion, and amortization of  deferred financing costs and other |       | 23,836                           |        | 19,456 |   |
| Related-party interest income                                                    |       | —                           |        | (2,760 | ) |
| Pension and other postretirement benefit expense                                 |       | 7,473                            |        | 7,787 |   |
| Change in fair value of contingent value rights                                  |       | (194                             | )           | 4,030 |   |
| Change in fair value of interest rate swaps                                      |       | —                           |        | 6,284 |   |
| Management equity units expense, excluding expense  related to the Sale          |       | 1,496                            |        | 1,086 |   |
| Gain on repurchase of long-term debt                                             |       | (6,026                           | )           | — |   |
| Gain on sale of assets, net                                                      |       | (248                             | )           | (8,399 | ) |
| Facility closure and curtailment costs                                           |       | 1,968                            |        | — |   |
| Loss on sale of note receivable from related party                               |       | —                           |        | 8,313 |   |
| Other                                                                            |       | (584                             | )           | (257 | ) |
| Decrease (increase) in working capital, net of  acquisitions and dispositions    |       |                             |        |   |   |
| Receivables                                                                      |       | (52,812                          | )           | (80,234 | ) |
| Inventories                                                                      |       | 39,903                           |        | 34,555 |   |
| Prepaid expenses and other                                                       |       | (3,281                           | )           | (2,324 | ) |
| Accounts payable and accrued liabilities                                         |       | 41,366                           |        | 17,137 |   |
| Pension and other postretirement benefit payments                                |       | (25,088                          | )           | (20,775 | ) |
| Current and deferred income taxes                                                |       | (21                              | )           | (1,129 | ) |
| Other                                                                            |       | (2,573                           | )           | 303 |   |
| Cash used for operations                                                         |       | (43,927                          | )           | (39,364 | ) |
|                                                                             |       |                             |        |   |   |
| **Cash provided by (used for)  investment**                                      |       |                             |        |   |   |
| Proceeds from sale of assets, net of cash  contributed                           |       | 242                              |        | 1,226,698 |   |
| Proceeds from sale of note receivable from related  party                        |       | —                           |        | 52,781 |   |
| Expenditures for property and equipment                                          |       | (8,102                           | )           | (27,869 | ) |
| Acquisition of businesses and facilities                                         |       | (4,598                           | )           | — |   |
| Increase in restricted cash                                                      |       | —                           |        | (183,290 | ) |
| Decrease in restricted cash                                                      |       | —                           |        | 183,290 |   |
| Other                                                                            |       | 1,536                            |        | (742 | ) |
| Cash provided by (used for) investment                                           |       | (10,922                          | )           | 1,250,868 |   |
|                                                                             |       |                             |        |   |   |
| **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                                                     |       | (10,719                          | )           | (127,884 | ) |
| Repurchase of management equity units                                            |       | (18                              | )           | (28,398 | ) |
| Cash paid for termination of interest rate swaps                                 |       | —                           |        | (11,918 | ) |
| Other                                                                            |       | —                           |        | (4,185 | ) |
| Cash used for financing                                                          |       | (16,364                          | )           | (1,028,448 | ) |
|                                                                             |       |                             |        |   |   |
| **Increase (decrease) in cash and  cash equivalents**                            |       | (71,213                          | )           | 183,056 |   |
|                                                                             |       |                             |        |   |   |
| **Balance at beginning of the  period**                                          |       | 275,803                          |        | 57,623 |   |
|                                                                             |       |                             |        |   |   |
| **Balance at end of the period**                                                 | ** ** | **$**                            | **204,590** | ** ** | **$** | **240,679** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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**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 C 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)                                             |       | —                     |       | —                     |       | —                     |        | (78,870    | )          | — |   | — |   | (78,870 | ) |
| Other comprehensive income (loss), net of tax (a) (b)    |       |                       |       |                       |       |                       |        |       |       |   |   |   |   |   |   |
| Unfunded accumulated benefit obligation                  |       | —                     |       | —                     |       | —                     |        | 32,200     |       | — |   | — |   | 32,200 |   |
| Equity in other comprehensive income of equity affiliate |       | —                     |       | —                     |       | —                     |        | 1,560      |       | — |   | — |   | 1,560 |   |
| Impairment of investment in equity affiliate             |       | —                     |       | —                     |       | —                     |        | 40,824     |       | — |   | — |   | 40,824 |   |
| Paid-in-kind dividend                                    |       | —                     |       | 3,261                      |       | —                     |        | (3,261     | )          | — |   | — |   | — |   |
| Tax distributions to members                             |       | —                     |       | 234                        |       | —                     |        | 77         |       | — |   | — |   | 311 |   |
| Allocation of  redeemable equity units to Capital        |       | —                     |       | —                     |       | 144                        |        | 340        |       | 769 |   | — |   | 340 |   |
| Other                                                    |       | —                     |       | —                     |       | —                     |        | 362        |       | — |   | — |   | 362 |   |
| **Balance  at June 30, 2009 (c)**                        | ** ** | **66,000**                 | ** ** | **$**                      | **85,462** | ** **                 | **532,559** | ** ** | **$**      | **261,623** | ** ** | **11,952** | ** ** | **$** | **—** | ** ** | **$** | **347,085** | ** ** |

 

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(a)                                  Totalcomprehensive income (loss) for the three and six months ended June 30, 2009,was $9.6 million and $(4.3) million, compared with $(15.2) million and $(75.8) millionfor the three and six months ended June 30, 2008.

 

(b)                                 Total othercomprehensive income (loss) for the three and six months ended June 30, 2009,was $0.3 million and $74.6 million, compared with $0.2 million and $(35.9) millionfor the three and six months ended June 30, 2008.

 

(c)                                  Accumulatedother comprehensive loss at June 30, 2009, and December 31, 2008, was $48.2 millionand $122.8 million, respectively.

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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

 

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

 

*Nature ofOperations*

 

We are a building productscompany headquartered in Boise, Idaho. We manufacture engineered wood products,plywood, lumber, and particleboard and distribute a broad line of buildingmaterials, including wood products we manufacture. Our operations began on October29, 2004 (inception), when we acquired the forest products and paper assets ofOfficeMax (the Forest Products Acquisition). Before the Forest ProductsAcquisition, OfficeMax was known as Boise Cascade Corporation. We acquired thename “Boise Cascade” as part of the Forest Products Acquisition. As used inthese consolidated financial statements, the terms “BC Holdings” and “we” referto Boise Cascade Holdings, L.L.C., and its consolidated subsidiaries.

 

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 Corporateand Other assets (the Sale) to Boise Inc. (formerly Aldabra 2 AcquisitionCorp.) for cash and securities equal to $1.6 billion, plus working capitaladjustments. Immediately following the Sale, Boise Cascade, L.L.C., distributedthe securities received in the transaction to us. As a result, we have asignificant indirect financial interest in the results of the sold businesses. At June 30, 2009, we had a 47.5%ownership interest in Boise Inc. The equity interest we own in Boise Inc. represents a significant continuinginvolvement as defined in Statement of Financial Accounting Standards (SFAS) No.144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.*As a result, the Paper and Packaging & Newsprint segmentresults through February 21, 2008, are included in our Consolidated Statementof Loss for the six months ended June 30, 2008, and we did not define the soldassets 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 six months ended June 30,2009 and 2008, involved estimates and assumptions about future events. Theseestimates and the underlying assumptions affect the amounts of assets andliabilities reported, disclosures about contingent assets and liabilities, andreported amounts 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.

 

We evaluated subsequent events up to August 12, 2009,the date we filed these consolidated financial statements and notes with theSecurities and Exchange Commission (SEC). We concluded that there were nosubsequent events that would require adjustment to these consolidated financialstatements or disclosure in the notes to the consolidated financial statements.

 

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

 

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***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 net stockconsideration, and a $41.0 million paid-in-kind promissory note receivable. Werecorded a $9.3 million gain, of which we recognized $4.7 million in ourConsolidated Statement of Loss for the six months ended June 30, 2008. In thefirst six months of 2008, we deferred $4.6 million of the gain as a reductionof our investment in Boise Inc. in accordance with Emerging Issues Task Force(EITF) No. 01-02, *Interpretations of Accounting PrinciplesBoard (APB) Opinion No. 29*. In subsequent periods, the gaindecreased from $9.3 million to $5.7 million primarily due totransaction-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 toConsolidated Financial Statements in “Item 8. Financial Statements andSupplementary Data” in our 2008 Form 10-K.

 

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

 

In connection with the Sale, we received 37.9 million,or 49%, of Boise Inc.’s shares. We recorded our investment in “Investment inequity affiliate” on our Consolidated Balance Sheet. Our ownership interestprovides us with the ability to exercise significant influence. Accordingly, weaccount for our investment in Boise Inc. under the equity method of accounting.We adjust the amount of our investment monthly for our proportionate share ofBoise Inc.’s net income or loss and our share of other comprehensive income orloss based on the most recently available financial statements. As a result,our aggregate investment in Boise Inc. is recorded in a combination of the “Investmentin equity affiliate” and other comprehensive income accounts within “Series Bequity units” on our Consolidated Balance Sheets. Our ownership interest, andconsequently our proportionate share of Boise Inc.’s net income or loss,changes when we or Boise Inc. engage in transactions of Boise Inc. common stockwith third parties. At June 30, 2009, we owned 37.0 million shares, or 47.5%,of Boise Inc. Changes in ownership interest may also result in our recording anownership interest dilution gain or loss.

 

During the three and sixmonths ended June 30, 2009, we recorded $30.3 million of income and $9.7 millionof net expense related to our investment in Boise Inc. in our ConsolidatedStatements of Income (Loss), compared with net expense of $8.8 million and$17.4 million during the three and six months ended June 30, 2008, as follows:

 
| ** **                                                 | ** ** | **Three Months Ended   June 30** | ** ** | **Six Months Ended   June 30** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                 | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(thousands)**                  | ** ** |
| Equity in net  income (loss) of Boise Inc. (a)             |       | $                                | 24,256     |                           | $          | (8,933 | ) | $ | 23,304 |   | $ | (17,485 | ) |
| Amortization of  basis differential (b)                    |       | 6,050                            |       | 88                             |       | 11,032 |   | 88 |   |
| Loss on shares  issued for settlement of CVR liability (c) |       | —                           |       | —                         |       | (1,025 | ) | — |   |
| Equity in net  income (loss) of affiliate                  |       | 30,306                           |       | (8,845                         | )          | 33,311 |   | (17,397 | ) |
| Impairment of  investment in equity affiliate (d)          |       | —                           |       | —                         |       | (43,039 | ) | — |   |
| Total                                                      | ** ** | **$**                            | **30,306** | ** **                     | **$**      | **(8,845** | **)** | **$** | **(9,728** | **)** | **$** | **(17,397** | **)** |

 

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(a)                                  Includes a $0.6 milliondilution loss due to the vesting of Boise Inc. restricted stock during the sixmonths ended June 30, 2009.

 

(b)                                 At June 30,2009, the carrying value of our investment in Boise Inc. was approximately$227.4 million less than our share of Boise Inc.’s underlying equity in netassets. The difference is due to the write-down of our investment in Boise Inc.In accordance with APB Opinion No. 18, *TheEquity Method of Accounting for Investments in Common Stock,* we areamortizing the difference to income on a straight-line basis over 9.4 years,which represents the remaining weighted-average useful life of Boise Inc.’sassets. The amortization of the basis differential resulted in our recognizing$6.1 million and $11.0 million of income in “Equity in net income (loss) ofaffiliate” in our Consolidated Statements of Income (Loss) for the three andsix months ended June 30, 2009, and will result in our recognizingapproximately $24.1 million of income per year for the next 9.4 years, whichwill be increased or decreased by our proportionate share of Boise Inc.’s netincome or loss.

 

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(c)                                  During the sixmonths ended June 30, 2009, we settled our obligation related to the contingentvalue rights (CVRs) we issued to holders of Boise Inc. common stock. Inconnection with the settlement, in first quarter 2009, we transferred ownershipof 0.8 million Boise Inc. shares and recorded a $1.0 million loss in “Equity innet income (loss) of affiliate” in our Consolidated Statement of Loss for thedifference between the market price on the date we settled our obligation withthe shares and the carrying amount of the shares recorded on our Balance Sheet.For more information, see Note 13, Financial Instrument Risk.

 

(d)                                 On March 31,2009, we compared the fair value of the Boise Inc. stock price ($0.61 per share)with the carrying value of our investment ($1.77 per share) and concluded thatour investment in Boise Inc. met the definition of other than temporarilyimpaired as defined in APB Opinion No. 18. The fair value of our investment inBoise Inc. was calculated based on our 37.1 million of Boise Inc. shares andBoise Inc.’s stock price on March 31, 2009, of $0.61. The carrying value of ourinvestment is calculated as the sum of (1) the amount recorded in “Investmentin equity affiliate” on our Consolidated Balance Sheet and (2) the amount ofaccumulated other comprehensive income related to our investment in Boise Inc.recorded within “Series B equity units” on our Consolidated Balance Sheet.

 

Wemade the other than temporary impairment determination based primarily on thelength of time and extent to which the fair value of our investment had beentrading below its carrying value. As of March 31, 2009, Boise Inc.’s stock hadtraded below our carrying value since we wrote the investment down in September2008. Accordingly, for the six months ended June 30, 2009, we recorded a $43.0 millioncharge in “Impairment of investment in equity affiliate” in our ConsolidatedStatement of Loss and reduced by $40.8 million accumulated other comprehensiveloss related to our investment in Boise Inc. (which was accumulated monthlyfrom recording our proportionate share of Boise Inc.’s other comprehensiveincome or loss). In addition, we decreased “Investment in equity affiliate”$2.2 million to reduce the aggregate carrying value of our investment recordedon our Consolidated Balance Sheet to its fair value on March 31, 2009, of $0.61per share.

 

On June 30, 2009, weevaluated whether our investment in Boise Inc. was other than temporarilyimpaired in accordance with APB Opinion No. 18 and concluded that it was not.The fair value of our investment of $1.72 per share exceeded the carrying valueof $1.44 per share on that date. We will continue to monitor the value of BoiseInc.’s stock and our carrying value. Should market conditions and/or Boise Inc.’sfinancial performance deteriorate, it is possible that we will be required torecord a noncash impairment charge that could have a material impact on ourConsolidated Statements of Income (Loss). As additional information becomesknown, we may change our estimates.

 

The following table presents summarizedincome statement information for Boise Inc. for the three and six months ended June30, 2009 and 2008. Income statement information for the period of January 1through February 21, 2008, is included in our Consolidated Statement of Lossfor the six months ended June 30, 2008, and therefore is not included in theamounts below:

 
| ** **                    | ** ** | **Three Months Ended   June 30** | ** ** | **Six Months Ended   June 30** | ** ** |
|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                    | ** ** | **(thousands)**                  | ** ** |
|                          |       |                             |       |
| Sales                         |       | $                                | 479,367    |                           | $          | 618,407 |   | $ | 979,652 |   | $ | 846,395 |   |
| Costs and expenses            |       | 382,783                          |       | 610,777                        |       | 861,639 |   | 848,046 |   |
| Income (loss) from operations |       | 96,584                           |       | 7,630                          |       | 118,013 |   | (1,651 | ) |
| Net income (loss)             |       | 50,883                           |       | (18,050                        | )          | 49,967 |   | (34,421 | ) |
|                               |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

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

 

*Sales*

 

During the three and six months ended June30, 2009, we sold $4.0 million and $7.2 million of fiber to Boise Inc.,compared with $10.5 million and $14.7 million during the three and six monthsended June 30, 2008. During the three and six months ended June 30, 2009, wesold $4.9 million and $7.4 million to Louisiana Timber Procurement CompanyL.L.C., an unconsolidated entity that is 50% owned by Boise Cascade, L.L.C.,and 50% owned by Boise Inc., at prices designed to approximate market, comparedwith $3.3 million and $4.8 million during the three and six months ended June 30,2008. These sales are chip and pulpwood sales from our Wood Products segmentand are included in “Sales, Related parties” in the Consolidated Statements ofIncome (Loss).

 

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

 

*Costs and Expenses*

 

During the three and six months ended June30, 2009, we purchased $5.2 million and $16.4 million of fiber from LouisianaTimber Procurement Company L.L.C., compared with $21.2 million and $26.7 millionduring the three and six months ended June 30, 2008. During the three and six monthsended June 30, 2009, we purchased $0.7 million and $1.3 million oftransportation services from Boise Inc., compared with $1.3 million and $1.8 millionduring the three and six months ended June 30, 2008. We purchased the fiber andtransportation services at prices that approximated market prices. These costsare recorded in “Materials, labor, and other operating expenses from relatedparties” in our Consolidated 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 months inadvance of the applicable term. The Outsourcing Services Agreement also givesus (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 an absorptionfee. The absorption fee of $3.0 million is allocated among the servicesprovided under the contract and declines to zero in total and on an allocablebasis over the remaining term of the agreement. During the three and six monthsended June 30, 2009 and 2008, we recognized expenses related to the OutsourcingServices Agreement in our Consolidated Statements of Income (Loss) as follows:

 
| ** **                                                           | ** ** | **Three Months Ended   June 30** | ** ** | **Six Months Ended   June 30** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                           | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                  | ** ** |
| Materials,  labor, and other operating expenses from related parties |       | $                                | 463        |                           | $          | 552 |   | $ | 953 |   | $ | 741 |   |
| Selling and  distribution expenses                                   |       | 656                              |       | 746                            |       | 1,349 |   | 980 |   |
| General and administrative  expenses from related party              |       | 2,503                            |       | 2,526                          |       | 4,936 |   | 3,504 |   |
|                                                                 | ** ** | **$**                            | **3,622**  | ** **                     | **$**      | **3,824** | ** ** | **$** | **7,238** | ** ** | **$** | **5,225** | ** ** |

 

*Tax Distributions*

 

We are a limitedliability company, and the majority of our businesses and assets are held andoperated by limited liability companies, which are not subject to entity-levelfederal or state income taxation. We make cash distributions to permit themembers of BC Holdings and affiliates to pay income taxes. During the sixmonths ended June 30, 2009 and 2008, we made $10.7 million and $127.9 millionof cash tax distributions, which in both years primarily related to the nettaxable gain on the Sale. During the six months ended June 30, 2009 and 2008,we paid $8.1 million and $104.9 million to Forest Products Holdings (FPH), ourmajority owner. FPH in turn paid $5.2 million and $94.2 million to MadisonDearborn Partners, our equity sponsor, $2.9 million and $10.3 million tomanagement investors, and in 2008, $0.4 million to nonmanagement affiliates.For the six months ended June 30, 2009 and 2008, we paid $2.6 million and $23.0million to OfficeMax to fund their tax obligations related to their investmentsin us.

 

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

 

We receive rebates andallowances from our vendors under a number of different programs, includingvendor marketing programs. At June 30, 2009, and December 31, 2008, we had $1.1million and $3.0 million, respectively, of vendor rebates and allowancesrecorded in “Receivables, Other” on the Consolidated Balance Sheets. Theserebates and allowances are accounted for in accordance with

 

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EITF 02-16, *Accounting by a Customer(Including a Reseller) for Certain Consideration Received From a Vendor*.Rebates and allowances received from our vendors are recognized as a reductionof “Materials, labor, and other operating expenses” when the product is sold,unless the rebates and allowances are linked to a specific incremental cost tosell a vendor’s product. Amounts received from vendors that are linked tospecific selling and distribution expenses are recognized as a reduction of “Sellingand distribution expenses” in the period the expense is incurred.

 

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates provided to our customers are accounted for inaccordance with EITF 01-09, *Accounting for ConsiderationGiven by a Vendor to a Customer*. The rebates are recorded as adecrease in sales. At June 30, 2009, and December 31, 2008, we had $8.0 millionand $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   June 30** | ** ** | **Six Months Ended   June 30** |       |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
|                                                   |       | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** |   |
|                                                   |       | **(thousands)**                  |       |
| Facility closures and curtailments (a)                 |       | $                                | (932       | )                              | $          | (19 | ) | $ | 3,745 |   | $ | 1,296 |   |
| Changes in pension plans (see Note 15)                 |       | —                           |       | —                         |       | (747 | ) | — |   |
| Loss on sale of note receivable from related party (b) |       | —                           |       | 8,313                          |       | — |   | 8,313 |   |
| Sales of assets, net                                   |       | (173                             | )          | 287                            |       | (255 | ) | (2,044 | ) |
| Other, net                                             |       | (646                             | )          | 54                             |       | (1,813 | ) | 128 |   |
| ** **                                             | ** ** | **$**                            | **(1,751** | **)**                          | **$**      | **8,635** | ** ** | **$** | **930** | ** ** | **$** | **7,693** | ** ** |

 

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(a)                                  In the firsthalf of 2009, we closed the lumber manufacturing facility in La Grande, Oregon,and during the three and six months ended June 30, 2009, we recorded $0.9 millionof income and $3.4 million of expense in “Other (income) expense, net.” Inaddition, we recorded $2.6 million and $5.2 million of accelerated depreciationin “Depreciation, amortization, and depletion” for the three and six monthsended June 30, 2009, and $0.6 million of expenses in “Materials, labor, andother operating expenses” during the six months ended June 30, 2009, in ourConsolidated Statements of Income (Loss).

 

(b)                                 In June 2008, wesold the note receivable from Boise Inc. for $52.8 million, after sellingexpenses, and recorded an $8.3 million loss 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. Rentalexpense for operating leases was $3.2 million and $3.3 million for the threemonths ended June 30, 2009 and 2008, and $6.5 million and $8.7 million for thesix months ended June 30, 2009 and 2008. Sublease rental income was notmaterial in any of the periods presented.

 

For noncancelableoperating leases with remaining terms of more than one year, the minimum leasepayment requirements are $5.9 million for the remainder of 2009, $11.3 millionin 2010, $10.0 million in 2011, $9.2 million in 2012, $8.0 million in 2013, and$6.9 million in 2014, with total payments thereafter of $32.8 million. Thesefuture minimum lease payment requirements have not been reduced by subleaserentals due in the future under noncancelable subleases. Minimum subleaseincome received in the future is not expected to be material.

 

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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 payment termssimilar 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, formore 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 June 30,2009, income tax expense was $0.1 million, compared with a small tax benefit inthe same period in the prior year. Income tax expense was $0.6 million and $1.1million for the six months ended June 30, 2009 and 2008. During the threemonths ended June 30, 2009 and 2008, our effective tax rate for our separatesubsidiaries that are taxed as corporations was 34.0%. Our effective tax rateswere 34.0% and 35.4% for the six months ended June 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 June 30, 2009 and 2008,we paid $0.6 million and $0.9 million of tax, net of income taxes refunded. Wepaid $0.6 million and $0.5 million of income taxes, net of refunds received,during the six months ended June 30, 2009 and 2008, respectively.

 

BC Holdings,or one of our subsidiaries, files federal income tax returns in the U.S. andCanada and 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 a finalaudit report with a proposed adjustment. We have responded with a request toappeal 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 cash distributionsto members of BC Holdings and affiliates resulting from the adjustment, if any,to be significant. Additionally, in third quarter 2007, the Canadian RevenueAgency began an audit of Boise AllJoist for tax years 2005 and 2006.

 

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

 

Inventories include the following:

 
| ** **                         | ** ** | **June 30,  2009** | ** **  | **December 31,  2008** | ** ** |
|------------------------------------|------------|--------------------|-------------|------------------------|------------|
| ** **                         | ** ** | **(thousands)**    | ** **  |
| Finished goods and work in process |       | $                  | 198,061     |                   | $          | 211,051 |   |
| Logs                               |       | 25,546             |        | 50,930                 |       |
| Other raw materials and supplies   |       | 16,350             |        | 17,042                 |       |
| ** **                         | ** ** | **$**              | **239,957** | ** **             | **$**      | **279,023** | ** ** |

 

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***10.          Property andEquipment, Net***

 

Property andequipment, net, consisted of the following asset classes:

 
| ** **                    | ** ** | **June 30,********2009** | ** **        | **December 31,********2008** | ** ** |
|-------------------------------|------------|-------------------------------|-------------------|-----------------------------------|------------|
| ** **                    | ** ** | **(thousands)**               | ** **        |
| Land and land improvements    |       | $                             | 36,089            |                              | $          | 36,089 |   |
| Buildings and improvements    |       | 109,413                       |              | 106,966                           |       |
| Machinery and equipment       |       | 263,740                       |              | 252,952                           |       |
| Construction in progress      |       | 13,943                        |              | 20,954                            |       |
|                          |       | 423,185                       |              | 416,961                           |       |
| Less accumulated depreciation |       | (143,814                      | )                 | (124,962                          | )          |
| ** **                    | ** ** | **$**                         | ** 279,371** |                              | **$**      | **291,999** |   |

 

***11.          Goodwilland Intangible Assets***

 

Goodwillrepresents the excess of purchase price and related costs over the valueassigned to the net tangible and intangible assets of businesses acquired. Atboth June 30, 2009, and December 31, 2008, we had $12.2 millionof goodwill recorded on our Consolidated Balance Sheet, of which$5.6 million was recorded in our Building Materials Distribution segmentand $6.6 million was recorded in our Wood Products segment.

 

We account forgoodwill and intangible assets in accordance with the provisions of SFAS No. 142,*Goodwill and Other Intangible Assets*,which requires us to assess our acquired goodwill and intangible assets withindefinite lives for impairment at least annually in the absence of an indicatorof possible impairment and immediately upon an indicator of possibleimpairment. We maintain two reporting units for purposes of our goodwill andintangible asset impairment testing, Building Materials Distribution and WoodProducts, which are the same as our operating segments discussed inNote 17, Segment Information. We assess goodwill and intangible assetswith indefinite lives in the fourth quarter of each year using a discountedcash flow approach. We also evaluate the remaining useful lives of ourfinite-lived purchased intangible assets to determine whether any adjustmentsto the useful lives are necessary. We completed our annual assessment inaccordance with SFAS No. 142 in fourth quarter 2008 and determined thatthere was no impairment.

 

Due to thecontinued declines in housing starts and the resulting weak demand for buildingproducts, we performed the first step of the goodwill impairment test again infirst quarter 2009. In conducting our impairment analysis, we utilized thediscounted cash flow approach that estimates the projected future cash flows tobe generated by our reporting units,**discountedto present value using a discount rate reflecting our estimated cost of funds.We determined that the fair value of each of our reporting units exceeded theircarrying amounts and, therefore, no goodwill impairment existed. However, theanalysis requires 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 ofcapital expenditures. We believe the assumptions are reasonable and reflectforecasted market conditions as of the valuation date; however, we cannotpredict the occurrence of certain future events that might adversely affect thereported value of goodwill. Should the markets for building productsdeteriorate further, should we make strategic decisions in response tocontinued difficult economic and competitive conditions, should we decide toinvest capital differently, and should other cash flow assumptions change, itis reasonably possible that our determination that goodwill is not impairedcould change in the near term. Absent early indicators of impairment, we willperform our annual assessment in fourth quarter 2009. As additional informationbecomes known, we may change our estimates.

 

At June 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.

 

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Intangible assets consisted of the following:

 
| ** **                 | ** ** | **June 30, 2009**                | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Gross Carrying********Amount** | ** ** | **Accumulated********Amortization** | ** ** | **Net Carrying********Amount** | ** ** |
| ** **                 | ** ** | **(thousands)**                       | ** ** |
| Trade names and trademarks |       | $                                     | 8,900      |   | $ | — |   | $ | 8,900 |   |
| Customer relationships     |       | 2,100                                 |       | (1,962 | ) | 138 |   |
| Noncompete agreement       |       | 25                                    |       | — |   | 25 |   |
| ** **                 | ** ** | **$**                                 | **11,025** | ** ** | **$** | **(1,962** | **)** | **$** | **9,063** | ** ** |

 
| ** **                 | ** ** | **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 and $0.2 million for the threeand six months ended June 30, 2009 and 2008, respectively. Amortizationexpense is not expected to be significant after 2009.

 

***12.          Debt***

 

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

 
| ** **                                      | ** ** | **June 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-BasedRevolving Credit Facility*

 

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 secured asset-basedrevolving credit facility with Bank of America (Revolving Credit Facility). Aspart of the syndication process, the Revolving Credit Facility was amended in April 2008to revise the pricing and incorporate additional covenants. In May 2009,we repaid, and subsequently reborrowed, $60.0 million of outstandingborrowings under the Revolving Credit Facility, and we amended the RevolvingCredit Facility to permanently reduce the lending commitments by$60 million, bringing the total commitments to $290 million. At both June 30,2009, and December 31, 2008, we had $75.0 million of borrowingsoutstanding under the Revolving Credit Facility. Interest rates under theRevolving Credit Facility are based on either the prime rate or the LondonInterbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustmentbased on the average availability under the Revolving Credit Facility duringthe prior quarter. The range of borrowing costs under the pricing grid is:  (i) prime plus 1.00% to 1.50% or (ii) LIBORplus 2.50% to 3.00%. For the six months ended June 30, 2009, theaverage interest rate for our borrowings under the Revolving Credit Facilitywas 2.9%. Letters of credit are subject to a 0.125% fronting fee payable to theissuing bank and a fee payable to the lenders equal to the product of theinterest rate spread applicable to LIBOR borrowings under the RevolvingCredit Facility and the daily average amount available for drawing under theoutstanding letters of credit. The minimum and maximum borrowings under theRevolving Credit Facility were $15.0 million and $75.0 million duringthe six months ended June 30, 2009. The weighted average amount ofborrowings outstanding under the Agreement during the six months ended June 30,2009, was $73.0 million. The Revolving Credit Facility provides for acommitment fee of 0.50% per annum payable to the lenders on the average dailyunused portion of the Revolving Credit Facility.

 

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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 June 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 June 30, 2009, ouraggregate liquidity from unrestricted cash and cash equivalents and unusedborrowing capacity under the Revolving Credit Facility totaled$282.3 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 June 30, 2009. The RevolvingCredit Facility also contains customary nonfinancial covenants, including anegative pledge covenant and restrictions on distributions to equity holders,acquisitions, and divestitures. These covenants will become more restrictive ifa minimum availability threshold is not maintained.

 

*Letters of Credit*

 

At June 30, 2009, wehad $19.5 million of letters of credit outstanding. These letters ofcredit reduce our borrowing capacity 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 six months ended June 30,2008. During the six months ended June 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.

 

*Other*

 

For the six months ended June 30, 2009 and 2008, cash payments forinterest, net of interest capitalized, were $10.3 million and $24.2 million,respectively. The decrease in cash interest payments in the first half of 2009,relative to the same period a year ago, relates to the significant reduction indebt in February 2008 with the proceeds from the Sale.

 

At June 30, 2009,the estimated current market value of our fixed-rate debt, based onthen-current interest rates for similar obligations with like maturities, wasapproximately $107.5 million less than the amount reported on ourConsolidated Balance Sheet.

 

***13.          Financial Instrument Risk***

 

In the normal course of business, we are exposed tofinancial risks such as changes in interest rates, credit risk, changes inenergy prices, and foreign currency exchange rates. We do not use derivativeinstruments for speculative purposes, although derivative instruments purchasedto minimize risk, if any, may not qualify for hedge accounting.

 

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*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 firsthalf of 2009, we did not use any interest rate swap contracts to manage thisrisk.

 

In the first half of 2008, we significantly decreased our variable-ratedebt with the proceeds from the Sale. As a result, we terminated all of ourinterest rate swap agreements for approximately $11.9 million. The interest rate swaps were consideredeconomic hedges.During the six months ended June 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 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 June 30, 2009,and December 31, 2008, the receivables from a single customer accountedfor approximately 18% and 20% of total receivables, respectively. No othercustomer accounted for 10% or more of total receivables.

 

*Foreign Currency Risk*

 

We have manufacturing operationsin the United States and Canada. As a result, we are exposed to movements inthe foreign currency exchange rate in Canada. At June 30, 2009, we had noforeign currency hedges.

 

*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 June 30,2009, we had no material derivative instruments related to our forecastednatural gas purchases.

 

*Contingent Value Rights*

 

As part of the Sale,Terrapin Partners Venture Partnership and Boise Cascade, L.L.C., issued21.2 million contingent value rights (CVRs) to holders of Boise Inc.stock. During the six months ended June 30, 2009, we settled ourobligation related to the CVRs using 0.8 million of Boise Inc. sharesand recorded a $1.0 million loss in “Equity in net income (loss) ofaffiliate” in our Consolidated Statement of Loss for the difference between themarket price on the date we settled our obligation with shares and the carryingamount of the shares recorded on our Consolidated Balance 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 six months ended June 30, 2008, we recognized $0.7 millionof income and $4.0 million of expense in “Change in fair value ofcontingent value rights” in our Consolidated Statements of Loss.

 

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

 

In June 2009, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 168, *The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted AccountingPrinciples, approving the**FASBAccounting Standards CodificationTM* (Codification), which states thatthe Codification is the exclusive authoritative reference for U.S. generallyaccepted accounting principles (GAAP). The Codification is not expected tochange U.S. GAAP. We will adopt SFAS No. 168 in third quarter 2009. We donot expect the adoption to have a material impact on our financial position orresults of operations.

 

In June 2009, the FASB issued SFAS No. 167,*Amendments to FASB InterpretationNo. 46(R)*,which amends the consolidation guidanceapplicable to variable-interest entities (VIEs). SFAS No. 167 requiresthat entities evaluate former qualified special-purpose entities forconsolidation, changes the approach to determining a VIE’s primary beneficiaryfrom a quantitative assessment to a qualitative assessment, and increases thefrequency of required reassessment to determine whether a company is theprimary beneficiary of a VIE. It also requires additional year-end and interimdisclosures. We will adopt SFAS No. 167 on January 1, 2010, and we donot expect the adoption to have a material impact on our financial position orresults of operations.

 

In May 2009, the FASB issued SFAS No. 165, *Subsequent Events*, which establishes general standards ofaccounting for and disclosure of events that occur after the balance sheet datebut before financial statements are issued or are available to be issued. Weadopted SFAS No. 165 on June 30, 2009. In accordance with SFAS No. 165,we disclosed the date through which we evaluated subsequent events in Note 1,Nature of Operations and Basis of Presentation. The adoption did not have amaterial impact 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.* This FSP amends SFAS No. 132 (revised 2003), *Employers’ Disclosures About Pensions and OtherPostretirement Benefits,*to provide guidance on an employer’sdisclosures about plan assets of a defined benefit pension or otherpostretirement 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 November 2008,the EITF reached a consensus on EITF 08-6, *Equity Method Investment AccountingConsiderations*. Thisconsensus addresses a number of matters associated with the impact that SFAS No. 141(R) andSFAS No. 160might have on the accounting for equity method investments, includinghow an equity method investment should initially be measured, how it should betested for impairment, and how changes in classification from equity method tocost method should be treated, among others. We adopted EITF 08-6 in January 2009,and it did not have a material impact on our financial position or results ofoperations.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures About Derivative Instruments andHedging Activities*. SFAS No. 161 requires enhanced disclosuresabout derivative instruments and hedging activities to enable investors tobetter understand their effects on financial position, financial performance, andcash flows. These requirements include the disclosure of the fair values ofderivative instruments and their gains and losses in a tabular format. Weadopted SFAS No. 161 in January 2009, and it had no impact on ourfinancial position or results of operations.

 

In January 2008,we adopted SFAS No. 157,*FairValue Measurements*. The statement established a framework formeasuring fair value, and it enhanced the disclosures for fair valuemeasurements. The statement applies when other accounting pronouncementsrequire or permit fair value measurements, but it does not require new fairvalue measurements. In accordance with the provisions of FSP No. 157-2, *Effective Date of FASB Statement No. 157*, we deferreduntil January 1, 2009, the adoption of SFAS No. 157 as it relates tononfinancial assets and nonfinancial liabilities that were recognized anddisclosed at fair value in the financial statements on a nonrecurring basis.The adoption of these pronouncements did not have a material impact on ourfinancial position or results of operations; however, it could have an impactin future periods.

 

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In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations,*and SFAS No. 160,*Accounting and Reporting of NoncontrollingInterests in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin No. 51.* These new standards significantlychange the accounting for and reporting of business combination transactionsand noncontrolling (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.

 

***15.          Retirement andBenefit Plans***

 

On March 18, 2009,we amended our defined benefit pension plan for salaried employees (SalariedPlan) to freeze the Salaried Plan so that no future benefits will accrue after December 31,2009. The amendment also freezes benefits in our nonqualified salaried pensionplans. We accounted for the freeze in accordance with SFAS No. 88, *Employers’ Accounting for Settlements of Defined Benefit Pension Plansand for Termination Benefits.*

 

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 six monthsended June 30, 2009. Because the Salaried Plan has unrecognized losses,the curtailment gain associated with the amendment to the Salaried Plan wasapplied to partially offset the losses in the plan, resulting in no immediategain 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*

 

Relative to December 31, 2008, the pensionliability reported on our June 30, 2009, Consolidated Balance Sheetdecreased approximately $49.8 million due to the following:

 

·                  A $42.2 million favorable adjustment related tothe pension plan freeze for salaried employees, partially offset by$9.9 million of investment losses related to the amended plans, net of ourexpected long-term rate of return on plan assets. The $42.2 millionfavorable adjustment resulted from (1) an increase in the discount ratefrom 6.1% at December 31, 2008, to 6.9% at March 18, 2009, and (2) eliminatingfuture salary increases from the liability measurement for the amended plans,as no future benefits will accrue in these plans after December 31, 2009;

 

·                  A $25.0 million first quarter 2009 contributionto the pension plans, partially offset by $7.5 million of pension expensefor the six months ended June 30, 2009.

 

In accordance with SFAS No. 158,*Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans*, 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 assumptionsdisclosed in Note 13, Retirement and Benefit Plans, of the Notes toConsolidated Financial Statements in “Item 8. Financial Statements andSupplementary Data” in our 2008 Form 10-K.

 

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The following tablepresents the pension and postretirement benefit costs:

 
| ** **                                     | ** ** | **Pension  Benefits**                 | ** ** | **Other  Benefits**                   | ** ** |
|------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **Three  Months Ended  June 30** | ** ** | **Three  Months Ended  June 30** | ** ** |
| ** **                                     | ** ** | **2009**                              | ** ** | **2008**                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(thousands)**                       | ** ** |
| Service cost                                   |       | $                                     | 2,487      |                                  | $          | 2,753 |   | $ | — |   | $ | — |   |
| Interest cost                                  |       | 4,887                                 |       | 4,615                                 |       | 5 |   | 3 |   |
| Expected return  on plan assets                |       | (4,606                                | )          | (4,542                                | )          | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | (290                                  | )          | (92                                   | )          | 5 |   | — |   |
| Amortization of  prior service costs and other |       | 45                                    |       | 30                                    |       | 1 |   | — |   |
| Company-sponsored  plans                       |       | 2,523                                 |       | 2,764                                 |       | 11 |   | 3 |   |
| Multiemployer  pension plans                   |       | —                                |       | 13                                    |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                                 | **2,523**  | ** **                            | **$**      | **2,777** | ** ** | **$** | **11** | ** ** | **$** | **3** | ** ** |

 
| ** **                                     | ** ** | **Pension  Benefits**               | ** ** | **Other  Benefits**                 | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **                                     | ** ** | **Six  Months Ended  June 30** | ** ** | **Six  Months Ended  June 30** | ** ** |
| ** **                                     | ** ** | **2009**                            | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(thousands)**                     | ** ** |
| Service cost                                   |       | $                                   | 5,440      |                                | $          | 7,069 |   | $ | — |   | $ | 1 |   |
| Interest cost                                  |       | 9,911                               |       | 12,684                              |       | 7 |   | 23 |   |
| Expected return  on plan assets                |       | (9,166                              | )          | (12,536                             | )          | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | (267                                | )          | (204                                | )          | 5 |   | (13 | ) |
| Amortization of  prior service costs and other |       | 91                                  |       | 256                                 |       | — |   | — |   |
| Curtailment loss                               |       | 1,452                               |       | 404                                 |       | — |   | — |   |
| Company-sponsored  plans                       |       | 7,461                               |       | 7,673                               |       | 12 |   | 11 |   |
| Multiemployer  pension plans                   |       | —                              |       | 103                                 |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                               | **7,461**  | ** **                          | **$**      | **7,776** | ** ** | **$** | **12** | ** ** | **$** | **11** | ** ** |

 

In 2009, we wererequired to contribute $4.4 million to our pension plans and, in March 2009,we made $25.0 million of contributions, which exceeded our 2009 legalfunding requirements and improved the funded status of the plans. In June 2009,we announced that we intend to sell up to 5 million of the approximately37 million of Boise Inc. shares that we own. As of August 11, 2009,we had sold 1.2 million shares at an average net price of $2.48 per share. Weexpect to contribute the majority of the cash proceeds from the sale of theshares to our pension 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. The Series C equity units are accounted foras restricted stock. We recognize compensation expense for the Series Cequity units based on the fair value on the date of grant over the vestingperiod. For more information related to the Management Equity Plan, seeNote 14, Redeemable Equity Units, of the Notes to Consolidated FinancialStatements in “Item 8. Financial Statements and Supplementary Data” in our2008 Form 10-K.

 

***17.        Segment Information***

 

Prior to the Sale,we operated our business using five reportable segments:  Building Materials Distribution, WoodProducts, Paper, Packaging & Newsprint, and Corporate and Other. Afterthe Sale, we operate our business using three reportable segments:  Building Materials Distribution, WoodProducts, and Corporate and Other. There are no differences in our basis ofmeasurement of segment profit or loss from those disclosed in Note 16,Segment Information, 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

 

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defined in SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets.*As a result, the results of the Paper andPackaging & Newsprint segments through February 21, 2008, areincluded in our first quarter 2008 results, and we did not define the soldassets 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****June 30, 2009** | ** ** | ** **     | ** **      | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building Materials Distribution              |       | $              | 433.6           |        | $          | —            |       | $          | 0.1        |       | $          | 433.7             |       | $          | 7.6        |   | $ | 1.9 |   | $ | 9.6 |   |
| Wood Products (a)                            |       | 78.7           |            | 8.9         |       | 46.8              |       | 134.4      |       | (19.2      | )          | 9.4               |       | (9.8       | )          |
| Corporate and Other                          |       | —         |            | —      |       | —            |       | —     |       | (3.4       | )          | 0.2               |       | (3.3       | )          |
|                                         |       | 512.3          |            | 8.9         |       | 46.9              |       | 568.1      |       | (15.0      | )          | 11.5              |       | (3.5       | )          |
| Intersegment eliminations                    |       | —         |            | —      |       | (46.9             | )          | (46.9      | )          | —     |       | —            |       | —     |       |
| Equity in net income of affiliate (b)   |       | —         |            | —      |       | —            |       | —     |       | 30.3       |       | —            |       | 30.3       |       |
| Interest expense                             |       | —         |            | —      |       | —            |       | —     |       | (6.1       | )          | —            |       | —     |       |
| Interest income                              |       | —         |            | —      |       | —            |       | —     |       | 0.2        |       | —            |       | —     |       |
| ** **                                   | ** ** | **$**          | ** 512.3** | ** **  | **$**      | **8.9**           | ** ** | **$**      | **—** | ** ** | **$**      | **521.2**         | ** ** | **$**      | **9.4**    | ** ** | **$** | **11.5** | ** ** | **$** | **26.8** | ** ** |

 
| ** **                                      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                      | ** ** | **Sales**      | ** ** | **(Loss) ** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | ** **     | ** ** | **Related**      | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                      | ** ** | **Trade**      | ** ** | **Party**        | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                      | ** ** | **(millions)** | ** ** |
| **Three Months Ended****June 30, 2008**    | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building Materials Distribution                 |       | $              | 609.9      |             | $          | —            |       | $          | 0.1        |       | $          | 610.0             |       | $          | 15.3       |   | $ | 1.9 |   | $ | 17.3 |   |
| Wood Products                                   |       | 133.5          |       | 13.8             |       | 78.7              |       | 226.0      |       | (3.4       | )          | 6.7               |       | 3.3        |       |
| Corporate and Other (c)                         |       | —         |       | —           |       | —            |       | —     |       | (15.3      | )          | 0.1               |       | (15.4      | )          |
|                                            |       | 743.4          |       | 13.8             |       | 78.8              |       | 836.0      |       | (3.4       | )          | 8.7               |       | 5.2        |       |
| Intersegment eliminations                       |       | —         |       | —           |       | (78.8             | )          | (78.8      | )          | —     |       | —            |       | —     |       |
| Equity in net loss of affiliate (b)             |       | —         |       | —           |       | —            |       | —     |       | (8.8       | )          | —            |       | (8.8       | )          |
| Change in fair value of contingent value rights |       | —         |       | —           |       | —            |       | —     |       | 0.7        |       | —            |       | 0.7        |       |
| Interest expense                                |       | —         |       | —           |       | —            |       | —     |       | (6.4       | )          | —            |       | —     |       |
| Interest income                                 |       | —         |       | —           |       | —            |       | —     |       | 2.6        |       | —            |       | —     |       |
| ** **                                      | ** ** | **$**          | **743.4**  | ** **       | **$**      | **13.8**          | ** ** | **$**      | **—** | ** ** | **$**      | **757.2**         | ** ** | **$**      | **(15.4**  | **)** | **$** | **8.7** | ** ** | **$** | **(2.9** | **)** |

 

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| ** **                                        | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                        | ** ** | **Sales**      | ** ** | **(Loss) ** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **     | ** ** | **Related**      | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                        | ** ** | **Trade**      | ** ** | **Parties**      | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                        | ** ** | **(millions)** | ** ** |
| **Six Months Ended****June 30, 2009**        | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building Materials Distribution                   |       | $              | 768.5      |             | $          | —            |       | $          | 0.2        |       | $          | 768.7             |       | $          | (0.9       | ) | $ | 3.8 |   | $ | 2.9 |   |
| Wood Products (a)                                 |       | 151.5          |       | 14.6             |       | 84.8              |       | 250.9      |       | (56.8      | )          | 18.5              |       | (38.3      | )          |
| Corporate and Other                               |       | —         |       | —           |       | —            |       | —     |       | (5.9       | )          | 0.3               |       | (5.7       | )          |
|                                              |       | 920.0          |       | 14.6             |       | 85.0              |       | 1,019.6    |       | (63.6      | )          | 22.6              |       | (41.1      | )          |
| Intersegment eliminations                         |       | —         |       | —           |       | (85.0             | )          | (85.0      | )          | —     |       | —            |       | —     |       |
| Equity in net income of affiliate (b)        |       | —         |       | —           |       | —            |       | —     |       | 33.3       |       | —            |       | 33.3       |       |
| Impairment of investment in equity  affiliate (d) |       | —         |       | —           |       | —            |       | —     |       | (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                                  |       | —         |       | —           |       | —            |       | —     |       | (11.8      | )          | —            |       | —     |       |
| Interest income                                   |       | —         |       | —           |       | —            |       | —     |       | 0.6        |       | —            |       | —     |       |
| ** **                                        | ** ** | **$**          | **920.0**  | ** **       | **$**      | **14.6**          | ** ** | **$**      | **—** | ** ** | **$**      | **934.6**         | ** ** | **$**      | **(78.3**  | **)** | **$** | **22.6** | ** ** | **$** | **(44.6** | **)** |

 
| ** **                                       | ** ** | ** **     | ** **  | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|----------------|-------------|------------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                       | ** ** | **Sales**      | ** **  | **(Loss) ** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **     | ** **  | **Related**      | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                       | ** ** | **Trade**      | ** **  | **Party**        | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                       | ** ** | **(millions)** | ** **  |
| **Six Months Ended****June 30, 2008**       | ** ** | ** **     | ** **  | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building Materials Distribution                  |       | $              | 1,113.6     |             | $          | —            |       | $          | 0.3        |       | $          | 1,113.9           |       | $          | 14.1       |   | $ | 3.9 |   | $ | 18.0 |   |
| Wood Products                                    |       | 252.2          |        | 19.5             |       | 153.1             |       | 424.8      |       | (20.5      | )          | 14.2              |       | (6.3       | )          |
| 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        |       | (14.3      | )          | 0.2               |       | (14.1      | )          |
|                                             |       | 1,624.2        |        | 109.6            |       | 180.5             |       | 1,914.3    |       | 5.7        |       | 18.7              |       | 24.4       |       |
| Intersegment eliminations                        |       | —         |        | —           |       | (180.5            | )          | (180.5     | )          | —     |       | —            |       | —     |       |
| Equity in net loss of affiliate (b)         |       | —         |        | —           |       | —            |       | —     |       | (17.4      | )          | —            |       | (17.4      | )          |
| Change in fair value of contingent value rights  |       | —         |        | —           |       | —            |       | —     |       | (4.0       | )          | —            |       | (4.0       | )          |
| Change in fair value of interest rate  swaps (f) |       | —         |        | —           |       | —            |       | —     |       | (6.3       | )          | —            |       | —     |       |
| Interest expense                                 |       | —         |        | —           |       | —            |       | —     |       | (21.8      | )          | —            |       | —     |       |
| Interest income                                  |       | —         |        | —           |       | —            |       | —     |       | 5.2        |       | —            |       | —     |       |
| ** **                                       | ** ** | **$**          | **1,624.2** | ** **       | **$**      | **109.6**         | ** ** | **$**      | **—** | ** ** | **$**      | **1,733.8**       | ** ** | **$**      | **(38.7**  | **)** | **$** | **18.7** | ** ** | **$** | **2.9** | ** ** |

 

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(a)                                  Included$1.7 million and $9.2 million of expenses in income (loss) beforetaxes for the three and six months ended June 30, 2009, and$0.9 million of income and $4.0 million of expenses in EBITDA for thethree and six months ended June 30, 2009, related to the closure of thelumber manufacturing facility in La Grande, Oregon.

 

(b)                                 Included$30.3 million and $33.3 million of income for the three and sixmonths ended June 30, 2009, and $8.8 million and $17.4 millionof expense for same periods in the prior year, related to our equity investmentin Boise Inc. See Note 3, Investment in Equity Affiliate, for moreinformation related to our investment in Boise Inc.

 

(c)                                  The three andsix months ended June 30, 2008, included an $8.3 million loss on thesale of the note receivable from Boise Inc. See Note 6, Other (Income)Expense, Net, for more information. The six months ended June 30, 2008,included a $4.7 million gain on the Sale. The three months ended June 30,2008, included $3.3 million of expenses related to the Sale.

 

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(d)                                 On March 31,2009, we concluded that our investment in Boise Inc. met the definition ofother than temporarily impaired as defined in APB Opinion No. 18*.* Accordingly, we recorded a$43.0 million charge in “Impairment of investment in equity affiliate” inour Consolidated Statement of Lossfor the six months ended June 30, 2009. See Note 3, Investment inEquity Affiliate, for more information.

 

(e)                                  As a result ofthe Sale, the six months ended June 30, 2008, include the results of thePaper and Packaging & Newsprint segments through February 21,2008.

 

(f)                                    Includedapproximately $6.3 million of expense related to the change in the fairvalue of our interest rate swaps, which we terminated in February 2008.See Note 13, Financial Instrument Risk, for more information.

 

(g)                                 EBITDArepresents income (loss) before interest (interest expense, interest income,and change in fair value of interest rate swaps), income taxes, anddepreciation, amortization, and depletion. EBITDA is the primary measure usedby our chief operating decision makers to evaluate segment operatingperformance and to decide how to allocate resources to segments. We believeEBITDA is useful to investors because it provides a means to evaluate theoperating performance of our segments and our company on an ongoing basis usingcriteria that are used by our internal decision makers and because it isfrequently used by investors and other interested parties in the evaluation ofcompanies. We believe EBITDA is a meaningful measure because it presents atransparent view of our recurring operating performance and allows managementto readily view operating trends, perform analytical comparisons, and identifystrategies to improve operating performance. For example, we believe that theinclusion of items such as taxes, interest expense, and interest incomedistorts management’s ability to assess and view the core operating trends inour segments. EBITDA, however, is not a measure of our liquidity or financialperformance under generally accepted accounting principles (GAAP) and shouldnot be considered as an alternative to net income (loss), income (loss) fromoperations, or any other performance measure derived in accordance with GAAP oras an alternative to cash flow from operating activities as a measure of ourliquidity. The use of EBITDA instead of net income (loss) or segment income(loss) has limitations as an analytical tool, including the inability to determineprofitability; the exclusion of interest expense, interest income, change inthe fair value of interest rate swaps, and associated significant cashrequirements; and the exclusion of depreciation, amortization, and depletion.Management compensates for these limitations by relying on our GAAP results.Our measures of EBITDA are not necessarily comparable to other similarly titledcaptions of other companies due to potential inconsistencies in the methods ofcalculation.

 

The following is a reconciliationof net income (loss) to EBITDA:

 
| ** **                                   | ** ** | **Three  Months Ended  June 30** | ** ** | **Six  Months Ended  June 30** | ** ** |
|----------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                   | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(millions)**                        | ** ** |
| Net income  (loss)                           |       | $                                     | 9.3        |                                | $          | (15.4 | ) | $ | (78.9 | ) | $ | (39.8 | ) |
| Change in fair  value of interest rate swaps |       | —                                |       | —                              |       | — |   | 6.3 |   |
| Interest expense                             |       | 6.1                                   |       | 6.4                                 |       | 11.8 |   | 21.8 |   |
| Interest income                              |       | (0.2                                  | )          | (2.6                                | )          | (0.6 | ) | (5.2 | ) |
| Income tax  provision                        |       | 0.1                                   |       | —                              |       | 0.6 |   | 1.1 |   |
| Depreciation,  amortization, and depletion   |       | 11.5                                  |       | 8.7                                 |       | 22.6 |   | 18.7 |   |
| EBITDA                                       | ** ** | **$**                                 | **26.8**   | ** **                          | **$**      | **(2.9** | **)** | **$** | **(44.6** | **)** | **$** | **2.9** | ** ** |

 

***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 June 30, 2009, there have been no materialchanges to our commitments outside the normal course of business, except asdisclosed in Note 12, Debt, and Note 15, Retirement and BenefitPlans, of this Form 10-Q.

 

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# *Guarantees*

# * *

Weprovide guarantees, indemnifications, and assurances to others, whichconstitute guarantees as defined under FASB Interpretation (FIN) No. 45, *Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others*. Note 17, Commitments and Guarantees, of the Notesto Consolidated Financial Statements in “Item 8. Financial Statements andSupplementary Data” in our 2008 Form 10-K describes the nature of ourguarantees, including the approximate terms of the guarantees, how theguarantees arose, the events or circumstances that would require us to performunder the guarantees, and the maximum potential undiscounted amounts of futurepayments we could be required to make. As of June 30, 2009, there havebeen no material changes to the guarantees disclosed in the 2008 Form 10-K.

 

***19.          ConsolidatingGuarantor and Nonguarantor Financial Information***

 

Thefollowing consolidating financial information presents the Statements of Income(Loss), Balance Sheets, and Cash Flows related to our business. Certain amountsin prior periods’ consolidating financial statements have been reclassified toconform with the current period’s presentation. The senior subordinated notesare guaranteed on a senior subordinated basis jointly and severally by BCHoldings and each of its existing and future subsidiaries (other than:  (i) the co-issuers, Boise Cascade andBoise Cascade Finance Corporation; (ii) our foreign subsidiaries; and (iii) BirchCreek Investments L.L.C., which was dissolved on March 31, 2008). Otherthan the consolidated financial statements and footnotes for BC Holdings,financial statements and other disclosures concerning the guarantors have notbeen presented because management believes that such information is notmaterial to investors.

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Three MonthsEnded June 30, 2009**

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** ** | **Boise  Cascade,******** L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                           |       | **(thousands)**                                             |       |
| **Sales**                                                                            |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| Trade                                                                                |       | $                                                           | —     |                                    | $          | —                      |       | $                                | 509,971     |             | $          | 2,276            |       | $ | — |   | $ | 512,247 |   |
| Intercompany                                                                         |       | —                                                      |       | —                                  |       | 12                          |       | 2,271                            |        | (2,283           | )          | —           |       |
| Related parties                                                                      |       | —                                                      |       | —                                  |       | 8,933                       |       | —                           |        | —           |       | 8,933            |       |
|                                                                                 |       | —                                                      |       | —                                  |       | 518,916                     |       | 4,547                            |        | (2,283           | )          | 521,180          |       |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                      |       | 64                                      |       | 461,394                     |       | 4,639                            |        | (2,398           | )          | 463,699          |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                      |       | —                                  |       | 6,332                       |       | —                           |        | —           |       | 6,332            |       |
| Depreciation, amortization, and depletion                                            |       | —                                                      |       | 114                                     |       | 10,874                      |       | 460                              |        | —           |       | 11,448           |       |
| Selling and distribution expenses                                                    |       | —                                                      |       | —                                  |       | 47,475                      |       | 296                              |        | —           |       | 47,771           |       |
| General and administrative expenses                                             |       | —                                                      |       | 1,404                                   |       | 5,344                       |       | —                           |        | 115              |       | 6,863            |       |
| General and administrative expenses from  related party                         |       | —                                                      |       | 2,503                                   |       | —                      |       | —                           |        | —           |       | 2,503            |       |
| Other (income) expense, net                                                          |       | —                                                      |       | 42                                      |       | (1,713                      | )          | (80                              | )           | —           |       | (1,751           | )          |
|                                                                                 |       | —                                                      |       | 4,127                                   |       | 529,706                     |       | 5,315                            |        | (2,283           | )          | 536,865          |       |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| **Loss from operations**                                                             |       | —                                                      |       | (4,127                                  | )          | (10,790                     | )          | (768                             | )           | —           |       | (15,685          | )          |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                  |       | 30,306                                                      |       | —                                  |       | —                      |       | —                           |        | —           |       | 30,306           |       |
| Foreign exchange gain                                                                |       | —                                                      |       | 473                                     |       | 149                         |       | 93                               |        | —           |       | 715              |       |
| Interest expense                                                                     |       | —                                                      |       | (6,135                                  | )          | —                      |       | —                           |        | —           |       | (6,135           | )          |
| Interest income                                                                      |       | —                                                      |       | 114                                     |       | 64                          |       | —                           |        | —           |       | 178              |       |
|                                                                                 |       | 30,306                                                      |       | (5,548                                  | )          | 213                         |       | 93                               |        | —           |       | 25,064           |       |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | 30,306                                                      |       | (9,675                                  | )          | (10,577                     | )          | (675                             | )           | —           |       | 9,379            |       |
| Income tax provision                                                                 |       | —                                                      |       | (32                                     | )          | (15                         | )          | (21                              | )           | —           |       | (68              | )          |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | 30,306                                                      |       | (9,707                                  | )          | (10,592                     | )          | (696                             | )           | —           |       | 9,311            |       |
|                                                                                 |       |                                                        |       |                                    |       |                        |       |                             |        |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (20,995                                                     | )          | (11,288                                 | )          | —                      |       | —                           |        | 32,283           |       | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                       | **9,311**  | ** **                              | **$**      | **(20,995**                 | **)**      | **$**                            | **(10,592** | **)**            | **$**      | **(696**         | **)**      | **$** | **32,283** | ** ** | **$** | **9,311** | ** ** |

 

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

**ConsolidatingStatements of Income (Loss)**

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

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C. (Parent)** | ** **  | **Boise  Cascade,******** L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------|-------------|-----------------------------------------|------------|-----------------------------|------------|------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                            | ** **  |
| **Sales**                                                                            |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| Trade                                                                                |       | $                                                          | —      |                                    | $          | —                      |       | $                                  | 738,153    |             | $          | 5,249            |       | $ | — |   | $ | 743,402 |   |
| Intercompany                                                                         |       | —                                                     |        | —                                  |       | —                      |       | 5,276                              |       | (5,276           | )          | —           |       |
| Related parties                                                                      |       | —                                                     |        | —                                  |       | 13,786                      |       | —                             |       | —           |       | 13,786           |       |
|                                                                                 |       | —                                                     |        | —                                  |       | 751,939                     |       | 10,525                             |       | (5,276           | )          | 757,188          |       |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                     |        | 425                                     |       | 642,372                     |       | 12,365                             |       | (5,276           | )          | 649,886          |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                     |        | —                                  |       | 23,009                      |       | —                             |       | —           |       | 23,009           |       |
| Depreciation, amortization, and depletion                                            |       | —                                                     |        | 83                                      |       | 7,986                       |       | 615                                |       | —           |       | 8,684            |       |
| Selling and distribution expenses                                                    |       | —                                                     |        | —                                  |       | 56,632                      |       | 968                                |       | —           |       | 57,600           |       |
| General and administrative expenses                                             |       | —                                                     |        | 1,570                                   |       | 6,259                       |       | 30                                 |       | —           |       | 7,859            |       |
| General and administrative expenses from  related party                         |       | —                                                     |        | 2,526                                   |       | —                      |       | —                             |       | —           |       | 2,526            |       |
| Loss on sale of Paper and Packaging &  Newsprint assets                     |       | —                                                     |        | 3,328                                   |       | —                      |       | —                             |       | —           |       | 3,328            |       |
| Other (income) expense, net                                                          |       | 8,313                                                      |        | 42                                      |       | (1,659                      | )          | 1,939                              |       | —           |       | 8,635            |       |
|                                                                                 |       | 8,313                                                      |        | 7,974                                   |       | 734,599                     |       | 15,917                             |       | (5,276           | )          | 761,527          |       |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | (8,313                                                     | )           | (7,974                                  | )          | 17,340                      |       | (5,392                             | )          | —           |       | (4,339           | )          |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| Equity in net loss of Boise Inc.                                                |       | (8,845                                                     | )           | —                                  |       | —                      |       | —                             |       | —           |       | (8,845           | )          |
| Foreign exchange gain (loss)                                                         |       | —                                                     |        | 246                                     |       | (139                        | )          | 783                                |       | —           |       | 890              |       |
| Change in fair value of contingent value rights                                      |       | —                                                     |        | 743                                     |       | —                      |       | —                             |       | —           |       | 743              |       |
| Interest expense                                                                     |       | —                                                     |        | (6,427                                  | )          | —                      |       | —                             |       | —           |       | (6,427           | )          |
| Interest expense—intercompany                                                   |       | —                                                     |        | —                                  |       | —                      |       | (20                                | )          | 20               |       | —           |       |
| Interest income                                                                      |       | 1,774                                                      |        | 719                                     |       | 59                          |       | 7                                  |       | —           |       | 2,559            |       |
| Interest income—intercompany                                                    |       | —                                                     |        | 20                                      |       | —                      |       | —                             |       | (20              | )          | —           |       |
|                                                                                 |       | (7,071                                                     | )           | (4,699                                  | )          | (80                         | )          | 770                                |       | —           |       | (11,080          | )          |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | (15,384                                                    | )           | (12,673                                 | )          | 17,260                      |       | (4,622                             | )          | —           |       | (15,419          | )          |
| Income tax (provision) benefit                                                       |       | —                                                     |        | 20                                      |       | (2                          | )          | 5                                  |       | —           |       | 23               |       |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | (15,384                                                    | )           | (12,653                                 | )          | 17,258                      |       | (4,617                             | )          | —           |       | (15,396          | )          |
|                                                                                 |       |                                                       |        |                                    |       |                        |       |                               |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (12                                                        | )           | 12,641                                  |       | —                      |       | —                             |       | (12,629          | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                      | **(15,396** | **)**                                   | **$**      | **(12**                     | **)**      | **$**                              | **17,258** | ** **       | **$**      | **(4,617**       | **)**      | **$** | **(12,629** | **)** | **$** | **(15,396** | **)** |

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Six Months Ended June 30,2009**

 
| ** **                                                                  | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** **  | **Boise  Cascade,******** L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------|-------------|-----------------------------------------|------------|-----------------------------|------------|----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                  |       | **(thousands)**                                             |        |
| **Sales**                                                                   |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| Trade                                                                       |       | $                                                           | —      |                                    | $          | —                      |       | $                                | 916,440     |             | $          | 3,531            |       | $ | — |   | $ | 919,971 |   |
| Intercompany                                                                |       | —                                                      |        | —                                  |       | 15                          |       | 3,968                            |        | (3,983           | )          | —           |       |
| Related parties                                                             |       | —                                                      |        | —                                  |       | 14,636                      |       | —                           |        | —           |       | 14,636           |       |
|                                                                        |       | —                                                      |        | —                                  |       | 931,091                     |       | 7,499                            |        | (3,983           | )          | 934,607          |       |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Costs and expenses**                                                      |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| Materials, labor, and other operating expenses                              |       | —                                                      |        | —                                  |       | 840,502                     |       | 8,366                            |        | (4,098           | )          | 844,770          |       |
| Materials, labor, and other operating expenses from  related parties        |       | —                                                      |        | —                                  |       | 18,622                      |       | —                           |        | —           |       | 18,622           |       |
| Depreciation, amortization, and depletion                                   |       | —                                                      |        | 227                                     |       | 21,418                      |       | 922                              |        | —           |       | 22,567           |       |
| Selling and distribution expenses                                           |       | —                                                      |        | —                                  |       | 92,417                      |       | 595                              |        | —           |       | 93,012           |       |
| General and administrative expenses                                    |       | —                                                      |        | 2,991                                   |       | 10,682                      |       | —                           |        | 115              |       | 13,788           |       |
| General and administrative expenses from  related party                |       | —                                                      |        | 4,936                                   |       | —                      |       | —                           |        | —           |       | 4,936            |       |
| Other (income) expense, net                                                 |       | —                                                      |        | (1,871                                  | )          | 3,023                       |       | (222                             | )           | —           |       | 930              |       |
|                                                                        |       | —                                                      |        | 6,283                                   |       | 986,664                     |       | 9,661                            |        | (3,983           | )          | 998,625          |       |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Income (loss) from operations**                                           |       | —                                                      |        | (6,283                                  | )          | (55,573                     | )          | (2,162                           | )           | —           |       | (64,018          | )          |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                         |       | 33,311                                                      |        | —                                  |       | —                      |       | —                           |        | —           |       | 33,311           |       |
| Impairment of investment in equity affiliate                                |       | (43,039                                                     | )           | —                                  |       | —                      |       | —                           |        | —           |       | (43,039          | )          |
| Foreign exchange gain                                                       |       | —                                                      |        | 226                                     |       | 133                         |       | 24                               |        | —           |       | 383              |       |
| Change in fair value of contingent value rights                             |       | —                                                      |        | 194                                     |       | —                      |       | —                           |        | —           |       | 194              |       |
| Gain on repurchase of long-term debt                                        |       | —                                                      |        | 6,026                                   |       | —                      |       | —                           |        | —           |       | 6,026            |       |
| Interest expense                                                            |       | —                                                      |        | (11,751                                 | )          | —                      |       | —                           |        | —           |       | (11,751          | )          |
| Interest income                                                             |       | —                                                      |        | 395                                     |       | 180                         |       | —                           |        | —           |       | 575              |       |
|                                                                        |       | (9,728                                                      | )           | (4,910                                  | )          | 313                         |       | 24                               |        | —           |       | (14,301          | )          |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Loss before income taxes and  equity in net income (loss) of affiliates** |       | (9,728                                                      | )           | (11,193                                 | )          | (55,260                     | )          | (2,138                           | )           | —           |       | (78,319          | )          |
| Income tax (provision) benefit                                              |       | —                                                      |        | (541                                    | )          | 11                          |       | (21                              | )           | —           |       | (551             | )          |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Loss before equity in net income  (loss) of affiliates**                  |       | (9,728                                                      | )           | (11,734                                 | )          | (55,249                     | )          | (2,159                           | )           | —           |       | (78,870          | )          |
|                                                                        |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                              |       | (69,142                                                     | )           | (57,408                                 | )          | —                      |       | —                           |        | 126,550          |       | —           |       |
| **Net income (loss)**                                                       | ** ** | **$**                                                       | **(78,870** | **)**                                   | **$**      | **(69,142**                 | **)**      | **$**                            | **(55,249** | **)**            | **$**      | **(2,159**       | **)**      | **$** | **126,550** | ** ** | **$** | **(78,870** | **)** |

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Six Months Ended June 30,2008**

 
| ** **                                                                           | ** ** | **Boise  Cascade********Holdings,********L.L.C.  (Parent)** | ** **  | **Boise  Cascade,******** L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|-------------|-----------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           |       | **(thousands)**                                             |        |
| **Sales**                                                                            |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| Trade                                                                                |       | $                                                           | —      |                                    | $          | —                      |       | $                                | 1,613,705  |             | $          | 10,497           |       | $ | — |   | $ | 1,624,202 |   |
| Intercompany                                                                         |       | —                                                      |        | —                                  |       | 2                           |       | 16,144                           |       | (16,146          | )          | —           |       |
| Related parties                                                                      |       | —                                                      |        | —                                  |       | 109,568                     |       | —                           |       | —           |       | 109,568          |       |
|                                                                                 |       | —                                                      |        | —                                  |       | 1,723,275                   |       | 26,641                           |       | (16,146          | )          | 1,733,770        |       |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| Materials, labor, and other operating expenses                                       |       | —                                                      |        | 1,811                                   |       | 1,512,920                   |       | 27,033                           |       | (11,220          | )          | 1,530,544        |       |
| Materials, labor, and other operating expenses from  related parties                 |       | —                                                      |        | —                                  |       | 29,189                      |       | —                           |       | —           |       | 29,189           |       |
| Depreciation, amortization, and depletion                                            |       | —                                                      |        | 260                                     |       | 17,081                      |       | 1,378                            |       | —           |       | 18,719           |       |
| Selling and distribution expenses                                                    |       | —                                                      |        | —                                  |       | 119,383                     |       | 1,582                            |       | —           |       | 120,965          |       |
| General and administrative expenses                                             |       | 1                                                           |        | 5,762                                   |       | 21,438                      |       | 236                              |       | (4,926           | )          | 22,511           |       |
| General and administrative expenses from  related party                         |       | —                                                      |        | 3,504                                   |       | —                      |       | —                           |       | —           |       | 3,504            |       |
| Gain on sale of Paper and Packaging &  Newsprint assets                     |       | —                                                      |        | (4,735                                  | )          | —                      |       | —                           |       | —           |       | (4,735           | )          |
| Other (income) expense, net                                                          |       | 8,313                                                       |        | 262                                     |       | (3,218                      | )          | 2,336                            |       | —           |       | 7,693            |       |
|                                                                                 |       | 8,314                                                       |        | 6,864                                   |       | 1,696,793                   |       | 32,565                           |       | (16,146          | )          | 1,728,390        |       |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | (8,314                                                      | )           | (6,864                                  | )          | 26,482                      |       | (5,924                           | )          | —           |       | 5,380            |       |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| Equity in net loss of Boise Inc.                                                |       | (17,397                                                     | )           | —                                  |       | —                      |       | —                           |       | —           |       | (17,397          | )          |
| Foreign exchange gain (loss)                                                         |       | —                                                      |        | (197                                    | )          | (142                        | )          | 616                              |       | —           |       | 277              |       |
| Change in fair value of contingent value rights                                      |       | —                                                      |        | (4,030                                  | )          | —                      |       | —                           |       | —           |       | (4,030           | )          |
| Change in fair value of interest rate swaps                                          |       | —                                                      |        | (6,284                                  | )          | —                      |       | —                           |       | —           |       | (6,284           | )          |
| Interest expense                                                                     |       | —                                                      |        | (20,963                                 | )          | —                      |       | (845                             | )          | —           |       | (21,808          | )          |
| Interest expense—intercompany                                                   |       | —                                                      |        | (158                                    | )          | (2                          | )          | (1,419                           | )          | 1,579            |       | —           |       |
| Interest income                                                                      |       | 2,760                                                       |        | 2,265                                   |       | 121                         |       | 14                               |       | —           |       | 5,160            |       |
| Interest income—intercompany                                                    |       | —                                                      |        | 52                                      |       | 1,527                       |       | —                           |       | (1,579           | )          | —           |       |
|                                                                                 |       | (14,637                                                     | )           | (29,315                                 | )          | 1,504                       |       | (1,634                           | )          | —           |       | (44,082          | )          |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| **Income (loss) before income taxes  and equity in net income (loss) of affiliates** |       | (22,951                                                     | )           | (36,179                                 | )          | 27,986                      |       | (7,558                           | )          | —           |       | (38,702          | )          |
| Income tax provision                                                                 |       | —                                                      |        | (895                                    | )          | (237                        | )          | —                           |       | —           |       | (1,132           | )          |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| **Income (loss) before equity in net  income (loss) of affiliates**                  |       | (22,951                                                     | )           | (37,074                                 | )          | 27,749                      |       | (7,558                           | )          | —           |       | (39,834          | )          |
|                                                                                 |       |                                                        |        |                                    |       |                        |       |                             |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | (16,883                                                     | )           | 20,191                                  |       | —                      |       | —                           |       | (3,308           | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                       | **(39,834** | **)**                                   | **$**      | **(16,883**                 | **)**      | **$**                            | **27,749** | ** **       | **$**      | **(7,558**       | **)**      | **$** | **(3,308** | **)** | **$** | **(39,834** | **)** |

 

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

**ConsolidatingBalance Sheets at June 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           |                                    | $          | 204,435                     |       | $                                | 19          |             | $          | 135              |       | $ | — |   | $ | 204,590 |   |
| Receivables                                      |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| Trade, less allowances                           |       | —                                                      |        | —                                  |       | 132,439                     |       | 1,276                            |        | —           |       | 133,715          |       |
| Related parties                                  |       | —                                                      |        | 81                                      |       | 1,994                       |       | —                           |        | —           |       | 2,075            |       |
| Intercompany                                     |       | —                                                      |        | —                                  |       | 56                          |       | 106                              |        | (162             | )          | —           |       |
| Other                                            |       | 172                                                         |        | 22                                      |       | 2,055                       |       | 129                              |        | (92              | )          | 2,286            |       |
| Inventories                                      |       | —                                                      |        | —                                  |       | 235,083                     |       | 4,874                            |        | —           |       | 239,957          |       |
| Prepaid expenses and other                       |       | —                                                      |        | 2,224                                   |       | 3,643                       |       | 195                              |        | —           |       | 6,062            |       |
|                                             |       | 173                                                         |        | 206,762                                 |       | 375,289                     |       | 6,715                            |        | (254             | )          | 588,685          |       |
|                                             |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Property**                                     |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| Property and equipment, net                      |       | —                                                      |        | 3,091                                   |       | 263,377                     |       | 12,903                           |        | —           |       | 279,371          |       |
| Timber deposits                                  |       | —                                                      |        | —                                  |       | 7,827                       |       | —                           |        | —           |       | 7,827            |       |
|                                             |       | —                                                      |        | 3,091                                   |       | 271,204                     |       | 12,903                           |        | —           |       | 287,198          |       |
|                                             |       |                                                        |        |                                    |       |                        |       |                             |        |             |       |             |       |
| **Investment in equity affiliate  (Boise Inc.)** |       | 53,156                                                      |        | —                                  |       | —                      |       | —                           |        | —           |       | 53,156           |       |
| **Deferred financing costs**                     |       | —                                                      |        | 6,391                                   |       | —                      |       | —                           |        | —           |       | 6,391            |       |
| **Goodwill**                                     |       | —                                                      |        | —                                  |       | 12,170                      |       | —                           |        | —           |       | 12,170           |       |
| **Intangible assets, net**                       |       | —                                                      |        | —                                  |       | 9,063                       |       | —                           |        | —           |       | 9,063            |       |
| **Other assets**                                 |       | —                                                      |        | 116                                     |       | 8,505                       |       | —                           |        | —           |       | 8,621            |       |
| **Investments in affiliates**                    |       | 300,479                                                     |        | 546,024                                 |       | —                      |       | —                           |        | (846,503         | )          | —           |       |
| **Total assets**                                 | ** ** | **$**                                                       | **353,808** | ** **                              | **$**      | **762,384**                 | ** ** | **$**                            | **676,231** | ** **       | **$**      | **19,618**       | ** ** | **$** | **(846,757** | **)** | **$** | **965,284** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at June 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                                       |       | $                                               | —      |                              | $          | 7,634                       |       | $                                             | 110,972     |             | $          | 72               |       | $ | — |   | $ | 118,678 |   |
| Related parties                             |       | —                                          |        | 1,673                             |       | 1,119                       |       | —                                        |        | —           |       | 2,792            |       |
| Intercompany                                |       | —                                          |        | —                            |       | 106                         |       | 56                                            |        | (162             | )          | —           |       |
| Accrued liabilities                         |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Compensation and benefits                   |       | —                                          |        | 10,692                            |       | 19,502                      |       | 155                                           |        | —           |       | 30,349           |       |
| Interest payable                            |       | —                                          |        | 3,632                             |       | —                      |       | —                                        |        | —           |       | 3,632            |       |
| Other                                       |       | —                                          |        | 2,042                             |       | 14,027                      |       | 433                                           |        | (92              | )          | 16,410           |       |
|                                        |       | —                                          |        | 25,673                            |       | 145,726                     |       | 716                                           |        | (254             | )          | 171,861          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Debt**                                    |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Long-term debt                              |       | —                                          |        | 303,146                           |       | —                      |       | —                                        |        | —           |       | 303,146          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Other**                                   | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| Compensation and benefits                   |       | —                                          |        | 123,885                           |       | —                      |       | —                                        |        | —           |       | 123,885          |       |
| Other long-term liabilities                 |       | —                                          |        | 9,201                             |       | 3,383                       |       | —                                        |        | —           |       | 12,584           |       |
|                                        |       | —                                          |        | 133,086                           |       | 3,383                       |       | —                                        |        | —           |       | 136,469          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Redeemable equity units**                 |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| Series B equity  units                 |       | 2,765                                           |        | —                            |       | —                      |       | —                                        |        | —           |       | 2,765            |       |
| Series C equity  units                 |       | 3,958                                           |        | —                            |       | —                      |       | —                                        |        | —           |       | 3,958            |       |
| Redeemable equity units                     |       | —                                          |        | 6,723                             |       | —                      |       | —                                        |        | (6,723           | )          | —           |       |
|                                        |       | 6,723                                           |        | 6,723                             |       | —                      |       | —                                        |        | (6,723           | )          | 6,723            |       |
|                                        |       |                                            |        |                              |       |                        |       |                                          |        |             |       |             |       |
| **Commitments and contingent  liabilities** | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| ** **                                  | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                 | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                                    | ** **  | ** **       | ** ** | ** **       | ** ** |
| Series A equity units                  |       | 85,462                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | 85,462           |       |
| Series B equity units                  |       | 261,623                                         |        | —                            |       | —                      |       | —                                        |        | —           |       | 261,623          |       |
| Series C equity units                  |       | —                                          |        | —                            |       | —                      |       | —                                        |        | —           |       | —           |       |
| Subsidiary equity                           |       | —                                          |        | 293,756                           |       | 527,122                     |       | 18,902                                        |        | (839,780         | )          | —           |       |
| **Total capital**                           |       | 347,085                                         |        | 293,756                           |       | 527,122                     |       | 18,902                                        |        | (839,780         | )          | 347,085          |       |
| **Total liabilities and capital**           | ** ** | **$**                                           | **353,808** | ** **                        | **$**      | **762,384**                 | ** ** | **$**                                         | **676,231** | ** **       | **$**      | **19,618**       | ** ** | **$** | **(846,757** | **)** | **$** | **965,284** | ** ** |

 

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**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** | ** ** |

 

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** **

**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** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Six Months Ended June 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)                                                               |       | $                                                                       | (78,870    | )                                             | $          | (69,142                     | )          | $                                             | (55,249    | )                | $          | (2,159           | )          | $ | 126,550 |   | $ | (78,870 | ) |
| Items in net income (loss) not using (providing)  cash                          |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| Equity in net income of affiliate (Boise Inc.)                                  |       | (33,311                                                                 | )          | —                                        |       | —                      |       | —                                        |       | —           |       | (33,311          | )          |
| Impairment of investment in Boise Inc.                                     |       | 43,039                                                                  |       | —                                        |       | —                      |       | —                                        |       | —           |       | 43,039           |       |
| Equity in net (income) loss of affiliates                                       |       | 69,142                                                                  |       | 57,408                                        |       | —                      |       | —                                        |       | (126,550         | )          | —           |       |
| Depreciation, depletion, and amortization ofdeferred financing costs  and other |       | —                                                                  |       | 1,497                                         |       | 21,417                      |       | 922                                           |       | —           |       | 23,836           |       |
| Pension and other postretirement benefit expense                                |       | —                                                                  |       | 7,473                                         |       | —                      |       | —                                        |       | —           |       | 7,473            |       |
| Change in fair value of contingent rights                                       |       | —                                                                  |       | (194                                          | )          | —                      |       | —                                        |       | —           |       | (194             | )          |
| Management equity units expense                                            |       | —                                                                  |       | 1,496                                         |       | —                      |       | —                                        |       | —           |       | 1,496            |       |
| Gain on repurchase of long-term debt                                            |       | —                                                                  |       | (6,026                                        | )          | —                      |       | —                                        |       | —           |       | (6,026           | )          |
| Gain on sale of assets, net                                                     |       | —                                                                  |       | —                                        |       | (252                        | )          | 4                                             |       | —           |       | (248             | )          |
| Facility closure and curtailment costs                                          |       | —                                                                  |       | —                                        |       | 1,968                       |       | —                                        |       | —           |       | 1,968            |       |
| Other                                                                           |       | —                                                                  |       | (226                                          | )          | (330                        | )          | (28                                           | )          | —           |       | (584             | )          |
| Decrease (increase) in working capital, net ofacquisitions and  dispositions    |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| Receivables                                                                     |       | —                                                                  |       | 697                                           |       | (52,692                     | )          | (981                                          | )          | 164              |       | (52,812          | )          |
| Inventories                                                                     |       | —                                                                  |       | —                                        |       | 38,746                      |       | 1,157                                         |       | —           |       | 39,903           |       |
| Prepaid expenses and other                                                      |       | —                                                                  |       | (1,039                                        | )          | (2,085                      | )          | (157                                          | )          | —           |       | (3,281           | )          |
| Accounts payable and accrued liabilities                                   |       | —                                                                  |       | (1,605                                        | )          | 43,582                      |       | (447                                          | )          | (164             | )          | 41,366           |       |
| Pension and other postretirement benefitpayments                                |       | —                                                                  |       | (25,088                                       | )          | —                      |       | —                                        |       | —           |       | (25,088          | )          |
| Current and deferred income taxes                                               |       | —                                                                  |       | (38                                           | )          | (10                         | )          | 27                                            |       | —           |       | (21              | )          |
| Other                                                                           |       | —                                                                  |       | (143                                          | )          | (2,430                      | )          | —                                        |       | —           |       | (2,573           | )          |
| Cash provided by (used for) operations                                          |       | —                                                                  |       | (34,930                                       | )          | (7,335                      | )          | (1,662                                        | )          | —           |       | (43,927          | )          |
|                                                                            |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| **Cash provided by (used for) investment**                                 |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| Proceeds from sale of assets, net                                               |       | —                                                                  |       | —                                        |       | 242                         |       | —                                        |       | —           |       | 242              |       |
| Expenditures for property and equipment                                    |       | —                                                                  |       | (17                                           | )          | (7,530                      | )          | (555                                          | )          | —           |       | (8,102           | )          |
| Acquisition of businesses and facilities                                        |       | —                                                                  |       | —                                        |       | (4,598                      | )          | —                                        |       | —           |       | (4,598           | )          |
| Other                                                                           |       | —                                                                  |       | 216                                           |       | 1,275                       |       | 45                                            |       | —           |       | 1,536            |       |
| Cash provided by (used for) investment                                     |       | —                                                                  |       | 199                                           |       | (10,611                     | )          | (510                                          | )          | —           |       | (10,922          | )          |
|                                                                            |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| **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                                                    |       | (10,719                                                                 | )          | —                                        |       | —                      |       | —                                        |       | —           |       | (10,719          | )          |
| Repurchase of management equity units                                           |       | (18                                                                     | )          | —                                        |       | —                      |       | —                                        |       | —           |       | (18              | )          |
| Due to (from) affiliates                                                        |       | 10,737                                                                  |       | (30,933                                       | )          | 17,945                      |       | 2,251                                         |       | —           |       | —           |       |
| Cash used for financing                                                    |       | —                                                                  |       | (36,560                                       | )          | 17,945                      |       | 2,251                                         |       | —           |       | (16,364          | )          |
|                                                                            |       |                                                                    |       |                                          |       |                        |       |                                          |       |             |       |             |       |
| **Increase (decrease) in cash and  cash equivalents**                      |       | —                                                                  |       | (71,291                                       | )          | (1                          | )          | 79                                            |       | —           |       | (71,213          | )          |
| **Balance at beginning of the period**                                          |       | 1                                                                       |       | 275,726                                       |       | 20                          |       | 56                                            |       | —           |       | 275,803          |       |
| **Balance at end of the period**                                                | ** ** | **$**                                                                   | **1**      | ** **                                    | **$**      | **204,435**                 | ** ** | **$**                                         | **19**     | ** **       | **$**      | **135**          | ** ** | **$** | **—** | ** ** | **$** | **204,590** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Six Months Ended June 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)                                                               |       | $                                                                       | (39,834    | )                                             | $          | (16,883                           | )          | $                                             | 27,749     |             | $          | (7,558           | )          | $ | (3,308 | ) | $ | (39,834 | ) |
| Items in net income (loss) not using (providing)  cash                          |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| Equity in net loss of Boise Inc.                                                |       | 17,397                                                                  |       | —                                        |       | —                            |       | —                                        |       | —           |       | 17,397           |       |
| Equity in net (income) loss of affiliates                                       |       | 16,883                                                                  |       | (20,191                                       | )          | —                            |       | —                                        |       | 3,308            |       | —           |       |
| Depreciation, depletion, and amortization ofdeferred financing costs  and other |       | —                                                                  |       | 982                                           |       | 17,081                            |       | 1,393                                         |       | —           |       | 19,456           |       |
| Related-party interest expense                                                  |       | —                                                                  |       | 158                                           |       | 2                                 |       | 1,419                                         |       | (1,579           | )          | —           |       |
| Related-party interest income                                                   |       | (2,760                                                                  | )          | (52                                           | )          | (1,527                            | )          | —                                        |       | 1,579            |       | (2,760           | )          |
| Pension and other postretirement benefit expense                                |       | —                                                                  |       | 7,787                                         |       | —                            |       | —                                        |       | —           |       | 7,787            |       |
| Change in fair value of contingent rights                                       |       | —                                                                  |       | 4,030                                         |       | —                            |       | —                                        |       | —           |       | 4,030            |       |
| Change in fair value of interest rate swaps                                     |       | —                                                                  |       | 6,284                                         |       | —                            |       | —                                        |       | —           |       | 6,284            |       |
| Management equity units expense                                            |       | —                                                                  |       | 1,086                                         |       | —                            |       | —                                        |       | —           |       | 1,086            |       |
| (Gain) loss on sale of assets, net                                              |       | —                                                                  |       | (4,734                                        | )          | (3,666                            | )          | 1                                             |       | —           |       | (8,399           | )          |
| Loss on sale of note receivable from related party                              |       | 8,313                                                                   |       | —                                        |       | —                            |       | —                                        |       | —           |       | 8,313            |       |
| Other                                                                           |       | —                                                                  |       | 240                                           |       | 119                               |       | (616                                          | )          | —           |       | (257             | )          |
| Decrease (increase) in working capital, netof dispositions                      |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| Receivables                                                                     |       | —                                                                  |       | (11,495                                       | )          | (385,936                          | )          | 317,197                                       |       | —           |       | (80,234          | )          |
| Inventories                                                                     |       | —                                                                  |       | 5,611                                         |       | 26,511                            |       | 2,433                                         |       | —           |       | 34,555           |       |
| Prepaid expenses                                                                |       | —                                                                  |       | (866                                          | )          | (1,661                            | )          | 203                                           |       | —           |       | (2,324           | )          |
| Accounts payable and accrued liabilities                                   |       | 81                                                                      |       | (7,543                                        | )          | 31,415                            |       | (6,735                                        | )          | (81              | )          | 17,137           |       |
| Pension and other postretirement benefit    payments        |       | —                                                                  |       | (20,775                                       | )          | —                            |       | —                                        |       | —           |       | (20,775          | )          |
| Current and deferred income taxes                                               |       | —                                                                  |       | (644                                          | )          | 173                               |       | (658                                          | )          | —           |       | (1,129           | )          |
| Other                                                                           |       | —                                                                  |       | 4,712                                         |       | (4,409                            | )          | —                                        |       | —           |       | 303              |       |
| Cash provided by (used for) operations                                          |       | 80                                                                      |       | (52,293                                       | )          | (294,149                          | )          | 307,079                                       |       | (81              | )          | (39,364          | )          |
|                                                                            |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| **Cash provided by (used  for) investment**                                |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| Proceeds from sale of assets, net of cash  contributed                          |       | —                                                                  |       | 1,204,078                                     |       | 22,620                            |       | —                                        |       | —           |       | 1,226,698        |       |
| Proceeds from sale of note receivable from related  party                       |       | —                                                                  |       | 52,781                                        |       | —                            |       | —                                        |       | —           |       | 52,781           |       |
| Expenditures for property and equipment                                    |       | —                                                                  |       | (693                                          | )          | (24,713                           | )          | (2,463                                        | )          | —           |       | (27,869          | )          |
| Increase in restricted cash                                                     |       | —                                                                  |       | (183,290                                      | )          | —                            |       | —                                        |       | —           |       | (183,290         | )          |
| Decrease in restricted cash                                                     |       | —                                                                  |       | 183,290                                       |       | —                            |       | —                                        |       | —           |       | 183,290          |       |
| Other                                                                           |       | —                                                                  |       | 527                                           |       | (483                              | )          | (786                                          | )          | —           |       | (742             | )          |
| Cash provided by (used for) investment                                     |       | —                                                                  |       | 1,256,693                                     |       | (2,576                            | )          | (3,249                                        | )          | —           |       | 1,250,868        |       |
|                                                                            |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| **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                                                    |       | (127,884                                                                | )          | —                                        |       | —                            |       | —                                        |       | —           |       | (127,884         | )          |
| Repurchase of management equity units                                           |       | (28,398                                                                 | )          | —                                        |       | —                            |       | —                                        |       | —           |       | (28,398          | )          |
| Cash paid for termination of interest  rate swaps                          |       | —                                                                  |       | (11,918                                       | )          | —                            |       | —                                        |       | —           |       | (11,918          | )          |
| Other                                                                           |       | (133                                                                    | )          | (4,052                                        | )          | —                            |       | —                                        |       | —           |       | (4,185           | )          |
| Due to (from) affiliates                                                        |       | 156,335                                                                 |       | (188,440                                      | )          | 296,725                           |       | (264,700                                      | )          | 80               |       | —           |       |
| Cash provided by (used for) financing                                      |       | (80                                                                     | )          | (1,020,473                                    | )          | 296,725                           |       | (304,700                                      | )          | 80               |       | (1,028,448       | )          |
|                                                                            |       |                                                                    |       |                                          |       |                              |       |                                          |       |             |       |             |       |
| **Increase (decrease) in cash and  cash****equivalents**                        |       | —                                                                  |       | 183,927                                       |       | —                            |       | (870                                          | )          | (1               | )          | 183,056          |       |
| **Balance at beginning of the period**                                          |       | 1                                                                       |       | 56,588                                        |       | 21                                |       | 1,013                                         |       | —           |       | 57,623           |       |
| **Balance at end of the period**                                                | ** ** | **$**                                                                   | **1**      | ** **                                    | **$**      | **240,515**                       | ** ** | **$**                                         | **21**     | ** **       | **$**      | **143**          | ** ** | **$** | **(1** | **)** | **$** | **240,679** | ** ** |

 

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***20.        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.

** **
| ***ITEM 2.*** | ***MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION 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 containthe words “may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate,”and other similar expressions. All of these forward-looking statements arebased on estimates and assumptions made by our management that, althoughbelieved by us to be reasonable, are inherently uncertain. Theseforward-looking statements are subject to numerous risks and uncertainties,including, but not limited to, the risks and uncertainties described in “Part I,Item 1A. Risk Factors” in our 2008 Form 10-K, as well as the factorslisted in other documents we file with the SEC. There have been no materialchanges to our risk factors during the six months ended June 30, 2009,from those listed in our 2008 Form 10-K. We do not assume an obligation toupdate any forward-looking statement as a result of new information, futureevents, or otherwise. Our future actual results may differ materially fromthose contained in 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 six months ended June 30, 2009, compared withthe 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.

 

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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 continuinginvolvement as defined in Statement of Financial Accounting Standards (SFAS) No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets.*As a result, the Paper and Packaging & Newsprint segmentresults for the period of January 1 through February 21, 2008, areincluded in our Consolidated Statement of Loss for the six months ended June 30,2008, and we did not define the sold assets as discontinued operations. Formore information related to the Sale, see Note 3, Sale of Our Paper andPackaging & Newsprint Assets, of the Notes to Consolidated FinancialStatements in “Item 8. Financial Statements and Supplementary Data” in our2008 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***

 

A variety of marketconditions in both the U.S. and global economies influence demand and pricingfor our products and affect our operating results. The U.S. economy declineddramatically in the last half of 2008 and continued to decline in the first half of 2009. The nationalunemployment rate increased to 9.5% in second quarter 2009, compared with 5.6%in second quarter 2008.

 

As of July 2009, theBlue Chip Economic Indicators consensus forecast for 2009 housing starts in theU.S. was approximately 0.55 million units, and the U.S. Census Bureaureported 2008 housing starts in the U.S. at 0.91 million units. Theseamounts are significantly below historical trends of approximately1.7 million units over the ten years prior to 2008. The inventory ofunsold homes is elevated relative to the number of homes being sold, andforeclosure rates have increased as unemployment rates have increased and homeprices have declined in many parts of the United States. Housing markets acrossthe country have been affected negatively by recent events. As a general rule,those markets that experienced the highest growth and price appreciation haveexperienced the biggest declines in price and resulting declines in housingstarts.

 

While our products areused in repair-and-remodel activities, as well as light commercialconstruction, our results are principally driven by new single-family homeconstruction. Tighter lending standards and high inventories of homes availablefor sale led to a continued drop in single-family starts in the first half of 2009. Demand forbuilding products continues to be weak, and there is ongoing pricing pressureas suppliers compete for the limited business available.

 

Our input costs havedeclined over the last several quarters with the slowdown in global economicactivity. We have benefited from unit cost declines in glues, resins, and logs.We expect to see further declines in our log costs as we work through ourexisting contractual obligations and buy additional volume at lower currentmarket prices.

 

Despite a modestimprovement in demand due to seasonal weather factors in some of our markets,overall market conditions continued to be extremely difficult in the secondquarter. We continued to take rolling curtailments at a number of our woodproducts operations to maintain appropriate inventory levels, while trying tominimize the negative impact of the curtailments on our employees and ouroperating results. We’ve also permanently closed some facilities. It is likelythat we will need to continue our practice of rolling curtailments in a mannerthat allows us to retain our skilled workforce and keep our inventories inbalance with demand. We will continue to evaluate the long-term viability andvalue to our business strategy of our remaining operating facilities and mayconclude that additional facilities should be curtailed or sold in response tomarket conditions as we believe the level of end product demand will remaindepressed throughout the remainder of the year. It is unclear when a turnaroundmay occur, and there remains a high degree of uncertainty around newresidential demand for the balance of 2009 and 2010.

 

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*** ***

***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, and relative currency values;

 

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

 

·                  Volatility in raw material costs, including energyprices and log costs;

 

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

 

·                  Pricing volatility in our distribution business;

 

·                  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;

 

·                  Credit or currency risks affecting our revenue andprofitability;

 

·                  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.

 

*Commodity and DifferentiatedProducts 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 cost structure,particularly raw material and energy costs, which also exhibit commoditycharacteristics.

 

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.

 

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Comparing second quarter2009 with the same period in 2008, sales of EWP from our Wood Products segmentdecreased from approximately 37% of segment sales in 2008 to 35% of sales in2009. The ongoing weakness in new residential construction has impeded ourability to grow our EWP sales. Comparing the three months ended June 30,2009, with the same period in 2008, our laminated veneer lumber (LVL) andI-joist sales volumes decreased 42% and 41%, respectively.

 

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 strand board(OSB), plywood, lumber, and particleboard, are commodities that are widelyavailable from other producers or distributors. Even our noncommodity products,such as EWP, are affected by commodity prices since the cost of producing EWPis 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 productionefficiencies. Generally, more capacity is added or employed when supply istight and margins are relatively high, and capacity is idled or eliminated whencapacity significantly 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.

 

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.

 

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In ourBuilding Materials Distribution segment, the primary cost is for productsprocured for resale, which represents over 90% of our total costs. Occupancy,labor, and delivery costs are also important factors that affect our earningsin this segment.

 

*Labor.*  Generally, our labor coststend to increase steadily due to inflation in healthcare and wage costs.However, we are managing our labor costs during this uncertain economicenvironment by implementing pay freezes for our salaried employees until wehave evidence of improved business conditions. In addition, in first quarter2009, we amended our benefit plans to freeze the pension benefits for allsalaried employees effective December 31, 2009, and suspended the $0.70company match component of our 401(k) plan for salaried employeeseffective April 1, 2009.

 

As of June 30, 2009, we had approximately4,500 employees. Approximately 1,600, or 36%, of these employees workpursuant to collective bargaining agreements. Labor contracts coveringapproximately 700 employees with the Carpenters Industrial Council expiredon July 15, 2009, at our Florien and Oakdale, Louisiana, plywood plants.We opened discussions with the union in late second quarter. We do not expectmaterial work interruptions or increases in our costs during the course of thenegotiations with our collective bargaining units. Nevertheless, if ourexpectations are not accurate, we could experience a material labor disruptionor significantly increased labor costs at one or more of our facilities, any ofwhich could prevent us from meeting customer demand or reduce our sales andprofitability.

 

*Woodfiber*.  Our primary raw material is wood fiber. Forthe six months ended June 30, 2009 and 2008, wood fiber accounted for 38%and 40% of materials, labor, and other operating expenses, including fromrelated 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 acquiresubstantially all of our fiber from outside sources. In our Wood Productssegment, we convert logs into lumber and veneer, and in turn, we convert veneerinto EWP and plywood. Logs are a lower percentage of the total cost ofmaterials, labor, and other operating expenses in producing EWP than commodityproducts, such as lumber and plywood. While log costs are still a significantcomponent of costs, as we produce more EWP relative to commodity products overtime, direct log costs decline as a percentage of the total cost of materials,labor, and other operating expenses. We also convert residual wood fiber fromour operations, as well 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 various lengths.They also contain price adjustment mechanisms that take into account changes inmarket prices. Therefore, although our long-term contracts provide us withsupplies of raw materials and energy that are more stable than open-marketpurchases, in many cases, they may not alleviate fluctuations in market 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 anddemand, rather than changes in the cost of raw materials, determines ourability to increase prices. Consequently, we may be unable to pass increases inour operating costs to our customers in the short term.

 

*Energy. *Prices for energy, particularly electricity, naturalgas, and diesel, have been volatile in recent years, at times substantiallyexceeding historical averages. For both the six months ended June 30, 2009and 2008, energy costs represented approximately 5% of materials, labor, andother operating expenses, including from related parties, in our Wood Productssegment. Our energy costs in wood products manufacturing declined during the firstsix months of 2009, compared with the same period in 2008, due to reducedmanufacturing activity as well as lower unit costs for natural gas. BuildingMaterials Distribution and Wood Products have also experienced reductions ininbound and outbound freight costs due to lower diesel prices.

 

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*Chemicals. *Important chemicals we use in theproduction of our wood products are resins and glues. For the six months ended June 30,2009 and 2008, purchases of chemicals represented 5% and 7% of materials,labor, and other operating expenses, including from related parties, in ourWood Products segment. Chemical unit costs were lower in the first half of 2009, compared with the first half of 2008, due primarily to chemical marketsupply and demand dynamics and lower energy input costs for chemical suppliers.

 

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***OurOperating Results***

 

The following tables setforth our operating results in dollars and as a percentage of sales for thethree and six months ended June 30, 2009 and 2008:

 
| ** **                                                                 | ** ** | **Three Months Ended********June 30** | ** ** | **Six Months Ended********June 30** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                                   | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                 | ** ** | **(millions)**                             | ** ** |
| **Sales**                                                                  |       |                                       |       |                                     |       |   |   |   |   |
| Trade                                                                      |       | $                                          | 512.3      |                                     | $          | 743.4 |   | $ | 920.0 |   | $ | 1,624.2 |   |
| Related parties                                                            |       | 8.9                                        |       | 13.8                                     |       | 14.6 |   | 109.6 |   |
|                                                                       |       | 521.2                                      |       | 757.2                                    |       | 934.6 |   | 1,733.8 |   |
|                                                                       |       |                                       |       |                                     |       |   |   |   |   |
| **Costs and expenses**                                                     |       |                                       |       |                                     |       |   |   |   |   |
| Materials, labor, and other operating expenses                             |       | 463.7                                      |       | 649.9                                    |       | 844.8 |   | 1,530.5 |   |
| Materials, labor, and other operating expenses from  related parties       |       | 6.3                                        |       | 23.0                                     |       | 18.6 |   | 29.2 |   |
| Depreciation, amortization, and depletion                                  |       | 11.5                                       |       | 8.7                                      |       | 22.6 |   | 18.7 |   |
| Selling and distribution expenses                                          |       | 47.8                                       |       | 57.6                                     |       | 93.0 |   | 121.0 |   |
| General and administrative expenses                                        |       | 6.9                                        |       | 7.9                                      |       | 13.8 |   | 22.5 |   |
| General and administrative expenses from related  party                    |       | 2.5                                        |       | 2.5                                      |       | 4.9 |   | 3.5 |   |
| Gain on sale of Paper and Packaging & Newsprint  assets           |       | —                                     |       | 3.3                                      |       | — |   | (4.7 | ) |
| Other (income) expense, net                                                |       | (1.8                                       | )          | 8.6                                      |       | 0.9 |   | 7.7 |   |
|                                                                       |       | 536.9                                      |       | 761.5                                    |       | 998.6 |   | 1,728.4 |   |
|                                                                       |       |                                       |       |                                     |       |   |   |   |   |
| **Income (loss) from operations**                                          | ** ** | **$**                                      | **(15.7**  | **)**                                    | **$**      | **(4.3** | **)** | **$** | **(64.0** | **)** | **$** | **5.4** | ** ** |
| ** **                                                                 | ** ** | ** **                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                 | ** ** | **(percentage of sales)**        |       |
| **Sales**                                                                  |       |                                       |       |                                     |       |   |   |   |   |
| Trade                                                                      |       | 98.3                                       | %          | 98.2                                     | %          | 98.4 | % | 93.7 | % |
| Related parties                                                            |       | 1.7                                        |       | 1.8                                      |       | 1.6 |   | 6.3 |   |
|                                                                       |       | 100.0                                      | %          | 100.0                                    | %          | 100.0 | % | 100.0 | % |
|                                                                       |       |                                       |       |                                     |       |   |   |   |   |
| **Costs and expenses**                                                     |       |                                       |       |                                     |       |   |   |   |   |
| Materials, labor, and other operating expenses,  including related parties |       | 90.2                                       | %          | 88.9                                     | %          | 92.4 | % | 90.0 | % |
| Depreciation, amortization, and depletion                                  |       | 2.2                                        |       | 1.2                                      |       | 2.4 |   | 1.1 |   |
| Selling and distribution expenses                                          |       | 9.2                                        |       | 7.6                                      |       | 9.9 |   | 7.0 |   |
| General and administrative expenses, including  related party              |       | 1.8                                        |       | 1.4                                      |       | 2.0 |   | 1.5 |   |
| Gain on sale of Paper and Packaging &  Newsprint assets           |       | —                                     |       | 0.4                                      |       | — |   | (0.3 | ) |
| Other (income) expense, net                                                |       | (0.4                                       | )          | 1.1                                      |       | 0.1 |   | 0.4 |   |
|                                                                       |       | 103.0                                      | %          | 100.6                                    | %          | 106.8 | % | 99.7 | % |
|                                                                       |       |                                       |       |                                     |       |   |   |   |   |
| I**ncome (loss)  from operations**                                         | ** ** | **(3.0**                                   | **)%**     | **(0.6**                                 | **)%**     | **(6.8** | **)%** | **0.3** | **%** |

 

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***Sales Volumes and Prices***

 

Set forth below are sales mixinformation for our Building Materials Distribution segment and segment salesvolumes and average net selling prices for the principal products sold by ourWood Products segment for the three and six months ended June 30, 2009 and2008.

 
| ** **                                       | ** ** | **Three Months Ended********June 30**                                                 | ** ** | **Six Months Ended********June 30** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                       | ** ** | **2009**                                                                                   | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | **(millions)**                                                                             | ** ** |
| **Segment Sales**                                |       |                                                                                       |       |                                     |       |   |   |   |   |
| Building Materials Distribution                  |       | $                                                                                          | 433.7      |                                     | $          | 610.0 |   | $ | 768.7 |   | $ | 1,113.9 |   |
| Wood Products                                    |       | 134.4                                                                                      |       | 226.0                                    |       | 250.9 |   | 424.8 |   |
|                                             |       |                                                                                       |       |                                     |       |   |   |   |   |
| ** **                                       | ** ** | **(percentage of Building Materials**** ****Distribution sales)** |       |
| **Product Line Sales**                           |       |                                                                                       |       |                                     |       |   |   |   |   |
| **Building Materials Distribution**              | ** ** | ** **                                                                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commodity                                        |       | 44                                                                                         | %          | 45                                       | %          | 46 | % | 45 | % |
| Engineered wood                                  |       | 11                                                                                         |       | 12                                       |       | 10 |   | 12 |   |
| General line                                     |       | 45                                                                                         |       | 43                                       |       | 44 |   | 43 |   |
|                                             |       |                                                                                       |       |                                     |       |   |   |   |   |
| ** **                                       | ** ** | **(millions)**                                                                             |       |
| **Sales Volumes**                                |       |                                                                                       |       |                                     |       |   |   |   |   |
| **Wood Products**                                |       |                                                                                       |       |                                     |       |   |   |   |   |
| Laminated veneer lumber  (LVL) (cubic feet)      |       | 1.4                                                                                        |       | 2.3                                      |       | 2.5 |   | 4.3 |   |
| I-joists (equivalent  lineal feet)               |       | 22                                                                                         |       | 38                                       |       | 38 |   | 67 |   |
| Plywood (sq. ft.) (3/8”  basis)             |       | 246                                                                                        |       | 317                                      |       | 492 |   | 630 |   |
| Lumber (board feet)                              |       | 35                                                                                         |       | 57                                       |       | 65 |   | 106 |   |
| Particleboard (sq. ft.)  (3/4” basis)       |       | 21                                                                                         |       | 28                                       |       | 39 |   | 54 |   |
|                                             |       |                                                                                       |       |                                     |       |   |   |   |   |
| ** **                                       | ** ** | **(dollars per unit)**                                                           |       |
| **Average Net Selling Prices**                   | ** ** | ** **                                                                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Wood Products**                                | ** ** | ** **                                                                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer lumber  (LVL) (100 cubic feet)  |       | $                                                                                          | 1,530      |                                     | $          | 1,597 |   | $ | 1,527 |   | $ | 1,607 |   |
| I-joists (1,000  equivalent lineal feet)         |       | 911                                                                                        |       | 952                                      |       | 906 |   | 960 |   |
| Plywood (1,000 sq. ft.)  (3/8” basis)       |       | 210                                                                                        |       | 259                                      |       | 205 |   | 250 |   |
| Lumber (1,000 board feet)                        |       | 317                                                                                        |       | 369                                      |       | 311 |   | 377 |   |
| Particleboard (1,000 sq.  ft.) (3/4” basis) |       | 343                                                                                        |       | 365                                      |       | 345 |   | 354 |   |

 

***Operating Results***

 

# ***Sales***

# * *

For the three monthsended June 30, 2009, total sales decreased $236.0 million, or 31%, to$521.2 million from $757.2 million during the three months ended June 30,2008. For the six months ended June 30, 2009, total sales decreased$799.2 million, or 46%, to $934.6 million from $1,733.8 millionin the prior year. Relative to the six months ended June 30, 2008, thedecrease was driven primarily by the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. For the period of January 1through February 21, 2008, the sold businesses had sales of$359.9 million. Sales also decreased in our Building MaterialsDistribution and Wood Products segments during both the three and six monthsended June 30, 2009, due to weaker product demand and prices, as U.S. newresidential housing demand declined.

 

*Building Materials Distribution.* Sales decreased $176.3 million, or 29%, to $433.7 million for the three months ended June 30,2009, from $610.0 million for the three months ended June 30, 2008.During the six months ended June 30, 2009, sales decreased$345.2 million, or 31%, to $768.7 million from $1,113.9 millionin the prior year. The decrease in sales for both comparison periods was principallythe result of lower sales volumes—a 23% decline in sales volumes for the threemonths ended June 30, 2009, and a 28% decline for the comparable six-monthperiod ended June 30, 2009—stemming from decreased demand in new residentialconstruction markets. Relative to the three and six months ended June 30,2008, EWP sales represented a lower percentage of our overall Building Materials Distribution sales, as EWP salesare more dependent on new residential construction than the commodity productswe sell.

 

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*WoodProducts.* Sales decreased $91.6 million, or 41%, to $134.4 million for the three months ended June 30,2009, from $226.0 million for the three months ended June 30, 2008.During the six months ended June 30, 2009, sales decreased$173.9 million, or 41%, to $250.9 million from $424.8 million inthe same period a year ago. Lower sales for the three and six months ended June 30,2009, were the result of reducedvolumes and prices for our major product categories, including plywood, EWP,lumber, and particleboard. Average net selling prices continued to be pressuredby lower demand. Demand for our products is closely correlated with newresidential construction in the United States and, to a lesser extent, lightcommercial construction and repair-and-remodel activities, which declined significantly, compared withthe same periods a year ago.

 

##### ***Costs and Expenses***

##### *** ***

Materials, labor, andother operating expenses, including from related parties, decreased $202.9 million, or 30%,to $470.0 million for thethree months ended June 30, 2009, compared with $672.9 million duringthe same period in the prior year. For the six months ended June 30, 2009,these expenses decreased $696.3 million, or 45%, to $863.4 million,compared with $1,559.7 million in the same period in the prior year.Compared with the six months ended June 30, 2008, $321.6 million of thedecrease related to the sale of our Paper and Packaging & Newsprintassets in first quarter 2008. During both the three and six months ended June 30,2009, materials, labor, and other operating expenses, including from relatedparties, decreased due to lower purchased materials costs in our BuildingMaterials Distribution segment due to lower sales volumes. Materials, labor,and other operating expenses, including from related parties, in our WoodProducts segment decreased $73.8 million and $140.0 million, comparedwith the three and six months ended June 30, 2008, respectively, due toreduced manufacturing volumes in response to weaker sales activity as well aslower prices for key production inputs, including fiber, chemicals, and energy.While total materials, labor, and other operating costs, including from relatedparties, declined in our Wood Products segment, our per-unit manufacturingcosts increased, compared with the same periods a year ago as costs wereallocated to a reduced level of production.

 

Depreciation, amortization, and depletion expenses increased$2.8 million, or 32%, to $11.5 million for the three months ended June 30,2009, compared with $8.7 million for the same period in the prior year.Relative to the six months ended June 30, 2008, these expenses increased$3.9 million, or 21%, to $22.6 million, compared with$18.7 million in the prior year. The increases are primarily due toaccelerating $2.6 million and $5.2 million of depreciation for thethree- and six-month periods ended June 30, 2009, respectively, on theassets at our La Grande, Oregon, lumber manufacturing facility, following ourdecision to close the operations.

 

Selling and distribution expenses decreased $9.8 million, or 17%,to $47.8 million for thethree months ended June 30, 2009, compared with $57.6 million for thesame period in the prior year. During the six months ended June 30, 2009,these costs decreased $28.0 million, or 23%, to $93.0 million,compared with $121.0 million during the same period a year ago. Comparedwith the six months ended June 30, 2008, approximately $9.1 millionof the decrease related to the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. For both comparison periods, sellingand distribution expenses declined in our Building Materials Distribution andWood Products segments due to lower sales activity; however, selling anddistribution expenses were higher as a percentage of sales, as these costs didnot decline at the same pace as sales.

 

General andadministrative expenses, including from related parties, decreased $1.0 million, or 10%, to$9.4 million for the threemonths ended June 30, 2009, compared with $10.4 million for the sameperiod in the prior year. For the six months ended June 30, 2009, generaland administrative expenses decreased $7.3 million, or 28%, to$18.7 million, compared with $26.0 million a year ago. For the sixmonths ended June 30, 2009, the decrease was driven primarily by the saleof our Paper and Packaging & Newsprint assets in first quarter 2008,which reported $6.6 million of expenses for the period of January 1through February 21, 2008. Relative to the three months ended June 30,2008, the decrease was driven primarily by lower wage and benefit expenses.

 

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

 
| ** **                                                   | ** ** | **Three Months Ended********June 30** | ** ** | **Six Months Ended********June 30** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                                   | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                   | ** ** | **(millions)**                             | ** ** |
| Facility closures and curtailments (a)                       |       | $                                          | (0.9       | )                                        | $          | — |   | $ | 3.7 |   | $ | 1.3 |   |
| Changes in pension plans (see Note 15)                       |       | —                                     |       | —                                   |       | (0.7 | ) | — |   |
| Loss on sale of note receivable from related  party (b) |       | —                                     |       | 8.3                                      |       | — |   | 8.3 |   |
| Sale of assets, net                                          |       | (0.2                                       | )          | 0.3                                      |       | (0.3 | ) | (2.0 | ) |
| Other, net                                                   |       | (0.7                                       | )          | 0.1                                      |       | (1.8 | ) | 0.1 |   |
| ** **                                                   | ** ** | **$**                                      | **(1.8**   | **)**                                    | **$**      | **8.6** | ** ** | **$** | **0.9** | ** ** | **$** | **7.7** | ** ** |

 

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(a)                                  In the firsthalf of 2009, we closed the lumber manufacturing facility in La Grande,Oregon, and during the three and six months ended June 30, 2009, werecorded $0.9 million of income and $3.4 million of expense in “Other(income) expense, net.” In addition, we recorded $2.6 million and$5.2 million of accelerated depreciation in “Depreciation, amortization,and depletion” for the three and six months ended June 30, 2009, and$0.6 million of expenses in “Materials, labor, and other operatingexpenses” during the six months ended June 30, 2009, in our Consolidated Statementsof Income (Loss).

 

(b)                                 In June 2008,we sold the note receivable from Boise Inc. for $52.8 million, afterselling expenses, and recorded an $8.3 million loss on the sale.

 

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

 

Our loss from operations increased $11.4 million to a $15.7 million loss for the three months ended June 30,2009, from a $4.3 million loss in the same period a year ago. Income fromoperations decreased $69.4 million to a $64.0 million loss for thesix months ended June 30, 2009, compared with $5.4 million of incomeduring the same period in the prior year. Compared with the six months ended June 30,2008, a major contributing factor to the decrease was the sale of our Paper andPackaging & Newsprint assets in first quarter 2008, which reported $23.1 millionof income from operations during the period of January 1 through February 21,2008. Relative to the three and six months ended June 30, 2008, wereported lower operating income in the Building Materials Distribution and WoodProducts segments due to****continued declines in housing constructionand demand for our products, which is discussed in more detail below.

 

*BuildingMaterials Distribution.*  Segment income decreased $7.7 million to$7.6 million for the three months ended June 30, 2009, from $15.3 millionfor the three months ended June 30, 2008. During the six months ended June 30,2009, segment income decreased $15.0 million to a $0.9 million lossfrom $14.1 million of income in the same period a year ago. The decrease in both periods was drivenprimarily by lower 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. Compared with the three months endedJune 30, 2008, more than half of the gross margin dollar erosion wasfavorably offset by lower operating costs and cost-reduction initiativesimplemented over the last year.

 

*WoodProducts. *Segment lossincreased $15.8 million to$19.2 million for the threemonths ended June 30, 2009,compared with $3.4 million for the three months ended June 30,2008. During the six monthsended June 30, 2009, segment loss increased $36.3 million to a$56.8 million loss, compared with a $20.5 million loss in the sameperiod a year ago. In both periods, the increases in segment loss were drivenprimarily by pricing and volume declines for plywood, compared with the sameperiods a year ago. These declines were partially offset by favorable inputcosts and productivity improvements. In addition, the Wood Products segmentloss for the three and six months ended June 30, 2009, included$1.7 million and $9.2 million, respectively, of expenses related toclosing our lumber manufacturing facility in La Grande, Oregon.

 

*Other*

 

*Equityin net income (loss) of affiliate and impairment of investment in equityaffiliate*.  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

 

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other comprehensive income or loss based on the mostrecently available financial statements. As a result, our aggregate investmentin Boise Inc. is recorded in a combination of the “Investment in equityaffiliate” and other comprehensive income accounts within “Series B equityunits” on our Consolidated Balance Sheets. Our ownership interest, andconsequently our proportionate share of Boise Inc.’s net income or loss,changes when we or Boise Inc. engage in transactions of Boise Inc.common stock with third parties. At June 30, 2009, we owned37.0 million shares, or 47.5%, of Boise Inc. Changes in ownershipinterest may also result in our recording an ownership interest dilution gainor loss.

 

During the three and sixmonths ended June 30, 2009, we recorded $30.3 million of income and$9.7 million of net expense related to our investment in Boise Inc.in our Consolidated Statements of Income (Loss), compared with net expense of$8.8 million and $17.4 million during the three and six months ended June 30,2008, as follows:

 
| ** **                                                 | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(millions)**                       | ** ** |
| Equity  in net income (loss) of Boise Inc. (a)        |       | $                                    | 24.2       |                               | $          | (8.9 | ) | $ | 23.3 |   | $ | (17.5 | ) |
| Amortization  of basis differential (b)                    |       | 6.1                                  |       | 0.1                                |       | 11.0 |   | 0.1 |   |
| Loss  on shares issued for settlement of CVR liability (c) |       | —                               |       | —                             |       | (1.0 | ) | — |   |
| Equity  in net income (loss) of affiliate                  |       | 30.3                                 |       | (8.8                               | )          | 33.3 |   | (17.4 | ) |
| Impairment  of investment in equity affiliate (d)          |       | —                               |       | —                             |       | (43.0 | ) | — |   |
| Total                                                      | ** ** | **$**                                | **30.3**   | ** **                         | **$**      | **(8.8** | **)** | **$** | **(9.7** | **)** | **$** | **(17.4** | **)** |

 

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(a)                                  Includes a$0.6 million dilution loss due to the vesting of Boise Inc. restrictedstock during the six months ended June 30, 2009.

 

(b)                                 At June 30,2009, the carrying value of our investment in Boise Inc. was approximately$227.4 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. In accordance with Accounting Principles Board (APB) Opinion No. 18,*The Equity Method of Accounting forInvestments in Common Stock,* we are amortizing the difference toincome on a straight-line basis over 9.4 years, which represents theremaining weighted-average useful life of Boise Inc.’s assets. Theamortization of the basis differential resulted in our recognizing$6.1 million and $11.0 million of income in “Equity in net income(loss) of affiliate” in our Consolidated Statements of Income (Loss) for thethree and six months ended June 30, 2009, and will result in ourrecognizing approximately $24.1 million of income per year for the next9.4 years, which will be increased or decreased by our proportionate shareof Boise Inc.’s net income or loss.

 

(c)                                  During the sixmonths ended June 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.

 

(d)                                 On March 31,2009, we compared the fair value of the Boise Inc. stock price ($0.61 pershare) with the carrying value of our investment ($1.77 per share) andconcluded that our investment in Boise Inc. met the definition of other thantemporarily impaired as defined in APB Opinion No. 18.

 

We made the other thantemporary impairment determination based primarily on the length of time andextent to which the fair value of our investment had been trading below itscarrying value. As of March 31, 2009, Boise Inc.’s stock had tradedbelow our carrying value since we wrote the investment down in September 2008.Accordingly, for the six months ended June 30, 2009, we recorded a$43.0 million charge in “Impairment of investment in equity affiliate” inour Consolidated Statement of Loss. See Note 3, Investment in EquityAffiliate, of the Notesto Unaudited Quarterly Consolidated Financial Statements in “Item 1.Financial Statements” of this Form 10-Q, for more information.

 

On June 30, 2009, we evaluated whether ourinvestment in Boise Inc. was other than temporarily impaired in accordancewith APB Opinion No. 18 and concluded that it was not. The fair value ofour investment of $1.72 per share exceeded the carrying value of $1.44 pershare on that date. We will continue to monitor the value of Boise Inc.’sstock and our carrying value. Should market conditions and/or Boise Inc.’sfinancial performance deteriorate, it is possible that we will be required torecord another noncash impairment charge that could have a material impact onour Consolidated Statements of Income (Loss). As additional information becomesknown, we may change our estimates.

 

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*Changein fair value of contingent value rights. *The six months ended June 30, 2009and 2008, and the three months ended June 30, 2008, included$0.2 million of income, $4.0 million of expense, and$0.7 million of income related to the fair value of the contingent valuerights (CVRs) that we and Terrapin Partners Venture Partnership granted tocertain Boise Inc. investors. For more information related to the CVRs,see Note 13, Financial Instrument Risk, of the Notes to UnauditedQuarterly Consolidated Financial Statements” in “Item 1. FinancialStatements” of this Form 10-Q.

 

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

 

*Gain on repurchase of long-termdebt. *During the six months ended June 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 June 30, 2009,interest expense was $6.1 million, compared with $6.4 million in thesame period a year ago. For the six months ended June 30, 2009, interestexpense was $11.8 million, compared with $21.8 million for the sameperiod in 2008. The decrease in interest expense is primarily attributable tothe significant reduction in our long-term debt. In the first half of 2008, werepaid $1,085.6 million of debt primarily with the proceeds from the Sale.For more information,see “Financing Activities” under “Liquidity and Capital Resources” in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K.

 

*Incometax provision.*  Our income tax provision generally consistsof income taxes payable to states that do not allow for the income taxliability to be passed through to our equity holders, as well as income taxespayable by our separate subsidiaries that are taxed as corporations. For the threemonths ended June 30, 2009, income tax expense was $0.1 million,compared with a small tax benefit in the same period in the prior year. Incometax expense was $0.6 million and $1.1 million for the six monthsended June 30, 2009 and 2008. During the three months ended June 30,2009 and 2008, our effective tax rate for our separate subsidiaries that aretaxed as corporations was 34.0%. Our effective tax rates were 34.0% and 35.4%for the six months ended June 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***

 

Against the backdrop of a weak economy, a globalfinancial crisis, and a credit market contraction, as well as a sharp drop-offin housing construction and demand for our products, the amount of cash flowswe will generate in 2009 is uncertain. In response to the continued economicuncertainty and to enhance our liquidity, we have and will continue to aggressivelymanage working capital and match production with market demand, as well assuspend all noncritical capital projects. At June 30, 2009, we had$204.6 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, and working capital needsfor at least the next 12 months.

 

The credit markets have experienced adverse conditionsthat may adversely affect the ability of our lenders to fulfill theircommitment 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 Credit Facility.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 Facility would be unable to fulfill their commitments. At June 30,2009, a total of ten lenders participated in the Revolving CreditFacility, and the largest single commitment under the Revolving Credit Facilitywas $117.7 million.

 

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***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 six months ended June 30, 2009 and 2008, our operatingactivities used $43.9 million and $39.4 million of cash,respectively. Relativeto the six months ended June 30, 2008, the increase in cash used byoperations relates primarily to the following:

 

·                  *An increase in losses reported byour Building Materials Distribution and Wood Products segments. *As discussed under “Operating Results” above, the increased losses for thesix months ended June 30, 2009, were the result of lower gross margin dollars available inour Building Materials Distribution segment to cover relatively fixed expenses,such as occupancy, payroll, and delivery costs, as sales volumes declined fromthe same period a year ago. Also, in our Wood Products segment, the increasedloss was driven primarily by pricing and volume declines for plywood, whichwere partially offset by favorable input costs and productivity improvements.

 

·                  *More cash contributions to ourpension and postretirement benefit plans.*  During the six months ended June 30, 2009, weused $25.1 million of cash to make pension contributions and otherpostretirement benefit payments, compared with $20.8 million during thesix months ended June 30, 2008. In June 2009, we announced that we intend to sellup to 5 million of the approximately 37 million of Boise Inc.shares that we own. As of August 11, 2009, we had sold 1.2 million shares at anaverage net price of $2.48 per share.  Weexpect to contribute the majority of the cash proceeds from the sale of theshares to our pension plans.

 

·                  *The increase in cash usedfor the items discussed above was partially offset by $25.2 million ofcash generated by the reduction of working capital during the six months ended June 30,2009, compared with $30.9 million of cash used in the same period a yearago for increases in working capital.*  Working capital is subject to cyclicaloperating needs, the timing of the collection of receivables, the payment ofpayables and expenses, and to a lesser extent, seasonal fluctuations in ouroperations. The decrease in working capital during the six months ended June 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 in our BuildingMaterials Distribution segment. The positive working capital changes ininventory and accounts payable were partially offset by higher receivables in ourBuilding Materials Distribution and Wood Products segments, which primarilyreflect increased sales of approximately 55% and 26%, comparing sales for themonth of June 2009 with sales for the month of December 2008.

 

***Investment Activities***

 

During the six months ended June 30, 2009, weused approximately $8.1 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 during the first half of the year. During the sixmonths ended June 30, 2009, we purchased a sawmill in Pilot Rock, Oregon,which will improve our regional fiber integration in our Wood Products segment.In addition, we purchased a truss assembly operation and EWP sales office inSaco and Biddeford, Maine, respectively, which allows us to move into the trussmarket in the Northeast.

 

We expect capital investments in 2009 to totalapproximately $20 million to $25 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.

 

During the six months ended June 30, 2008,investing activities provided $1,250.9 million of cash. The$1,250.9 million consisted of $1,226.7 million of proceeds from assetsales (most of which related to the sale of our Paper and Packaging &Newsprint assets) and $52.8 million of net proceeds from the sale 

 

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of the note receivable from Boise Inc., partiallyoffset by $27.9 million of cash used for purchases of property andequipment ($10.2 million of which was invested in the Paper and Packaging &Newsprint businesses we sold in February 2008).

 

***FinancingActivities***

 

The following provides a summary of our financingactivities during the six months ended June 30, 2009 and 2008. For moreinformation 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 June 30,2009, there have been no material changes to our debt structure.

 

*2009*

 

Cash used for financing activities was$16.4 million for the six months ended June 30, 2009, compared with$1,028.4 million during the same period in 2008. During the six monthsended June 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 our obligations under the senior subordinated notes indenture inrespect to net available cash received in connection with the June 2008sale of the note receivable from Boise Inc. and July 2008 sale of ourBrazilian subsidiary.

 

During the six months ended June 30, 2009, wealso made $10.7 million of tax distributions to equity holders, most ofwhich related to the taxable gain on the Sale.

 

*2008*

 

With the proceeds from the Sale and borrowings ofapproximately $240.0 million of debt during the six months ended June 30,2008, we repaid $160.0 million of our 7.125% senior subordinated notes,all of the borrowings under the previous revolving credit facility,Tranche E term loan, delayed-draw term loan, and the borrowings secured byour receivables, which totaled $1,085.6 million, and we terminated thosecredit facilities. In addition, we (1) contributed $20.8 million toour pension plans (as indicated in “Operating Activities” above), (2) repaid$10.5 million of short-term borrowings, (3) terminated all of ourinterest rate swap agreements using approximately $11.9 million of cash, (4) made$127.9 million of tax distributions to our equity holders, (5) paid$28.4 million to repurchase the equity units of employees terminated inconnection with the Sale, and (6) funded working capital and otheroperating 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 June 30, 2009, there have been nomaterial 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 six months ended June 30,2009, we repurchased $11.9 million of senior subordinated notes, and wedecreased our pension obligation approximately $49.8 million.

 

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

 

At June 30, 2009, wehad no material off-balance-sheet arrangements with unconsolidated entities.

 

***Guarantees***

 

Note 17, Commitments and Guarantees, of the Notes to ConsolidatedFinancial Statements in “Item 8. Financial Statements and SupplementaryData” in our 2008 Form 10-K describes the nature of our guarantees,including the approximate terms of the guarantees, how the guarantees arose,the

 

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events or circumstances that would require us to perform under theguarantees, and the maximum potential undiscounted amounts of future paymentswe could be required to make. As of June 30, 2009, there have been nomaterial changes to the guarantees disclosed in our 2008 Form 10-K.

 

***Seasonal and Inflationary Influences***

 

We are exposed to fluctuations in quarterly salesvolumes and expenses due to seasonal factors. These seasonal factors are common in the building productsindustry.  Seasonal changes in levels ofbuilding activity affect our building products businesses, which are dependenton housing starts, repair-and-remodel activities, and light commercial andindustrial conversion activities. We typically report lower sales in the firstand fourth quarters due to the impact of poor weather on the constructionmarket, and we generally have higher sales in the second and third quarters,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 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, due primarilyto chemical market supply and demand dynamics and the impact of energy marketson chemical producers. Energy and chemical costs are currently lower than in2008 in response to global economic weakness.

 

***Environmental***

 

For information onenvironmental issues, see Environmental in “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour 2008 Form 10-K.

 

***Critical Accounting Estimates***

 

Critical accounting estimates are those that are most important to the portrayalof our financial condition and results. These estimates require management’smost difficult, subjective, or complex judgments, often as a result of the needto estimate matters that are inherently uncertain. We review the development,selection, and disclosure of our critical accounting estimates with the AuditCommittee of our board of directors. For information about critical accountingestimates, see Critical Accounting Estimates in “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour 2008 Form 10-K and updated in “Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations” in our QuarterlyReport on Form 10-Q for the quarter ended March 31, 2009. As of June 30,2009, there have been no material changes to critical accounting estimatesdisclosed in the aforementioned filings.

 

***New and RecentlyAdopted Accounting Standards***

 

In June 2009, theFinancial Accounting Standards Board (FASB) issued SFAS No. 168, *The FASB Accounting Standards Codification and the Hierarchy ofGenerally Accepted Accounting Principles, approving the**FASB Accounting Standards CodificationTM*(Codification), which states that the Codification is the exclusiveauthoritative reference for U.S. generally accepted accounting principles(GAAP). The Codification is not expected to change U.S. GAAP. We will adoptSFAS No. 168 in third quarter 2009. We do not expect the adoption to havea material impact on our financial position or results of operations.

 

In June 2009, the FASB issued SFAS No. 167,*Amendments to FASB InterpretationNo. 46(R)*,which amends the consolidation guidanceapplicable to variable-interest entities (VIEs). SFAS No. 167 requiresthat entities evaluate former qualified special-purpose entities forconsolidation, changes the approach to determining a VIE’s primary beneficiaryfrom a quantitative assessment to a qualitative assessment, and increases thefrequency of required reassessment to determine whether a company is theprimary beneficiary of a VIE. It also requires additional year-end and interimdisclosures. We will adopt SFAS No. 167 on January 1, 2010, and we donot expect the adoption to have a material impact on our financial position orresults of operations.

 

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In May 2009, the FASB issued SFAS No. 165, *Subsequent Events*, which establishes general standards ofaccounting for and disclosure of events that occur after the balance sheet datebut before financial statements are issued or are available to be issued. Weadopted SFAS No. 165 on June 30, 2009. In accordance with SFAS No. 165,we disclosed the date through which we evaluated subsequent events inNote 1, Nature of Operations and Basis of Presentation, of the Notes toUnaudited Quarterly Financial Statements in “Item 1. Financial Statements” of this Form 10-Q. The adoption did not 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.* This FSP amends SFAS No. 132 (revised 2003), *Employers’ Disclosures About Pensions and Other PostretirementBenefits,*to provide guidance on an employer’s disclosures aboutplan assets of a defined benefit pension or other postretirement benefit plan.The FSP is effective for our 2009 Form 10-K. The adoption will affect ourdisclosures only and will have no impact on our financial position or resultsof operations.

 

In November 2008,the Emerging Issues Task Force (EITF) reached a consensus on EITF 08-6, *Equity MethodInvestment Accounting Considerations*. This consensus addresses a number of matters associated withthe impact that SFAS No. 141(R) and SFAS No. 160might have on the accounting for equitymethod investments, including how an equity method investment should initiallybe measured, how it should be tested for impairment, and how changes in classificationfrom equity method to cost method should be treated, among others. We adoptedEITF 08-6 in January 2009, and it did not have a material impact on ourfinancial position or results of operations.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures About Derivative Instruments andHedging Activities*. SFAS No. 161 requires enhanced disclosuresabout derivative instruments and hedging activities to enable investors tobetter understand their effects on financial position, financial performance,and cash flows. These requirements include the disclosure of the fair values ofderivative instruments and their gains and losses in a tabular format. Weadopted SFAS No. 161 in January 2009, and it had no impact on ourfinancial position or results of operations.

 

In January 2008,we adopted SFAS No. 157,*FairValue Measurements*. The statement established a framework formeasuring fair value, and it enhanced the disclosures for fair valuemeasurements. The statement applies when other accounting pronouncementsrequire or permit fair value measurements, but it does not require new fairvalue measurements. In accordance with the provisions of FSP No. 157-2, *Effective Date of FASB Statement No. 157*, we deferreduntil January 1, 2009, the adoption of SFAS No. 157 as it relates tononfinancial assets and nonfinancial liabilities that were recognized anddisclosed at fair value in the financial statements on a nonrecurring basis.The adoption of these pronouncements did not have a material impact on ourfinancial position or results of operations; however, it could have an impactin future periods.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations,*and SFAS No. 160,*Accounting and Reporting of NoncontrollingInterests in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin No. 51.* These new standards significantlychange the accounting for and reporting of business combination transactionsand noncontrolling (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.

 

***ITEM 3.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK***

 

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. Exceptas 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 June 30, 2009, there havebeen no material changes in our exposure to market risk from those disclosed inour 2008 Form 10-K.

 

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*** ***
| ***ITEM  4T.*** | ***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 periods specifiedin the Securities and Exchange Commission’s rules and forms. We have alsodesigned our disclosure controls to provide reasonable assurance that suchinformation is accumulated and communicated to our senior management, includingthe chief executive officer (CEO) and chief financial officer (CFO), asappropriate, to allow them to make timely decisions regarding our requireddisclosures.

 

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 andprocedures are met. Additionally, in designing disclosure controls andprocedures, our management necessarily was required to apply its judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures. We have also designed our disclosure controls and procedures basedin part upon assumptions about the likelihood of future events, and there canbe no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions.

 

*Changes in Internal Control OverFinancial Reporting*

 

Our management identifiedno changes during the three months ended June 30, 2009, that materiallyaffected, or would be reasonably likely to materially affect, our internalcontrols over financial reporting.

 

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**PART II—OTHER INFORMATION**

 
| ***ITEM  1.*** | ***LEGAL PROCEEDINGS*** |
|----------------|-------------------------|

 

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.*** | ***RISK FACTORS*** |
|-----------------|--------------------|

 

Thisreport on Form 10-Q contains forward-looking statements. Statements thatare not historical or current facts, including statements about our expectations,anticipated financial results, projected capital expenditures, and futurebusiness prospects, are forward-looking statements. You can identify thesestatements by our use of words such as “may,” “will,” “expect,” “believe,” “should,”“plan,” “anticipate,” and other similar expressions. You can find examples ofthese statements throughout this report, including “Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations.” Wecannot guarantee that our actual results will be consistent with theforward-looking statements we make in this report. You should review carefullythe 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 six months ended June 30, 2009, from those listed inour 2008 Form 10-K. We do not assume an obligation to update anyforward-looking statement.

 
| ***ITEM  2.*** | ***UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS*** |
|----------------|-------------------------------------------------------------------|

 

None.

 
| ***ITEM  3.*** | ***DEFAULTS UPON SENIOR SECURITIES*** |
|----------------|---------------------------------------|

 

None.

 
| ***ITEM  4.*** | ***SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS*** |
|----------------|----------------------------------------------------------|

 

Not applicable.

 
| ***ITEM  5.*** | ***OTHER INFORMATION*** |
|----------------|-------------------------|

 

None.

 
| ***ITEM  6.*** | ***EXHIBITS*** |
|----------------|----------------|

 

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

 

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**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:  August 12, 2009

 

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

 

**INDEX TO EXHIBITS**

 

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

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                         |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                    |
| 10.1(a)    |       | Second Amendment (dated  May 28, 2009) to Loan and Security Agreement dated February 22,  2008, among Boise Cascade, L.L.C., certain of its subsidiaries, Bank of  America, N.A., as Agent, and certain lenders named therein |
|       |       |                                                                                                                                                                                                                                    |
| 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                                                                                                                                                       |

 

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(a)   Incorporated by reference to Current Report on Form 8-K datedJune 2, 2009.

 

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