**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

**FORM 10-Q**

**x**                              QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the quarterly period ended March 31,2007**

**o**                                 TRANSITION REPORTPURSUANT 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**

**P.O. Box50**

**Boise,Idaho 83728**

(Address of principal executive offices) (Zip Code)

**(208)384-6161**

(Registrant’stelephone number, including area code)

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

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one.)

Large acceleratedfiler  o                                         Acceleratedfiler  o                                         Non-acceleratedfiler  ý

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

The registrant, a limitedliability company, has no voting or nonvoting equity held by nonaffiliates andno common stock outstanding. Equity units issued and outstanding onApril 30, 2007, were as follows:
| Series                      | ** ** | **Units Outstanding as of April 30, 2007** |
|-----------------------------|------------|--------------------------------------------|
| Series A  Common Units |       | 66,000,000                                 |   |
| Series B  Common Units |       | 547,409,490                                |   |
| Series C  Common Units |       | 39,562,560                                 |   |

 

These units areneither registered nor publicly traded.

 

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**Table of Contents**
|               | **PART I—FINANCIAL INFORMATION**                                                       |                                                            |
|---------------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------|
|          |                                                                                        |                                                            |   |
| Item 1.       | Consolidated  Financial Statements                                                          |                                                            |
|          | Notes to Unaudited Quarterly Consolidated Financial  Statements                             |                                                            |
|          | 1.                                                                                          | Basis of Presentation                                           | 6 |
|          | 2.                                                                                          | Purchase of  OfficeMax’s Forest Products and Paper Assets  | 6 |
|          | 3.                                                                                          | Transactions  With Related Parties                              | 7 |
|          | 4.                                                                                          | Vendor and  Customer Rebates and Allowances                     | 7 |
|          | 5.                                                                                          | Other (Income)  Expense, Net                                    | 8 |
|          | 6.                                                                                          | Leases                                                          | 8 |
|          | 7.                                                                                          | Income  Taxes                                                   | 9 |
|          | 8.                                                                                          | Receivables                                                     | 9 |
|          | 9.                                                                                          | Inventories                                                     | 10 |
|          | 10.                                                                                         | Goodwill and  Intangible Assets                                 | 10 |
|          | 11.                                                                                         | Asset  Retirement Obligations                                   | 11 |
|          | 12.                                                                                         | Debt                                                            | 12 |
|          | 13.                                                                                         | Financial  Instruments                                          | 14 |
|          | 14.                                                                                         | Recently  Adopted Accounting Standards                          | 14 |
|          | 15.                                                                                         | Retirement and  Benefit Plans                                   | 16 |
|          | 16.                                                                                         | Segment Information                                             | 16 |
|          | 17.                                                                                         | Commitments and  Guarantees                                     | 18 |
|          | 18.                                                                                         | Consolidating  Guarantor and Nonguarantor Financial Information | 18 |
|          | 19.                                                                                         | Legal  Proceedings and Contingencies                            | 27 |
|          |                                                                                        |                                                            |   |
| Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 27                                                              |
|          | Understanding Our Financial Information                                                     | 27                                                              |
|          | Our Segments                                                                                | 27                                                              |
|          | Overview of Financial Condition                                                             | 28                                                              |
|          | Factors That Affect Our Operating Results                                                   | 29                                                              |
|          | Acquisitions                                                                                | 34                                                              |
|          | Our  Operating Results                                                                      | 36                                                              |
|          | Liquidity and Capital Resources                                                             | 39                                                              |
|          | Contractual  Obligations                                                                    | 43                                                              |
|          | Off-Balance-Sheet Activities                                                                | 43                                                              |
|          | Guarantees                                                                                  | 43                                                              |
|          | Environmental                                                                               | 43                                                              |
|          | Critical Accounting Estimates                                                               | 43                                                              |
|          | Recently Adopted Accounting Standards                                                       | 43                                                              |
|          |                                                                                        |                                                            |   |
| Item 3.  | Quantitative  and Qualitative Disclosures About Market Risks                                | 44                                                              |
|          |                                                                                        |                                                            |   |
| Item 4.  | Controls and  Procedures                                                                    | 45                                                              |
|          |                                                                                        |                                                            |   |
| ** **    | **PART  II—OTHER INFORMATION**                                                         | ** **                                                      |
| Item 1.  | Legal Proceedings                                                                           | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 1A. | Risk  Factors                                                                               | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 1B. | Unresolved  Staff Comments                                                                  | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 3.       | Defaults  Upon Senior Securities                                                            | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 4.       | Submission  of Matters to a Vote of Securityholders                                         | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 5.       | Other Information                                                                           | 47                                                              |
|          |                                                                                        |                                                            |   |
| Item 6.  | Exhibits                                                                                    | 47                                                              |
|               |                                                                                             |                                                                 |  |  |

 

All reports we file with the Securities and ExchangeCommission (SEC) are available free of charge via Electronic Data GatheringAnalysis and Retrieval (EDGAR) through the SEC website at www.sec.gov. We alsoprovide copies of our SEC filings at no charge upon request and make electroniccopies of our reports available through our website at www.bc.com as soon asreasonably practicable after filing such material with the SEC.

ii

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**PART 1—FINANCIAL INFORMATION**

***ITEM 1.          CONSOLIDATEDFINANCIAL STATEMENTS***

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

**(unaudited)**
| ** **                                      | ** ** | **Three Months Ended  March 31** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Trade                                           |       | $                                               | 1,163,173  |   | $ | 1,337,498 |   |
| Related parties                                 |       | 157,795                                         |       | 132,765 |   |
|                                            |       | 1,320,968                                       |       | 1,470,263 |   |
|                                            |       |                                            |       |   |   |
| **Costs and expenses**                          | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Materials, labor, and  other operating expenses |       | 1,156,899                                       |       | 1,310,812 |   |
| Depreciation,  amortization, and depletion      |       | 40,360                                          |       | 36,657 |   |
| Selling and  distribution expenses              |       | 68,408                                          |       | 71,077 |   |
| General and  administrative expenses            |       | 19,495                                          |       | 21,462 |   |
| Other (income) expense,  net                    |       | 2,546                                           |       | (2,125 | ) |
|                                            |       | 1,287,708                                       |       | 1,437,883 |   |
|                                            |       |                                            |       |   |   |
| **Income from operations**                      |       | 33,260                                          |       | 32,380 |   |
|                                            |       |                                            |       |   |   |
| Foreign exchange gain                           |       | 242                                             |       | 379 |   |
| Interest expense                                |       | (22,343                                         | )          | (30,176 | ) |
| Interest income                                 |       | 601                                             |       | 604 |   |
|                                            |       | (21,500                                         | )          | (29,193 | ) |
| ** **                                      | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| **Income before income taxes**                  |       | 11,760                                          |       | 3,187 |   |
| Income tax provision                            |       | (1,223                                          | )          | (1,218 | ) |
| **Net income**                                  | ** ** | **$**                                           | **10,537** | ** ** | **$** | **1,969** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

1

----

**BoiseCascade Holdings, L.L.C.**

**ConsolidatedBalance Sheets**

(unaudited)
| ** **                                       | ** **   | **March 31,** | ** **    | **December 31,** | ** **   |
|--------------------------------------------------|--------------|--------------------|---------------|-----------------------|--------------|
| ** **                                       | ** **   | **2007**           | ** **    | **2006**              | ** **   |
| ** **                                       | ** **   | **(thousands)**    | ** **    |
| **ASSETS**                                       | ** **   | ** **         | ** **    | ** **            | ** **   |
| ** **                                       | ** **   | ** **         | ** **    | ** **            | ** **   |
| **Current**                                      | ** **   | ** **         | ** **    | ** **            | ** **   |
| Cash and cash  equivalents                       |         | $                  | 66,176        |                  | $            | 45,169 |   |
| Receivables                                      |         |               |          |                  |         |
| Trade, less allowances of $2,027 and $1,734 |         | 379,454            |          | 327,138               |         |
| Related parties                                  |         | 44,134             |          | 37,986                |         |
| Other                                            |         | 16,736             |          | 19,027                |         |
| Inventories                                      |         | 658,054            |          | 640,826               |         |
| Other                                            |         | 11,770             |          | 13,027                |         |
|                                             |         | 1,176,324          |          | 1,083,173             |         |
|                                             |         |               |          |                  |         |
| **Property**                                     | *** *** | *** ***       | *** ***  | *** ***          | *** *** |
| Property and  equipment, net                     |         | 1,468,277          |          | 1,462,315             |         |
| Fiber farms and  deposits                        |         | 40,042             |          | 40,492                |         |
|                                             |         | 1,508,319          |          | 1,502,807             |         |
|                                             |         |               |          |                  |         |
| **Deferred  financing costs**                    |         | 29,930             |          | 31,474                |         |
| **Goodwill**                                     |         | 21,846             |          | 21,846                |         |
| **Intangible  assets, net**                      |         | 36,376             |          | 37,507                |         |
| **Other  assets**                                |         | 24,732             |          | 28,390                |         |
| **Total  assets**                                | ** **   | **$**              | **2,797,527** | ** **            | **$**        | **2,705,197** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

2

----

**BoiseCascade Holdings, L.L.C.**

**ConsolidatedBalance Sheets (continued)**

(unaudited)
| ** **                                                                                                                                               | ** **   | **March 31,** | ** **    | **December 31,** | ** **   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------|---------------|-----------------------|--------------|
| ** **                                                                                                                                               | ** **   | **2007**           | ** **    | **2006**              | ** **   |
| ** **                                                                                                                                               | ** **   | **(thousands)**    | ** **    |
| **LIABILITIES  AND CAPITAL**                                                                                                                             | ** **   | ** **         | ** **    | ** **            | ** **   |
| ** **                                                                                                                                               | ** **   | ** **         | ** **    | ** **            | ** **   |
| **Current**                                                                                                                                              | ** **   | ** **         | ** **    | ** **            | ** **   |
| Short-term  borrowings                                                                                                                                   |         | $                  | —        |                  | $            | 3,200 |   |
| Accounts payable                                                                                                                                         |         | 376,315            |          | 341,201               |         |
| Accrued  liabilities                                                                                                                                     |         |               |          |                  |         |
| Compensation and benefits                                                                                                                                |         | 74,989             |          | 93,287                |         |
| Interest payable                                                                                                                                         |         | 18,685             |          | 11,847                |         |
| Other                                                                                                                                                    |         | 39,354             |          | 54,600                |         |
|                                                                                                                                                     |         | 509,343            |          | 504,135               |         |
|                                                                                                                                                     |         |               |          |                  |         |
| **Debt**                                                                                                                                                 | *** *** | *** ***       | *** ***  | *** ***          | *** *** |
| Long-term debt                                                                                                                                           |         | 1,273,900          |          | 1,213,900             |         |
| ** **                                                                                                                                               | ** **   | ** **         | ** **    | ** **            | ** **   |
| **Other**                                                                                                                                                | ** **   | ** **         | ** **    | ** **            | ** **   |
| Compensation and  benefits                                                                                                                               |         | 118,605            |          | 111,676               |         |
| Other long-term  liabilities                                                                                                                             |         | 39,578             |          | 36,642                |         |
|                                                                                                                                                     |         | 158,183            |          | 148,318               |         |
|                                                                                                                                                     |         |               |          |                  |         |
| **Redeemable  equity units**                                                                                                                             | ** **   | ** **         | ** **    | ** **            | ** **   |
| Series B  equity units – 17,052,889 and 17,107,889 units outstanding                                                                      |         | 17,422             |          | 17,477                |         |
| Series C  equity units – 39,562,560 and 39,576,540 units outstanding                                                                      |         | 7,256              |          | 6,434                 |         |
|                                                                                                                                                     |         | 24,678             |          | 23,911                |         |
| ** **                                                                                                                                               | ** **   | ** **         | ** **    | ** **            | ** **   |
| **Commitments  and contingent liabilities**                                                                                                              |         |               |          |                  |         |
|                                                                                                                                                     |         |               |          |                  |         |
| **Capital**                                                                                                                                              | ** **   | ** **         | ** **    | ** **            | ** **   |
| Series A  equity units – no par value; 66,000,000 and 66,000,000 units authorized and  outstanding                                             |         | 73,975             |          | 78,290                |         |
| Series B  equity units – no par value; 550,000,000 and  550,000,000 units authorized; 530,356,601 and 530,356,601 units  outstanding |         | 744,614            |          | 724,988               |         |
| Series C equity  units – no par value; 44,000,000 and 44,000,000 units authorized                                                         |         | 12,834             |          | 11,655                |         |
| **Total  capital**                                                                                                                                       |         | 831,423            |          | 814,933               |         |
| ** **                                                                                                                                               | ** **   | ** **         | ** **    | ** **            | ** **   |
| **Total liabilities and capital**                                                                                                                        | ** **   | **$**              | **2,797,527** | ** **            | **$**        | **2,705,197** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

3

----

**BoiseCascade Holdings, L.L.C.**

**ConsolidatedStatements of Cash Flows**

(unaudited)
| ** **                                                                       | ** ** | **Three Months Ended  March 31** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                                                       | ** ** | **(thousands)**                                 | ** ** |
| **Cash  provided by (used for) operations**                                      | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Net income                                                                       |       | $                                               | 10,537     |   | $ | 1,969 |   |
| Items in net  income not using (providing) cash                                  |       |                                            |       |   |   |
| Depreciation, depletion, and amortization of  deferred financing costs and other |       | 40,084                                          |       | 38,380 |   |
| Related-party interest expense                                                   |       | —                                          |       | 5,417 |   |
| Deferred income taxes                                                            |       | 493                                             |       | — |   |
| Pension and other postretirement benefit expense                                 |       | 6,066                                           |       | 7,417 |   |
| Gain on changes in retiree healthcare programs                                   |       | —                                          |       | (3,741 | ) |
| Management equity units expense                                                  |       | 822                                             |       | 934 |   |
| Other                                                                            |       | 1,193                                           |       | 2,194 |   |
| Decrease  (increase) in working capital, net of acquisitions                     |       |                                            |       |   |   |
| Receivables                                                                      |       | (56,662                                         | )          | (55,939 | ) |
| Inventories                                                                      |       | (20,309                                         | )          | (16,041 | ) |
| Prepaid expenses                                                                 |       | 4,234                                           |       | 2,150 |   |
| Accounts payable and accrued liabilities                                         |       | 19,466                                          |       | 26,055 |   |
| Pension and  other postretirement benefit payments                               |       | (339                                            | )          | (346 | ) |
| Current and  deferred income taxes                                               |       | 771                                             |       | — |   |
| Other                                                                            |       | 4,397                                           |       | 2,853 |   |
| Cash provided by operations                                                      |       | 10,753                                          |       | 11,302 |   |
|                                                                             |       |                                            |       |   |   |
| **Cash  provided by (used for) investment**                                      | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Expenditures for  property and equipment                                         |       | (47,242                                         | )          | (36,508 | ) |
| Acquisitions of  businesses and facilities                                       |       | —                                          |       | (42,589 | ) |
| Sales of assets                                                                  |       | 3,384                                           |       | 27,249 |   |
| Other                                                                            |       | 166                                             |       | (1,394 | ) |
| Cash used for investment                                                         |       | (43,692                                         | )          | (53,242 | ) |
|                                                                             |       |                                            |       |   |   |
| **Cash  provided by (used for) financing**                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Issuances of  long-term debt                                                     |       | 100,000                                         |       | 150,000 |   |
| Payments of  long-term debt                                                      |       | (40,000                                         | )          | (57,600 | ) |
| Note payable to  related party, net                                              |       | —                                          |       | (137 | ) |
| Tax distributions  to members                                                    |       | (2,753                                          | )          | — |   |
| Other                                                                            |       | (3,301                                          | )          | (148 | ) |
| Cash provided by financing                                                       |       | 53,946                                          |       | 92,115 |   |
|                                                                             |       |                                            |       |   |   |
| **Increase  in cash and cash equivalents**                                       |       | 21,007                                          |       | 50,175 |   |
|                                                                             |       |                                            |       |   |   |
| **Balance  at beginning of the period**                                          |       | 45,169                                          |       | 88,171 |   |
|                                                                             |       |                                            |       |   |   |
| **Balance at end of the period**                                                 | ** ** | **$**                                           | **66,176** | ** ** | **$** | **138,346** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

4

----

**BoiseCascade Holdings, L.L.C.**

**ConsolidatedStatements 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, 2005                           |       | 66,000                               |       | $                                    | 39,885     |                                 | 530,357     |       | $          | 417,601 |   | — |   | $ | 7,535 |   | $ | 465,021 |   |
|                                                         |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Net income (a)                                               |       | —                               |       | —                               |       | —                               |        | 71,571     |       | — |   | — |   | 71,571 |   |
| Other comprehensive  income, net of tax (a) (b)    | ** ** | ** **                           | ** ** | ** **                           | ** ** | ** **                           | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flow hedges                                             |       | —                               |       | —                               |       | —                               |        | (10,327    | )          | — |   | — |   | (10,327 | ) |
| Minimum pension liability adjustment                         |       | —                               |       | —                               |       | —                               |        | 58         |       | — |   | — |   | 58 |   |
| Unfunded accumulated benefit obligation                      |       | —                               |       | —                               |       | —                               |        | 37,263     |       | — |   | — |   | 37,263 |   |
| Capital contributions  from members                          |       | —                               |       | 34,773                               |       | —                               |        | 237,709    |       | — |   | — |   | 272,482 |   |
| Paid-in-kind  dividend                                       |       | —                               |       | 3,632                                |       | —                               |        | (3,632     | )          | — |   | — |   | — |   |
| Tax  distributions to members                                |       | —                               |       | —                               |       | —                               |        | (22,022    | )          | — |   | — |   | (22,022 | ) |
| Allocation of  profit interest to Series C equity units |       | —                               |       | —                               |       | —                               |        | (4,120     | )          | — |   | 4,120 |   | — |   |
| Other                                                        |       | —                               |       | —                               |       | —                               |        | 887        |       | — |   | — |   | 887 |   |
| Balance at  December 31, 2006 (c)                  |       | 66,000                               |       | 78,290                               |       | 530,357                              |        | 724,988    |       | — |   | 11,655 |   | 814,933 |   |
| ** **                                                   | ** ** | ** **                           | ** ** | ** **                           | ** ** | ** **                           | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (a)                                               |       | —                               |       | —                               |       | —                               |        | 10,537     |       | — |   | — |   | 10,537 |   |
| Other  comprehensive income, net of tax (a) (b)    | ** ** | ** **                           | ** ** | ** **                           | ** ** | ** **                           | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flow hedges                                             |       | —                               |       | —                               |       | —                               |        | 5,998      |       | — |   | — |   | 5,998 |   |
| Paid-in-kind  dividend                                       |       | —                               |       | 1,282                                |       | —                               |        | (1,282     | )          | — |   | — |   | — |   |
| Tax  distributions to members                                |       | —                               |       | (5,597                               | )          | —                               |        | 5,597      |       | — |   | — |   | — |   |
| Allocation of  profit interest to Series C equity units |       | —                               |       | —                               |       | —                               |        | (1,179     | )          | — |   | 1,179 |   | — |   |
| Other                                                        |       | —                               |       | —                               |       | —                               |        | (45        | )          | — |   | — |   | (45 | ) |
| **Balance at March 31, 2007  (c)**                      | ** ** | **66,000**                           | ** ** | **$**                                | **73,975** | ** **                           | **530,357** | ** ** | **$**      | **744,614** | ** ** | **—** | ** ** | **$** | **12,834** | ** ** | **$** | **831,423** | ** ** |

 

----

(a)                                  Total comprehensive income for the threemonths ended March 31, 2007 and 2006, was $16.5 million and$9.9 million, respectively.

(b)                                 Total other comprehensive income for the threemonths ended March 31, 2007 and 2006, was $6.0 million and$8.0 million, respectively.

(c)                                  Accumulated other comprehensive income atMarch 31, 2007, and December 31, 2006, was $46.5 million and$40.5 million, respectively.

**See accompanying notes to unaudited quarterlyconsolidated financial statements.**

5

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

***1.******             Basisof Presentation***

As used in theseconsolidated financial statements, the terms “Boise” and “we” refer to BoiseCascade Holdings, L.L.C., and its consolidated subsidiaries. We are a diversifiedNorth American paper and forest products company headquartered in Boise, Idaho.We operate our business in the following five reportable segments: BuildingMaterials Distribution, Wood Products, Paper, Packaging & Newsprint,and Corporate and Other. See Note 16, Segment Information, for additionalinformation about our reportable segments.

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. Net income for the three months ended March 31, 2007 and 2006,involved estimates and accruals. Actual results may vary from those estimates.Quarterly results are not necessarily indicative of results that may beexpected for the full year.

Certain amounts in prior periods’ consolidatedfinancial statements have been reclassified to conform with the current period’spresentation. For more information, see the discussion of FinancialAccounting Standards Board (FASB) Staff Position (FSP) No. AUG AIR-1, *Accounting for Planned Major Maintenance Activities,*adopted in January 2007, in Note 14,Recently Adopted Accounting Standards.

***2.***             ***Purchaseof OfficeMax’s Forest Products and Paper Assets***

Our operations began on October 29, 2004(inception), when we acquired the forest products and paper assets of OfficeMax(the Forest Products Acquisition). We accounted for the Forest ProductsAcquisition using the purchase method of accounting. We allocated the assetsacquired and liabilities assumed based on their estimated fair values at theacquisition date. Estimated fair values were derived through consideration andapplication of standard valuation approaches and techniques. The excess of thepurchase price over the fair value of assets acquired and liabilities assumedwas allocated to goodwill. For more information, see Note 11, Goodwill andIntangible Assets, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our2006 Annual Report on Form 10-K.

As part of the Forest Products Acquisition, we entered into an AdditionalConsideration Agreement with OfficeMax, pursuant to which we agreed to adjustthe purchase price based on changes in paper prices over the six-year periodfollowing the Forest Products Acquisition. Under the Additional ConsiderationAgreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximumaggregate amount of $125.0 million, in each case net of payments received.After each anniversary of the Forest Products Acquisition, we review paperprices with the provisions of the Additional Consideration Agreement todetermine whether any amounts are owed or receivable under the agreement. Forthe first and second anniversary periods, which ended October 29, 2005 and2006, neither Boise nor OfficeMax owed additional consideration for thepurchase price. Based on the actual market price for the benchmark grade of cut-sizeoffice paper during the first six months of the third anniversary period and ifMarch prices held for the remaining six months, we would owe OfficeMaxapproximately $13 million upon completion of the third anniversary periodunder the Additional Consideration Agreement. Any payments made or receivedpursuant to the Additional Consideration Agreement will be treated asadjustments to the purchase price and, therefore, will not be reported in ourConsolidated Statement of Income but will be included in consolidated earningsbefore interest, taxes, depreciation, and amortization (EBITDA) for purposes ofcertain covenants under our debt agreements. For more information about theAdditional Consideration Agreement, see “Item 13.  Certain Relationships and RelatedTransactions, and Director Independence” of our 2006 Form 10-K.

# *RestructuringActivities*

Inconnection with the Forest Products Acquisition, we evaluated the acquiredfacilities and organizational structure. In accordance with the provisions ofEmerging Issues Task Force (EITF) 95-3, *Recognitionof Liabilities in Connection With a Purchase Business Combination*,exit activities related to

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the Forest ProductsAcquisition increased goodwill. We had one year from the acquisition date tofinalize our restructuring plans and adjust goodwill.

At March 31,2007, we had approximately $0.4 million of restructuring reserves relatedto severance costs recorded in “Accrued liabilities, Compensation and benefits”on our Consolidated Balance Sheet. The severance costs related to costs forapproximately 350 terminated employees. The remaining reserve relates toseverance payments that will be paid by the end of 2007. Of the$0.4 million remaining restructuring reserve, $0.3 million isrecorded in our Paper segment, and $0.1 million is in Corporate and Other.Restructuring reserve liability account activity related to these charges is asfollows:
|                                                  | ** ** | **Severance**   | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **(thousands)** | ** ** |
|                                             |       |            |       |       |       |       |       |
| 2004  restructuring reserve                      |       | $               | 13,768     |       | $          | 501        |       | $ | 14,269 |   |
| Charges against  reserve                         |       | (1,012          | )          | (1         | )          | (1,013     | )          |
| Restructuring  reserve at December 31, 2004 |       | 12,756          |       | 500        |       | 13,256     |       |
|                                             |       |            |       |       |       |       |       |
| Additions to  restructuring reserve              |       | 6,913           |       | 221        |       | 7,134      |       |
| Charges against  reserve                         |       | (16,162         | )          | (593       | )          | (16,755    | )          |
| Restructuring reserve  at December 31, 2005 |       | 3,507           |       | 128        |       | 3,635      |       |
|                                             |       |            |       |       |       |       |       |
| Charges against  reserve                         |       | (2,894          | )          | (128       | )          | (3,022     | )          |
| Restructuring  reserve at December 31, 2006 |       | 613             |       | —     |       | 613        |       |
|                                             |       |            |       |       |       |       |       |
| Charges against  reserve                         |       | (246            | )          | —     |       | (246       | )          |
| Restructuring  reserve at March 31, 2007    | ** ** | **$**           | **367**    | ** ** | **$**      | **—** | ** ** | **$** | **367** | ** ** |

 

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

*Sales*

Duringeach of the periods presented, we sold paper and paper products to OfficeMax atsales prices that were designed to approximate market prices. For the threemonths ended March 31, 2007 and 2006, sales to OfficeMax were$157.8 million and $132.8 million, respectively. These sales areincluded in “Sales, Related parties” in the Consolidated Statements of Income.

*Debt andInterest*

InNovember 2006, we repaid a related-party note payable to Boise Land &Timber Corp. in full. For the three months ended March 31, 2006, interestexpense in our Consolidated Statement of Income included $5.4 million ofrelated-party interest expense.

*EquityDistributions*

Themajority of our businesses and assets are held and operated by limitedliability companies, which are not subject to entity-level federal or stateincome taxation. We make cash distributions to permit the members of Boise andaffiliates to pay income taxes. During the three months ended March 31,2007 and 2006, we made no distributions to Forest Products Holdings (ourmajority owner) or management investors. For the three months endedMarch 31, 2007 and 2006, we paid $2.8 million and zero to OfficeMaxto fund their tax obligations related to their investments in us.

***4.******             Vendorand Customer Rebates and Allowances***

We receive rebates and allowances from our vendorsunder a number of different programs, including vendor marketing programs. AtMarch 31, 2007, and December 31, 2006, we had $2.6 million and$4.3 million, respectively, of vendor rebates and allowance recorded in “Receivables,Other” on the Consolidated Balance Sheets. These rebates and allowances areaccounted for in accordance with EITF 02-16, *Accountingby a Customer (Including a Reseller) for Certain Consideration Received From aVendor*. Rebates and allowances received from our vendors arerecognized as a reduction of “Materials,

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labor, and other operating expenses” when the productis sold, unless the rebates and allowances are linked to a specific incrementalcost to sell a vendor’s product. Amounts received from vendors that are linkedto specific selling and distribution expenses are recognized as a reduction of “Sellingand distribution expenses” in the period the expense is incurred.

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates provided to our customers are accounted for inaccordance with EITF 01-09, *Accounting forConsideration Given by a Vendor to a Customer*. The rebates arerecorded as a decrease in sales. At March 31, 2007, and December 31,2006, we had $15.4 million and $23.9 million, respectively, ofrebates payable to our customers recorded in “Accrued liabilities, Other” onour Consolidated Balance Sheets.

***5.******             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 are as follows:
|                                             | ** ** | **Three Months Ended   March 31** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                  | ** ** | **2007**                                              | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | **(thousands)**                                       | ** ** |
|                                        |       |                                                  |       |   |   |
| Changes in  retiree healthcare programs (a) |       | $                                                     | —     |   | $ | (3,741 | ) |
| Sales of assets,  net                       |       | 999                                                   |       | 1,585 |   |
| Other, net (b)                              |       | 1,547                                                 |       | 31 |   |
| ** **                                  | ** ** | **$**                                                 | **2,546**  | ** ** | **$** | **(2,125** | **)** |

 

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(a)                                  During the three months ended March 31, 2006, we communicated to ourhourly employees at our St. Helens, Oregon, pulp and paper mill and ourSalem, Oregon, converting operations changes to our retiree healthcareprograms. We discontinued healthcare coverage for post-65 retirees andeliminated the company subsidy for some of our pre-65 hourly retirees. As aresult of this change, we recorded a $3.7 million gain in our ConsolidatedStatement of Income for the three months ended March 31, 2006.

(b)                                 The three months ended March 31, 2007,included $1.3 million of expense related to the closure of our convertingfacility in Salem, Oregon, which we expect to close by the end of third quarter2007.

***6.******             Leases***

Welease our headquarters building and a portion of our distribution centers aswell as other property and equipment under operating leases. For purposes ofdetermining straight-line rent expense, the lease term is calculated from thedate we first take possession of the facility, including any periods of freerent and any option periods we are reasonably assured of exercising.Straight-line rent expense is also adjusted to reflect any allowances orreimbursements provided by the lessor. Rental expense for operating leases was$6.3 million and $5.0 million for the three months endedMarch 31, 2007 and 2006. Sublease rental income was not material in any ofthe periods presented.

Fornoncancelable operating leases with remaining terms of more than one year, theminimum lease payment requirements are $14.3 million for the remainder of2007, $17.2 million in 2008, $16.0 million in 2009,$14.6 million in 2010, and $11.7 million in 2011, with total paymentsthereafter of $49.0 million. These future minimum lease paymentrequirements have not been reduced by sublease rentals due in the future undernoncancelable subleases. Minimum sublease income received in the future is notexpected to be material.

In first quarter 2006, we sold our headquarters building in Boise, Idaho,for $27.2 million, net of related fees and expenses, and recognized a $1.6million loss recorded in “Other (income) expense, net” in our ConsolidatedStatement of Income. The proceeds were used to pay down our Tranche D termloan. In connection with the sale, we leased back approximately 65% of thebuilding over a staggered lease term of ten to 12 years. The lease isaccounted

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for as an operating lease. The minimum lease payment requirements relatedto the transaction are included in the minimum lease payments disclosed above.

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

***7.******             IncomeTaxes***

Themajority of our businesses and assets are held and operated by limitedliability companies, which are not subject to entity-level federal or stateincome taxation. The income taxes in respect to these operations are payable byour equity holders in accordance with their respective ownership percentages.We make cash distributions to permit the members of Boise and affiliates to paythese taxes. For the three months ended March 31, 2007 and 2006, we made$2.8 million and zero cash distributions, respectively, to permit ourequity holders to pay these taxes. Both our senior credit facilities and theindenture governing our notes permit these distributions.

BoiseCascade Holdings, L.L.C., or one of our subsidiaries files federal income taxreturns in the U.S. and Canada and various state and foreign income tax returnsin the major state jurisdictions of Alabama, Idaho, Louisiana, Oregon,Minnesota, Texas, and Washington. We are subject to tax examinations from 2004(our inception) to present. There are currently no tax examinations planned orin process.

During thethree months ended March 31, 2007 and 2006, our effective tax rates forour separate subsidiaries that are taxed as corporations were 35% and 42%. Theprimary reason for the difference in tax rates is the effect of state incometaxes and the mix of domestic and foreign sources of income.

For thethree months ended March 31, 2006, we received $5.7 million offederal and state income tax refunds as a result of rescinding ourC corporation status in fourth quarter 2005. During the three months endedMarch 31, 2007 and 2006, we paid $0.2 million and $1.3 millionof taxes, net of other refunds received. At March 31, 2007 andDecember 31, 2006, we had a $0.4 million deferred tax liabilityrelated to our taxable subsidiaries recorded on our Consolidated BalanceSheets.

In January2007, we adopted the provisions of FASB Interpretation (FIN) No. 48, *Accounting for Uncertainty in Income Taxes — an interpretation of FASBStatement No. 109,*with no impact on our financial position orresults of operations. On January 1, 2007, we had an insignificant amountof unrecognized tax benefits, none of which would affect our effective taxrate, if recognized. We do not anticipate that the amount of unrecognized taxbenefits will significantly increase or decrease within the next12 months. We recognize interest and penalties on unrecognized taxbenefits in**“Income tax provision” in theConsolidated Statements of Income. For the three months ended March 31,2007 and 2006, and the year ended December 31, 2006, we recognized aninsignificant amount of interest and penalties in our Consolidated Statementsof Income and on our Consolidated Balance Sheets.

***8.******             Receivables***

We have a large, diversified customerbase. A large portion of our uncoated free sheet and office paper sales volumeis sold to OfficeMax. We market our newsprint through Abitibi-Consolidated(Abitibi) pursuant to an arrangement whereby Abitibi purchases all of thenewsprint we produce at a price equal to the price at which Abitibi sellsnewsprint produced at its mills located in the southern United States, lessassociated expenses and a sales and marketing discount. Sales to OfficeMax andAbitibi-Consolidated represent concentrations in the volumes of businesstransacted and concentrations of credit risk. At March 31, 2007, we had$43.4 million and $28.8 million of accounts receivable due fromOfficeMax and Abitibi, respectively, and at December 31, 2006,$37.2 million and $30.1 million.

A large portion ofour receivables are used to secure our borrowings under the accounts receivablesecuritization program described in Note 12, Debt.

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

Inventories include the following:
|                                     | ** ** | **March 31,  2007** | ** **  | **December 31,  2006** | ** ** |
|-------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                          | ** ** | **(thousands)**          | ** **  |
|                                |       |                     |        |                        |       |
| Finished goods  and work in process |       | $                        | 445,335     |                        | $          | 420,620 |   |
| Logs                                |       | 33,970                   |        | 54,326                      |       |
| Other raw  materials and supplies   |       | 178,749                  |        | 165,880                     |       |
| ** **                          | ** ** | **$**                    | **658,054** | ** **                  | **$**      | **640,826** | ** ** |

 

***10.******          Goodwill and IntangibleAssets***

Goodwillrepresents the excess of purchase price and related costs over the valueassigned to the net tangible and intangible assets of businesses acquired. Weaccount for goodwill in accordance with the provisions of Statement ofFinancial Accounting Standards (SFAS) No. 142, *Goodwill andOther Intangible Assets*, which requires us to assess our acquiredgoodwill and intangible assets with indefinite lives for impairment at leastannually in the absence of an indicator of possible impairment and immediatelyupon an indicator of possible impairment. We assess goodwill and intangibleassets with indefinite lives in the fourth quarter of each year using afair-value-based 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 2006 and determined thatthere was no impairment.

Weaccount for acquisitions using the purchase method of accounting. As a result,we allocate the purchase price to the tangible and intangible assets acquiredand liabilities assumed based on their respective fair values as of the date ofacquisition. In accordance with SFAS No. 141, *BusinessCombinations*, we have one year from the purchase date to finalize orreceive information to determine changes in estimates of the fair value ofassets acquired and liabilities assumed.

Changesin the carrying amount of our goodwill by segment are as follows:
| ** **                                                  | ** ** | **Building  Materials  Distribution** | ** ** | **Wood   Products** | ** ** | **Paper** | ** ** | **Packaging &  Newsprint** | ** ** | **Corporate  and  Other** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|-----------|------------|-------------------------------------|------------|---------------------------|------------|-----------|------------|
| ** **                                                  | ** ** | **(thousands)**                       | ** ** |
|                                                        |       |                                  |       |                     |       |      |       |                                |       |                      |       |      |       |
| Balance at  December 31, 2005                          |       | $                                     | 5,593      |                     | $          | 6,577     |       | $                                   | 1,341      |                      | $          | 1,590     |       | $ | — |   | $ | 15,101 |   |
|                                                        |       |                                  |       |                     |       |      |       |                                |       |                      |       |      |       |
| Goodwill  acquired during 2006 (a)                          |       | —                                |       | —                   |       | —    |       | 7,046                               |       | —                    |       | 7,046     |       |
| Purchase price  adjustments during 2006                     |       | —                                |       | —                   |       | —    |       | (301                                | )          | —                    |       | (301      | )          |
| Balance at  December 31, 2006, and March 31, 2007 | ** ** | **$**                                 | **5,593**  | ** **               | **$**      | **6,577** | ** ** | **$**                               | **1,341**  | ** **                | **$**      | **8,335** | ** ** | **$** | **—** | ** ** | **$** | **21,846** | ** ** |

 

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(a)                                  On February 1, 2006, we purchased the assets of Central TexasCorrugated (CTC) in Waco, Texas, for an aggregate purchase price of$43.8 million, including fees and expenses. In connection with theacquisition, we recorded a net $6.7 million of goodwill.

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

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|                             | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount**                                | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| ** **                  | ** ** | **(thousands)**                                                | ** ** |
|                        |       |                                                           |       |   |   |   |   |
| Trade names and  trademarks |       | $                                                              | 24,700     |   | $ | (441 | ) | $ | 24,259 |   |
| Customer  relationships     |       | 13,400                                                         |       | (4,579 | ) | 8,821 |   |
| Noncompete  agreements      |       | 1,200                                                          |       | (357 | ) | 843 |   |
| Technology                  |       | 5,043                                                          |       | (2,590 | ) | 2,453 |   |
|                        | ** ** | **$**                                                          | **44,343** | ** ** | **$** | **(7,967** | **)** | **$** | **36,376** | ** ** |

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

 

Intangible assetamortization expense was $1.1 million and $0.9 million for the threemonths ended March 31, 2007 and 2006, respectively. The estimatedamortization expense is $3.4 million for the remainder of 2007,$4.1 million, $3.4 million, $1.1 million, $0.5 million, and$0.4 million in 2008, 2009, 2010, 2011, and 2012, respectively.

***11.******          AssetRetirement Obligations***

We account for asset retirementobligations in accordance with SFAS No. 143, *Accountingfor Asset Retirement Obligations*, and FIN No. 47, *Accounting for Conditional Asset Retirement Obligations — aninterpretation of FASB Statement No. 143*. We accrue for assetretirement obligations in the period in which they are incurred if sufficientinformation is available to reasonably estimate the fair value of theobligation. When we record the liability, we capitalize the cost by increasingthe carrying amount of the related long-lived asset. Over time, the liabilityis accreted to its settlement value, and the capitalized cost is depreciatedover the useful life of the related asset. Upon settlement of the liability, wewill recognize a gain or loss for any difference between the settlement amountand the liability recorded.

At March 31, 2007, and December 31,2006, we had $11.8 million and $11.5 million of asset retirementobligations recorded in “Other, Other long-term liabilities” on ourConsolidated Balance Sheets. These liabilities related primarily to landfillclosure and closed-site monitoring costs. The liabilities are based on the bestestimate of current costs and are updated periodically to reflect currenttechnology, laws and regulations, inflation, and other economic factors. We donot have any assets legally restricted for purposes of settling assetretirement obligations. The table below describes changes to our assetretirement obligations for the three months ended March 31, 2007, and theyear ended December 31, 2006:
|                                                     | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **(thousands)**          | ** ** |
|                                                |       |                     |       |                        |       |
| Asset retirement  obligation at beginning of period |       | $                        | 11,544     |                        | $          | 11,484 |   |
| Liabilities  incurred                               |       | —                   |       | 1,633                       |       |
| Accretion  expense                                  |       | 233                      |       | 1,020                       |       |
| Payments                                            |       | —                   |       | (53                         | )          |
| Revisions in  estimated cash flows                  |       | —                   |       | (2,540                      | )          |
| Asset retirement  obligation at end of period       | ** ** | **$**                    | **11,777** | ** **                  | **$**      | **11,544** | ** ** |

 

We have additional asset retirementobligations with indeterminate settlement dates. The fair value of these assetretirement obligations cannot be estimated due to the lack of sufficientinformation to

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estimate the settlement dates of the obligations. These asset retirementobligations include, for example, (i) removal and disposal of potentiallyhazardous materials on equipment and/or an operating facility if the equipmentand/or facilities were to undergo major maintenance, renovation, or demolition;(ii) wastewater treatment ponds that may be required to be drained and/orcleaned if the related operating facility is closed; and (iii) storagesites or owned facilities for which removal and/or disposal of chemicals andother related materials are required if the operating facility is closed. Wewill recognize a liability in the period in which sufficient informationbecomes available to reasonably estimate the fair value of these obligations.

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

At March 31,2007, and December 31, 2006, our short- and long-term debt and theinterest rates on that debt were as follows:
| ** **                                      | ** ** | **March 31, 2007** | ** **    | **December 31, 2006**    | ** ** |
|-------------------------------------------------|------------|------------------------------|---------------|------------------------------------|------------|
| ** **                                      | ** ** | **Amount**                   | ** **    | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** | **Amount** | ** ** | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** |
| ** **                                      | ** ** | **(thousands)**              | ** **    | ** **                         | ** ** | ** ** | ** ** | **(thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                            |       |                         |          |                               |       |   |   |   |   |   |   |   |   |
| Revolving credit  facility, due 2010            |       | $                            | —        |                               | N/A        |   | N/A |   | $ | — |   | N/A |   | N/A |   |
| Tranche D  term loan, due 2011             |       | 538,900                      |          | 6.8                                | %          | 6.6 | % | 538,900 |   | 7.1 | % | 6.8 | % |
| Senior unsecured  floating-rate notes, due 2012 |       | 250,000                      |          | 8.2                                | %          | 7.6 | % | 250,000 |   | 8.2 | % | 7.6 | % |
| 7.125% senior  subordinated notes, due 2014     |       | 400,000                      |          | 7.1                                | %          | N/A |   | 400,000 |   | 7.1 | % | N/A |   |
| Borrowings  secured by receivables              |       | 85,000                       |          | 5.3                                | %          | N/A |   | 25,000 |   | 5.6 | % | N/A |   |
| Long-term debt                                  |       | 1,273,900                    |          | 7.1                                | %          | 6.9 | % | 1,213,900 |   | 7.3 | % | 7.1 | % |
| Short-term  borrowings                          |       | —                       |          | N/A                                |       | N/A |   | 3,200 |   | 6.0 | % | N/A |   |
| Total debt                                      | ** ** | **$**                        | **1,273,900** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,217,100** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

*Senior Secured Credit Facilities*

At March  31,2007, and December 31, 2006, Boise Cascade, L.L.C. (Boise LLC) andaffiliates had a $475.0 million senior secured revolving credit facility(due in 2010) and an $840.0 million Tranche D term loan (duein 2011). These borrowings represented our senior secured credit facilities (theFacilities).

At March 31, 2007, andDecember 31, 2006, our revolving credit facility agreementpermitted us to borrow up to $475.0 million for general corporatepurposes. At March 31, 2007, we had no borrowings outstanding under ourrevolving credit facility; however, $42.7 million of letters of creditwere considered a draw on the revolver, reducing our borrowing capacity to$432.3 million. Borrowings under our revolving credit facility are basedon the prime rate, the federal funds effective rate, or the LondonInterbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustmentbased on the ratio of our total indebtedness to our last four quarters ofconsolidated earnings before interest, taxes, depreciation, and amortization(EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to1.25% or the federal funds effective rate plus 1.00% to 1.75% or(ii) LIBOR plus 1.50% to 2.25%. For the three months endedMarch 31, 2007, and the year ended December 31, 2006, the averageinterest rate for our borrowings under the revolver was 6.0%. Letters of creditare subject to a 0.25% fronting fee payable to the issuing bank and a feepayable to the lenders equal to the product of the interest rate spreadapplicable to LIBOR borrowings under our revolving credit facility and thedaily average amount available for drawing under the outstanding letters ofcredit. The minimum and maximum borrowings under the revolver were zero and$1.5 million during the three months ended March 31, 2007, and zeroand $30.0 million during the year ended December 31, 2006. Theweighted average amounts of borrowings outstanding under the revolver duringthe three months ended March 31, 2007 and 2006, were $0.1 million and$2.3 million. The revolving credit facility provides for a commitment feeof 0.50% per annum payable to the lenders on the average daily unused portionof the revolving credit facility. We also have a swingline option under therevolver, which allows us to borrow at negotiated rates up to an aggregate of $40.0 millionfrom individual banks that are parties to the agreement. Swingline borrowingsare considered borrowings under the revolving credit facility agreement.

At March 31,2007, and December 31, 2006, we had $538.9 million outstanding underthe Tranche D term loan, and our borrowing rates were 6.8% and 7.1%.Borrowings under the Tranche D term loan are based on (i) the higher ofthe prime rate plus 0.50% or the federal funds effective rate plus

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1.00% or (ii) LIBORplus 1.50%. As a result of a $200.0 million prepayment in October 2005, weare not required to make scheduled principal payments on the Tranche Dterm loan until 2011, at which time the principal balance is due.

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

*Senior Notes*

In October 2004, Boise LLC issued $250.0 millionof senior unsecured floating-rate notes due in 2012 and $400.0 million of7.125% senior subordinated notes due in 2014. Net proceeds from the notes wereused to fund a portion of the purchase price for the Forest ProductsAcquisition. In July 2005, we completed an exchange offer whereby all ofour senior unsecured floating-rate notes and senior subordinated notes wereexchanged for registered securities with identical terms (other than termsrelating to registration rights) to the notes issued in October 2004. We mayredeem all or part of the notes at any time at redemption prices set forth inthe indenture. If we sell specific assets or experience specific kinds ofchanges in control, we must offer to purchase the notes. The senior unsecuredfloating-rate notes bear interest at a floating rate equal to LIBOR plus 2.9%.At March 31, 2007, and December 31, 2006, our borrowing rate for the$250.0 million senior unsecured floating-rate notes was 8.2%.

*Amendment and Restatement*

On May 3, 2007, we amended and restated ourFacilities. The major changes resulting from the amendment and restatement wereas follows:

·      Wereduced the size of our revolving credit facility from $475 million to $450million. The maturity of the revolving credit facility did not change as aresult of the amendment and restatement.

·      Weborrowed $525 million under a new Tranche E term loan (which matures in April2014) and used the proceeds to repay the Tranche D term loan in full. We arerequired to make scheduled principal payments on the Tranche E term loan in theamount of $3.9 million in 2007, $5.3 million in each of 2008 through 2012,$248.7 million in 2013 and $246.1 million in 2014. Tranche E borrowings underthe amended and restated credit facility may be priced at either (i) the higherof the prime rate plus 50 basis points or the federal funds effective rate plus100 basis points, or (ii) the LIBOR plus 150 basis points.

·      Weobtained $200 million of commitments for a delayed-draw term loan that we planto use to refinance the majority of our existing $250 million senior floatingrate notes due 2012 when they become callable at par on October 15, 2007. Thedelayed-draw term loan has a commitment fee of 150 basis points per annum untildrawn. Once drawn, the pricing is the same as for the Tranche E term loan. Weare required to make scheduled principal payments on the delayed-draw term loanin the amount of $0.5 million in 2007, $2.0 million in each of 2008 through2012, $95.3 million in 2013 and $94.2 million in 2014.

·      Werevised our covenants to give us additional flexibility to make acquisitions,incur future indebtedness, complete asset sales, make capital expenditures,make distributions to our investors or repay debt other than our senior secureddebt. Under the amended and restated credit agreement, we remain subject tomaintenance of a maximum leverage ratio and a minimum interest coverage ratio;however, these financial maintenance covenants are only applicable to the $450million revolving credit portion of the agreement and function as debtincurrence covenants with respect to the remainder of the facility.

*Borrowings Secured by Receivables*

In October 2005, our wholly owned subsidiary,Boise LLC, and several of its subsidiaries, including Birch Creek Investments,L.L.C. (Birch Creek), entered into an accounts receivable securitizationprogram with Bank of America National Association and Calyon New York Branch(the Investors). Under this three-year program, Boise LLC sells its interest ina defined pool of accounts receivable generated by its domestic operations on arevolving basis to Birch Creek, a consolidated, wholly owned, special-purposesubsidiary. In turn, Birch Creek sells the receivables to the affiliates of theInvestors. Because Boise LLC has the right to repurchase the sold receivables,sales of receivables under the program are accounted for as a securedborrowing. At March 31, 2007, and December 31, 2006, we had$85.0 million and $25.0 million outstanding under our accountsreceivable securitization program. The receivables outstanding and the correspondingdebt are included as “Receivables” and “Long-term debt,” respectively, on ourConsolidated Balance Sheets. We record the financing costs associated with theprogram in “Interest expense” in our Consolidated Statements of Income. Thecost of funds under this program varies based on changes in interest rates. AtMarch 31, 2007, and December 31, 2006, the interest rates forborrowings secured by receivables were 5.3% and 5.6%.

Under the accounts receivable securitization program, the maximum borrowingamount is subject to change based on the level of eligible receivables andrestrictions on concentrations of receivables and, at March 31, 2007,could not exceed $238.2 million. The accounts receivable securitizationprogram contains the same financial covenants as our senior secured creditfacilities.

*Other*

We have entered into interest rate swaps to hedge themajority of the cash flow risk from the variable interest payments on ourvariable-rate debt. These swaps gave us effective interest rates on all of ourlong-term variable-rate debt of 6.7% and 7.0% at March 31, 2007, andDecember 31, 2006, respectively. For additional information on ourinterest rate swaps, see Note 13, Financial Instruments.

We paid approximately $85.9 million of fees andexpenses associated with our senior secured credit facilities, our seniorunsecured floating-rate notes, and our senior subordinated notes, which weentered into in October 2004. The fees are being amortized over the terms ofthe loans, which range from six to ten years. At March 31, 2007, andDecember 31, 2006, we had $29.9 million and $31.5 million ofcosts recorded in “Deferred financing costs” on our Consolidated BalanceSheets.

At March 31,2007, and December 31, 2006, our average effective interest rates, includingthe effect of our interest rate swaps, on all of our long-term debt were 6.9%and 7.1%.

Forboth the three months ended March 31, 2007 and 2006, cash payments forinterest, net of interest capitalized, were $15.8 million.

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***13.******          Financial Instruments***

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

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

*Interest Rate Risk*

Our debt ispredominantly variable-rate. We manage interest rate risk on our variable-ratedebt by entering into interest rate swaps. At March 31, 2007, theestimated current market value of our fixed-rate debt, based on then-currentinterest rates for similar obligations with like maturities, was approximately$6.3 million less than the amount reported on our Consolidated BalanceSheet.

At March 31, 2007, we had six interest rate swapsto hedge our exposure to interest rate fluctuations associated with a portionof our variable-rate debt. The swaps effectively hedge $500 million of ourvariable-rate debt exposure through 2009 and $250 million of exposureduring 2010. Assuming no changes in interest rates, we expect to reclassify$6.3 million of amounts recorded in “Accumulated other comprehensiveincome” as a decrease in interest expense during the remainder of 2007. AtMarch 31, 2007, there was no ineffectiveness related to these hedges.

*Energy Risk*

We enter into natural gas swaps, options, or acombination of these instruments to hedge the variable cash flow risk ofnatural gas purchases at index prices. As of March 31, 2007, we had enteredinto derivative instruments related to approximately 10% of our forecastednatural gas purchases from July 2007 through October 2007.

*Foreign Currency Risk*

At March 31, 2007, we had no material fair valueof foreign currency hedges.

***14.******          RecentlyAdopted Accounting Standards***

In January 2007, we adopted FSP No. AUG AIR-1, *Accounting for Planned Major Maintenance Activities* andbegan expensing the costs of periodic major overhauls and maintenance of plantand equipment as incurred. Prior to the adoption of this FSP, we chargedplanned shutdown maintenance

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costs in our Paper and Packaging & Newsprint segments to income(loss) ratably over the year. We recast our 2006 interim financial informationincluded in this Form 10-Q using the direct expense method. As aresult of adopting this FSP, we reduced “Materials, labor, and other operatingexpenses” $1.9 million and increased “Net income” by the same amount forthe three months ended March 31, 2006. Of the $1.9 million adjustment, werecorded $3.4 million of income in our Paper segment and a$1.5 million loss in our Packaging & Newsprint segment. The FSPincreases the volatility of earnings in the period a planned shutdown occurs,but it has no impact on our annual results of operations.

In January 2007, we adopted FINNo. 48, *Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No. 109*. FINNo. 48 clarifies the criteria for recognizing tax benefits under FASBStatement No. 109, *Accounting forIncome Taxes*. It also requires additional financial statementdisclosures about uncertain tax positions. Because the majority of ourbusinesses and assets are held and operated by limited liability companies andthe income taxes of these operations are payable by our equity holders, it didnot have a material impact on our financial position or results of operations.For more information, see Note 7, Income Taxes. Events could arise in thefuture that would cause the adoption of this interpretation to have a materialimpact on our financial statements. For example, if our tax status were tochange in the future, we would have to reevaluate the impact of FIN No. 48on our financial position and results of operations at that time.

In December 2006, we adopted SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans — anAmendment of FASB Statements No. 87, 88, 106, and 132(R)*, whichrequired us to recognize the funded status of our pension and otherpostretirement benefit plans on our 2006 Consolidated Balance Sheet. It alsorequired us to recognize the actuarial and experience gains and losses and theprior service costs and credits as a component of other comprehensive income,net of tax, in our Consolidated Statement of Capital. In connection withadopting SFAS No. 158, we reduced our liabilities $38.1 million andincreased capital by about the same amount. Retrospective application was notpermitted. For more information, see Note 15, Retirement and BenefitPlans, of the Notes to Consolidated Financial Statements in “Item 8.  ConsolidatedFinancial Statements” of our 2006 Annual Report on Form 10-K.

In December 2006, we adopted Staff Accounting Bulletin (SAB) Topic 1N, *Financial Statements — Considering the Effects ofPrior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements* (SAB 108). SAB 108 addresses how the effects ofprior-year uncorrected misstatements should be considered when quantifyingmisstatements in current-year financial statements. SAB 108 requiresregistrants to quantify misstatements using both the balance sheet and incomestatement approaches and to evaluate whether either approach results inquantifying an error that is material in light of relevant quantitative andqualitative factors. SAB 108 did not have a material impact on ourfinancial position or results of operations.

In February 2006, we adopted FSP No. FAS 123(R)-4, *Classification of Options and Similar Instruments Issued as EmployeeCompensation That Allow for Cash Settlement Upon the Occurrence of a ContingentEvent*. FAS 123(R)-4 requires companies to assess the probabilitythat a contingent cash settlement event will occur when it determines theclassification of options or other similar instruments issued as part ofemployee compensation arrangements. Because redemption by Forest ProductsHoldings, our equity sponsor, and the expected parallel redemptions of theSeries B and Series C equity units granted to our employees under theManagement Equity Agreement are a contingent event outside employees’ controland not currently deemed probable of occurring, we account for the units usingequity plan accounting in accordance with FAS 123(R)-4.

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***15.******          Retirementand Benefit Plans***

Thefollowing table presents the components of net periodic pension and postretirementbenefit costs in accordance with revised SFAS No. 132, *Employers’ Disclosures About Pensions and Other Postretirement Benefits*:
| ** **                                     | ** ** | **Pension Benefits**                       | ** ** | **Other Benefits**                         | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  March 31** | ** ** | **Three Months Ended  March 31** | ** ** |
| ** **                                     | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | **(thousands)**                                 | ** ** |
|                                           |       |                                            |       |                                            |       |   |   |   |   |
| Service cost                                   |       | $                                               | 5,747      |                                            | $          | 6,219 |   | $ | 54 |   | $ | 53 |   |
| Interest cost                                  |       | 9,506                                           |       | 8,446                                           |       | 105 |   | 95 |   |
| Expected return  on plan assets                |       | (9,597                                          | )          | (8,555                                          | )          | — |   | — |   |
| Recognized  actuarial loss                     |       | 130                                             |       | 69                                              |       | — |   | — |   |
| Amortization of  prior service costs and other |       | 174                                             |       | 112                                             |       | — |   | — |   |
| Curtailment  (gain) loss                       |       | (181                                            | )          | 821                                             |       | — |   | — |   |
| Company-sponsored  plans                       |       | 5,779                                           |       | 7,112                                           |       | 159 |   | 148 |   |
| Multiemployer  pension plans                   |       | 128                                             |       | 157                                             |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                                           | **5,907**  | ** **                                      | **$**      | **7,269** | ** ** | **$** | **159** | ** ** | **$** | **148** | ** ** |

 

In 2007, we arenot required to make a minimum contribution to our pension plans; however, wemay elect to make voluntary contributions.

***16.******         ******Segment Information***

Thereare no differences in our basis of segmentation or in our basis of measurementof segment profit or loss from those disclosed in Note 18, SegmentInformation, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in our2006 Annual Report on Form 10-K.

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An analysis of our operations by segment is asfollows:
| ** **                                  | ** ** | **Sales**      | ** **  | **Income  (Loss)**   | ** ** | **Depre-  ciation,  Amorti-  zation,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|----------------|-------------|----------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | **Trade**      | ** **  | **Related  Parties** | ** ** | **Inter-segment**                      | ** ** | **Total**  | ** ** | **Before  Taxes** | ** ** | **and  Depletion** | ** ** | **EBITDA  (b)** | ** ** |
| ** **                                  | ** ** | **(millions)** | ** **  |
| **Three  Months Ended March 31, 2007** |       |           |        |                 |       |                                   |       |       |       |   |   |   |   |   |   |
| Building  Materials Distribution            |       | $              | 608.7       |                 | $          | —                                 |       | $          | —     |   | $ | 608.7 |   | $ | 10.5 |   | $ | 1.9 |   | $ | 12.3 |   |
| Wood Products                               |       | 151.6          |        | —               |       | 102.3                                  |       | 253.9      |       | 3.7 |   | 7.3 |   | 11.0 |   |
| Paper                                       |       | 222.9          |        | 157.8                |       | 14.3                                   |       | 395.0      |       | 18.0 |   | 16.6 |   | 34.6 |   |
| Packaging &  Newsprint             |       | 176.7          |        | —               |       | 17.3                                   |       | 194.0      |       | 8.1 |   | 13.4 |   | 21.5 |   |
| Corporate and  Other                        |       | 3.3            |        | —               |       | 10.6                                   |       | 13.9       |       | (6.8 | ) | 1.2 |   | (5.5 | ) |
|                                        |       | 1,163.2        |        | 157.8                |       | 144.5                                  |       | 1,465.5    |       | 33.5 |   | 40.4 |   | 73.9 |   |
| Intersegment  eliminations                  |       | —         |        | —               |       | (144.5                                 | )          | (144.5     | )          | — |   | — |   | — |   |
| Interest expense                            |       | —         |        | —               |       | —                                 |       | —     |       | (22.3 | ) | — |   | — |   |
| Interest income                             |       | —         |        | —               |       | —                                 |       | —     |       | 0.6 |   | — |   | — |   |
| ** **                                  | ** ** | **$**          | **1,163.2** | ** **           | **$**      | **157.8**                              | ** ** | **$**      | **—** | ** ** | **$** | **1,321.0** | ** ** | **$** | **11.8** | ** ** | **$** | **40.4** | ** ** | **$** | **73.9** | ** ** |

 
| ** **                                  | ** ** | **Sales**      | ** **  | **Income  (Loss)**   | ** ** | **Depre-  ciation,  Amorti-  zation,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|----------------|-------------|----------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | **Trade**      | ** **  | **Related  Parties** | ** ** | **Inter-segment**                      | ** ** | **Total**  | ** ** | **Before  Taxes** | ** ** | **and  Depletion** | ** ** | **EBITDA  (b)** | ** ** |
| ** **                                  | ** ** | **(millions)** | ** **  |
| **Three  Months Ended March 31, 2006** |       |           |        |                 |       |                                   |       |       |       |   |   |   |   |   |   |
| Building  Materials Distribution            |       | $              | 761.8       |                 | $          | —                                 |       | $          | —     |   | $ | 761.8 |   | $ | 18.6 |   | $ | 2.4 |   | $ | 20.9 |   |
| Wood Products                               |       | 186.0          |        | —               |       | 126.6                                  |       | 312.6      |       | 18.8 |   | 6.3 |   | 25.1 |   |
| Paper                                       |       | 225.8          |        | 132.8                |       | 11.8                                   |       | 370.4      |       | 0.8 |   | 14.6 |   | 15.4 |   |
| Packaging &  Newsprint             |       | 159.0          |        | —               |       | 19.8                                   |       | 178.8      |       | 0.9 |   | 12.1 |   | 12.9 |   |
| Corporate and  Other                        |       | 4.9            |        | —               |       | 11.0                                   |       | 15.9       |       | (6.3 | )(a) | 1.3 |   | (4.9 | )(a) |
|                                        |       | 1,337.5        |        | 132.8                |       | 169.2                                  |       | 1,639.5    |       | 32.8 |   | 36.7 |   | 69.4 |   |
| Intersegment  eliminations                  |       | —         |        | —               |       | (169.2                                 | )          | (169.2     | )          | — |   | — |   | — |   |
| Interest expense                            |       | —         |        | —               |       | —                                 |       | —     |       | (30.2 | ) | — |   | — |   |
| Interest income                             |       | —         |        | —               |       | —                                 |       | —     |       | 0.6 |   | — |   | — |   |
| ** **                                  | ** ** | **$**          | **1,337.5** | ** **           | **$**      | **132.8**                              | ** ** | **$**      | **—** | ** ** | **$** | **1,470.3** | ** ** | **$** | **3.2** | ** ** | **$** | **36.7** | ** ** | **$** | **69.4** | ** ** |

 

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(a)                                  Includesa $3.7 million gain for changes in our retiree healthcare programs.

(b)                                 EBITDA represents income (loss) beforeinterest (interest expense and interest income), income tax provision, 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 with substantial financial leverage. We believe EBITDA is ameaningful measure because it presents a transparent view of our recurringoperating performance and allows management to readily view operating trends,perform analytical comparisons, and identify strategies to improve operatingperformance. For example, we believe that the inclusion of items such as taxes,interest expense, and interest income distorts management’s ability to assessand view the core operating trends in our segments. EBITDA, however, is not ameasure of our liquidity or financial performance under generally acceptedaccounting principles (GAAP) and should not be considered as an alternative tonet income (loss), income (loss) from operations, or any other performancemeasure derived in accordance with GAAP or as an alternative to cash flow fromoperating activities as a measure of our liquidity. The use of EBITDA insteadof net income (loss) or segment income (loss) has limitations as an analyticaltool, including the inability to determine profitability; the exclusion ofinterest expense and interest income and associated significant cashrequirements; and the exclusion of depreciation, amortization, and depletion,which represent significant and unavoidable operating costs, given the level ofour indebtedness and the capital expenditures needed to maintain ourbusinesses. Management compensates for these limitations by relying on our GAAPresults. Our measures of EBITDA are not necessarily comparable to other similarlytitled captions of other companies due to potential inconsistencies in themethods of calculation.

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The following is a reconciliation of netincome to EBITDA:
|                                            | ** ** | **Three Months Ended  March 31** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                 | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                 | ** ** | **(millions)**                                  | ** ** |
|                                       |       |                                            |       |   |   |
| Net income                                 |       | $                                               | 10.5       |   | $ | 2.0 |   |
| Interest expense                           |       | 22.3                                            |       | 30.2 |   |
| Interest income                            |       | (0.6                                            | )          | (0.6 | ) |
| Income tax  provision                      |       | 1.2                                             |       | 1.2 |   |
| Depreciation,  amortization, and depletion |       | 40.4                                            |       | 36.7 |   |
| EBITDA                                     | ** ** | **$**                                           | **73.9**   | ** ** | **$** | **69.4** | ** ** |

 

***17.******          Commitments andGuarantees***

*Commitments*

We have commitments for fiber, leases, and long-termdebt that are discussed further in Note 1, Summary of SignificantAccounting Policies; Note 7, Leases; and Note 13, Debt, of the Notesto Consolidated Financial Statements in “Item 8.  Consolidated Statements” in our 2006 AnnualReport on Form 10-K. In addition we have purchase obligations forgoods and services, capital expenditures, and raw materials entered into in thenormal course of business. At March 31, 2007, there have been no materialchanges to our commitments.

# *Guarantees*

We provideguarantees, indemnifications, and assurances to others, which constituteguarantees as defined under FIN No. 45, *Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others*. Note 19,Commitments and Guarantees, of the Notes to Consolidated Financial Statementsin “Item 8.  Consolidated FinancialStatements” in our 2006 Annual Report on 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. There have been no material changes tothe guarantees disclosed in our 2006 Annual Report on Form 10-K.

***18.******         ******Consolidating Guarantor and Nonguarantor Financial Information***

The followingconsolidating financial information presents the Statements of Income (Loss),Balance Sheets, and Cash Flows related to our business. The senior notes areguaranteed on a senior basis, and the senior subordinated notes are guaranteedon a senior subordinated basis, in each case jointly and severally by Boise andeach of its existing and future subsidiaries (other than the co-issuers,Boise LLC and Boise Cascade Finance Corporation). The nonguarantorsinclude our foreign subsidiaries and Birch Creek. Other than the consolidatedfinancial statements and footnotes for Boise Cascade Holdings, L.L.C., financialstatements and other disclosures concerning the guarantors have not beenpresented because management believes that such information is not material toinvestors.

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

**ConsolidatingStatements of Income (Loss)**

**Forthe Three Months Ended March 31, 2007**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                                                            | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                               | 1,156,357  |             | $          | 6,816            |       | $ | — |   | $ | 1,163,173 |   |
| Intercompany                                                                         |       | —                                          |       | 855                         |       | —                      |       | 22,640                          |       | (23,495          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 157,795                     |       | —                          |       | —           |       | 157,795          |       |
|                                                                                 |       | —                                          |       | 855                         |       | 1,314,152                   |       | 29,456                          |       | (23,495          | )          | 1,320,968        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| **Costs  and expenses**                                                              | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 418                         |       | 1,151,658                   |       | 19,426                          |       | (14,603          | )          | 1,156,899        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 906                         |       | 38,394                      |       | 1,060                           |       | —           |       | 40,360           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                      |       | 67,725                      |       | 683                             |       | —           |       | 68,408           |       |
| General and  administrative expenses                                            |       | —                                          |       | 6,858                       |       | 20,912                      |       | 617                             |       | (8,892           | )          | 19,495           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | 405                         |       | 1,333                       |       | 808                             |       | —           |       | 2,546            |       |
|                                                                                 |       | —                                          |       | 8,587                       |       | 1,280,022                   |       | 22,594                          |       | (23,495          | )          | 1,287,708        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (7,732                      | )          | 34,130                      |       | 6,862                           |       | —           |       | 33,260           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | 1,570                       |       | 83                          |       | (1,411                          | )          | —           |       | 242              |       |
| Interest expense                                                                     |       | —                                          |       | (20,677                     | )          | —                      |       | (1,666                          | )          | —           |       | (22,343          | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (127                        | )          | —                      |       | (4,892                          | )          | 5,019            |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 540                         |       | 42                          |       | 19                              |       | —           |       | 601              |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 15                          |       | 5,004                       |       | —                          |       | (5,019           | )          | —           |       |
|                                                                                 |       | —                                          |       | (18,679                     | )          | 5,129                       |       | (7,950                          | )          | —           |       | (21,500          | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (26,411                     | )          | 39,259                      |       | (1,088                          | )          | —           |       | 11,760           |       |
| Income tax  provision                                                                |       | —                                          |       | (496                        | )          | (727                        | )          | —                          |       | —           |       | (1,223           | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (26,907                     | )          | 38,532                      |       | (1,088                          | )          | —           |       | 10,537           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                            |       |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 10,537                                          |       | 37,444                      |       | —                      |       | —                          |       | (47,981          | )          | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                           | **10,537** | ** **                  | **$**      | **10,537**                  | ** ** | **$**                           | **38,532** | ** **       | **$**      | **(1,088**       | **)**      | **$** | **(47,981** | **)** | **$** | **10,537** | ** ** |

 

19

----

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

**ConsolidatingStatements of Income (Loss)**

**Forthe Three Months Ended March 31, 2006**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| **Sales**                                                                            | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                                 | 1,326,299  |             | $          | 11,199           |       | $ | — |   | $ | 1,337,498 |   |
| Intercompany                                                                         |       | —                                          |       | 856                         |       | 1,233                       |       | 19,689                            |       | (21,778          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 132,765                     |       | —                            |       | —           |       | 132,765          |       |
|                                                                                 |       | —                                          |       | 856                         |       | 1,460,297                   |       | 30,888                            |       | (21,778          | )          | 1,470,263        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs  and expenses**                                                              | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 471                         |       | 1,299,634                   |       | 26,470                            |       | (15,763          | )          | 1,310,812        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 966                         |       | 34,686                      |       | 1,005                             |       | —           |       | 36,657           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                      |       | 70,468                      |       | 609                               |       | —           |       | 71,077           |       |
| General and  administrative expenses                                            |       | —                                          |       | 9,093                       |       | 17,817                      |       | 567                               |       | (6,015           | )          | 21,462           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | (2,062                      | )          | (940                        | )          | 877                               |       | —           |       | (2,125           | )          |
|                                                                                 |       | —                                          |       | 8,468                       |       | 1,421,665                   |       | 29,528                            |       | (21,778          | )          | 1,437,883        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (7,612                      | )          | 38,632                      |       | 1,360                             |       | —           |       | 32,380           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | (742                        | )          | (23                         | )          | 1,144                             |       | —           |       | 379              |       |
| Interest expense                                                                     |       | —                                          |       | (28,169                     | )          | —                      |       | (2,007                            | )          | —           |       | (30,176          | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (109                        | )          | —                      |       | (4,409                            | )          | 4,518            |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 533                         |       | 58                          |       | 13                                |       | —           |       | 604              |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 47                          |       | 4,471                       |       | —                            |       | (4,518           | )          | —           |       |
|                                                                                 |       | —                                          |       | (28,440                     | )          | 4,506                       |       | (5,259                            | )          | —           |       | (29,193          | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (36,052                     | )          | 43,138                      |       | (3,899                            | )          | —           |       | 3,187            |       |
| Income tax  provision                                                                |       | —                                          |       | (2                          | )          | (1,216                      | )          | —                            |       | —           |       | (1,218           | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (36,054                     | )          | 41,922                      |       | (3,899                            | )          | —           |       | 1,969            |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 1,969                                           |       | 38,023                      |       | —                      |       | —                            |       | (39,992          | )          | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                           | **1,969**  | ** **                  | **$**      | **1,969**                   | ** ** | **$**                             | **41,922** | ** **       | **$**      | **(3,899**       | **)**      | **$** | **(39,992** | **)** | **$** | **1,969** | ** ** |

 

20

----

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

**ConsolidatingBalance Sheets at March 31, 2007**
| ** **                    | ** ** | **Boise**       | ** **  | ** **   | ** ** | ** **       | ** ** | ** **       | ** **    | ** **       | ** ** | ** **       | ** ** |
|-------------------------------|------------|-----------------|-------------|--------------|------------|------------------|------------|------------------|---------------|------------------|------------|------------------|------------|
| ** **                    | ** ** | **Cascade**     | ** **  | ** **   | ** ** | ** **       | ** ** | ** **       | ** **    | ** **       | ** ** | ** **       | ** ** |
| ** **                    | ** ** | **Holdings,**   | ** **  | **Boise**    | ** ** | ** **       | ** ** | **Non-**         | ** **    | ** **       | ** ** | ** **       | ** ** |
| ** **                    | ** ** | **L.L.C.**      | ** **  | **Cascade,** | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** **    | ** **       | ** ** | ** **       | ** ** |
| ** **                    | ** ** | **(Parent)**    | ** **  | **L.L.C.**   | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                    | ** ** | **(thousands)** | ** **  |
| **ASSETS**                    |       |            |        |         |       |             |       |             |          |             |       |             |       |
| ** **                    |       |            |        |         |       |             |       |             |          |             |       |             |       |
| **Current**                   |       |            |        |         |       |             |       |             |          |             |       |             |       |
| Cash and cash  equivalents    |       | $               | 2           |         | $          | 64,586           |       | $                | 29            |             | $          | 1,559            |       | $ | — |   | $ | 66,176 |   |
| Receivables                   |       |            |        |         |       |             |       |             |          |             |       |             |       |
| Trade, less allowances        |       | —          |        | —       |       | 9,015            |       | 370,439          |          | —           |       | 379,454          |       |
| Intercompany                  |       | —          |        | —       |       | 1,204            |       | 1,033            |          | (2,237           | )          | —           |       |
| Related parties               |       | —          |        | 697          |       | 5,036            |       | 38,401           |          | —           |       | 44,134           |       |
| Other                         |       | —          |        | 890          |       | 15,244           |       | 602              |          | —           |       | 16,736           |       |
| Inventories                   |       | —          |        | 12           |       | 642,703          |       | 15,339           |          | —           |       | 658,054          |       |
| Other                         |       | —          |        | 9,681        |       | 1,497            |       | 592              |          | —           |       | 11,770           |       |
|                          |       | 2               |        | 75,866       |       | 674,728          |       | 427,965          |          | (2,237           | )          | 1,176,324        |       |
| ** **                    |       |            |        |         |       |             |       |             |          |             |       |             |       |
| **Property**                  |       |            |        |         |       |             |       |             |          |             |       |             |       |
| Property and equipment,  net  |       | —          |        | 9,323        |       | 1,427,874        |       | 31,080           |          | —           |       | 1,468,277        |       |
| Fiber farms and  deposits     |       | —          |        | —       |       | 26,204           |       | 13,838           |          | —           |       | 40,042           |       |
|                          |       | —          |        | 9,323        |       | 1,454,078        |       | 44,918           |          | —           |       | 1,508,319        |       |
| ** **                    |       |            |        |         |       |             |       |             |          |             |       |             |       |
| **Deferred financing costs**  |       | —          |        | 29,655       |       | —           |       | 275              |          | —           |       | 29,930           |       |
| **Goodwill**                  |       | —          |        | —       |       | 21,846           |       | —           |          | —           |       | 21,846           |       |
| **Intangible assets, net**    |       | —          |        | —       |       | 36,376           |       | —           |          | —           |       | 36,376           |       |
| **Investments in affiliates** |       | 856,099         |        | 722,911      |       | —           |       | —           |          | (1,579,010       | )          | —           |       |
| **Other assets**              |       | —          |        | 8,203        |       | 13,843           |       | 2,686            |          | —           |       | 24,732           |       |
| **Total assets**              | ** ** | **$**           | **856,101** | ** **   | **$**      | **845,958**      | ** ** | **$**            | **2,200,871** | ** **       | **$**      | **475,844**      | ** ** | **$** | **(1,581,247** | **)** | **$** | **2,797,527** | ** ** |

 

21

----

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at March 31, 2007 (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                                       |       | $                                               | —      |                        | $          | 25,542                      |       | $                                 | 345,268       |             | $          | 5,505            |       | $ | — |   | $ | 376,315 |   |
| Intercompany                                |       | —                                          |        | —                      |       | 1,033                       |       | 1,204                             |          | (2,237           | )          | —           |       |
| Accrued  liabilities                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Compensation and  benefits                  |       | —                                          |        | 26,066                      |       | 48,269                      |       | 654                               |          | —           |       | 74,989           |       |
| Interest payable                            |       | —                                          |        | 18,122                      |       | —                      |       | 563                               |          | —           |       | 18,685           |       |
| Other                                       |       | —                                          |        | 4,989                       |       | 30,353                      |       | 4,012                             |          | —           |       | 39,354           |       |
|                                        |       | —                                          |        | 74,719                      |       | 424,923                     |       | 11,938                            |          | (2,237           | )          | 509,343          |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Debt**                                    |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Long-term debt                              |       | —                                          |        | 1,188,900                   |       | —                      |       | 85,000                            |          | —           |       | 1,273,900        |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Other**                                   |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Compensation and  benefits                  |       | —                                          |        | 118,605                     |       | —                      |       | —                            |          | —           |       | 118,605          |       |
| Other long-term  liabilities                |       | —                                          |        | 23,925                      |       | 15,653                      |       | —                            |          | —           |       | 39,578           |       |
|                                        |       | —                                          |        | 142,530                     |       | 15,653                      |       | —                            |          | —           |       | 158,183          |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Due to  (from) affiliates**               |       | —                                          |        | (1,416,290                  | )          | 1,119,496                   |       | 296,794                           |          | —           |       | —           |       |
| ** **                                  |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Redeemable  equity units**                |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Series B  equity units                 |       | 17,422                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 17,422           |       |
| Series C  equity units                 |       | 7,256                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 7,256            |       |
| Redeemable  equity units                    |       | —                                          |        | 24,678                      |       | —                      |       | —                            |          | (24,678          | )          | —           |       |
|                                        |       | 24,678                                          |        | 24,678                      |       | —                      |       | —                            |          | (24,678          | )          | 24,678           |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Commitments  and contingent liabilities** |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| ** **                                  |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Capital**                                 |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Series A equity  units                      |       | 73,975                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 73,975           |       |
| Series B equity  units                      |       | 744,614                                         |        | —                      |       | —                      |       | —                            |          | —           |       | 744,614          |       |
| Series C equity  units                      |       | 12,834                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 12,834           |       |
| Subsidiary  equity                          |       | —                                          |        | 831,421                     |       | 640,799                     |       | 82,112                            |          | (1,554,332       | )          | —           |       |
| **Total  capital**                          |       | 831,423                                         |        | 831,421                     |       | 640,799                     |       | 82,112                            |          | (1,554,332       | )          | 831,423          |       |
| **Total  liabilities and capital**          | ** ** | **$**                                           | **856,101** | ** **                  | **$**      | **845,958**                 | ** ** | **$**                             | **2,200,871** | ** **       | **$**      | **475,844**      | ** ** | **$** | **(1,581,247** | **)** | **$** | **2,797,527** | ** ** |

 

22

----

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

 

23

----

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

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Three Months ended March 31, 2007**
| ** **                                                                       | ** ** | **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)                                                               |       | $                                               | 10,537     |                              | $          | 10,537                      |       | $                                 | 38,532     |             | $          | (1,088           | )          | $ | (47,981 | ) | $ | 10,537 |   |
| Items in net  income (loss) not using (providing) cash                           |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Equity in net (income)  loss of affiliates                                       |       | (10,537                                         | )          | (37,444                           | )          | —                      |       | —                            |       | 47,981           |       | —           |       |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | —                                          |       | 586                               |       | 38,394                      |       | 1,104                             |       | —           |       | 40,084           |       |
| Related-party  interest expense                                                  |       | —                                          |       | 127                               |       | —                      |       | 4,892                             |       | (5,019           | )          | —           |       |
| Related-party  interest income                                                   |       | —                                          |       | (15                               | )          | (5,004                      | )          | —                            |       | 5,019            |       | —           |       |
| Deferred income  taxes                                                           |       | —                                          |       | 472                               |       | 21                          |       | —                            |       | —           |       | 493              |       |
| Pension and  other postretirement benefit expense                                |       | —                                          |       | 6,066                             |       | —                      |       | —                            |       | —           |       | 6,066            |       |
| Management  equity units expense                                            |       | —                                          |       | 822                               |       | —                      |       | —                            |       | —           |       | 822              |       |
| Other                                                                            |       | —                                          |       | (1,571                            | )          | 1,293                       |       | 1,471                             |       | —           |       | 1,193            |       |
| Decrease  (increase) in working capital, net of acquisitions                     |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                      |       | —                                          |       | (3,205                            | )          | (6,707                      | )          | (46,750                           | )          | —           |       | (56,662          | )          |
| Inventories                                                                      |       | —                                          |       | 5                                 |       | (20,209                     | )          | (105                              | )          | —           |       | (20,309          | )          |
| Prepaid expenses                                                                 |       | —                                          |       | (581                              | )          | 4,761                       |       | 54                                |       | —           |       | 4,234            |       |
| Accounts payable  and accrued liabilities                                   |       | —                                          |       | 1,979                             |       | 18,771                      |       | (1,284                            | )          | —           |       | 19,466           |       |
| Pension and  other postretirement benefit payments                               |       | —                                          |       | (339                              | )          | —                      |       | —                            |       | —           |       | (339             | )          |
| Current and  deferred income taxes                                               |       | —                                          |       | 304                               |       | 467                         |       | —                            |       | —           |       | 771              |       |
| Other                                                                            |       | —                                          |       | 2,255                             |       | 2,139                       |       | 3                                 |       | —           |       | 4,397            |       |
| Cash provided by  (used for) operations                                          |       | —                                          |       | (20,002                           | )          | 72,458                      |       | (41,703                           | )          | —           |       | 10,753           |       |
| ** **                                                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Expenditures for  property and equipment                                    |       | —                                          |       | (1,483                            | )          | (44,972                     | )          | (787                              | )          | —           |       | (47,242          | )          |
| Sales of assets                                                                  |       | —                                          |       | 2                                 |       | 3,375                       |       | 7                                 |       | —           |       | 3,384            |       |
| Investments in  affiliates                                                       |       | 2,855                                           |       | 37,344                            |       | —                      |       | —                            |       | (40,199          | )          | —           |       |
| Other                                                                            |       | —                                          |       | 1,587                             |       | (167                        | )          | (1,254                            | )          | —           |       | 166              |       |
| Cash provided by  (used for) investment                                     |       | 2,855                                           |       | 37,450                            |       | (41,764                     | )          | (2,034                            | )          | (40,199          | )          | (43,692          | )          |
| ** **                                                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Issuances of  long-term debt                                                     |       | —                                          |       | —                            |       | —                      |       | 100,000                           |       | —           |       | 100,000          |       |
| Payments of  long-term debt                                                      |       | —                                          |       | —                            |       | —                      |       | (40,000                           | )          | —           |       | (40,000          | )          |
| Tax  distributions to members                                                    |       | (2,753                                          | )          | —                            |       | —                      |       | —                            |       | —           |       | (2,753           | )          |
| Tax distribution  to Boise Cascade Holdings, L.L.C.                              |       | —                                          |       | (2,753                            | )          | —                      |       | —                            |       | 2,753            |       | —           |       |
| Other                                                                            |       | (100                                            | )          | (3,301                            | )          | —                      |       | —                            |       | 100              |       | (3,301           | )          |
| Cash provided by  (used for) financing                                      |       | (2,853                                          | )          | (6,054                            | )          | —                      |       | 60,000                            |       | 2,853            |       | 53,946           |       |
| Due to (from)  affiliates                                                        |       | —                                          |       | 10,230                            |       | (30,697                     | )          | (16,879                           | )          | 37,346           |       | —           |       |
| ** **                                                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Increase  (decrease) in cash and cash equivalents**                       |       | 2                                               |       | 21,624                            |       | (3                          | )          | (616                              | )          | —           |       | 21,007           |       |
| **Balance  at beginning of the year**                                            |       | —                                          |       | 42,962                            |       | 32                          |       | 2,175                             |       | —           |       | 45,169           |       |
| **Balance  at end of the year**                                                  | ** ** | **$**                                           | **2**      | ** **                        | **$**      | **64,586**                  | ** ** | **$**                             | **29**     | ** **       | **$**      | **1,559**        | ** ** | **$** | **—** | ** ** | **$** | **66,176** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Three Months Ended March 31, 2006**
| ** **                                                                       | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                       | ** ** | **(thousands)**                                 | ** ** |
| **Cash  provided by (used for) operations**                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Net income  (loss)                                                               |       | $                                               | 1,969      |                              | $          | 1,969                       |       | $                                 | 41,922     |             | $          | (3,899           | )          | $ | (39,992 | ) | $ | 1,969 |   |
| Items in net  income (loss) not using (providing) cash                           |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Equity in net  (income) loss of affiliates                                       |       | (1,969                                          | )          | (38,023                           | )          | —                      |       | —                            |       | 39,992           |       | —           |       |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | —                                          |       | 2,689                             |       | 34,686                      |       | 1,005                             |       | —           |       | 38,380           |       |
| Related-party  interest expense                                                  |       | —                                          |       | 5,526                             |       | —                      |       | 4,409                             |       | (4,518           | )          | 5,417            |       |
| Related-party  interest income                                                   |       | —                                          |       | (47                               | )          | (4,471                      | )          | —                            |       | 4,518            |       | —           |       |
| Pension and  other postretirement benefit expense                                |       | —                                          |       | 7,417                             |       | —                      |       | —                            |       | —           |       | 7,417            |       |
| Gain on changes  in retiree healthcare programs                                  |       | —                                          |       | (3,741                            | )          | —                      |       | —                            |       | —           |       | (3,741           | )          |
| Management  equity units expense                                            |       | —                                          |       | 934                               |       | —                      |       | —                            |       | —           |       | 934              |       |
| Other                                                                            |       | —                                          |       | 3,315                             |       | 23                          |       | (1,144                            | )          | —           |       | 2,194            |       |
| Decrease  (increase) in working capital, net of acquisitions                     |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                      |       | —                                          |       | (38,373                           | )          | 19,477                      |       | (37,043                           | )          | —           |       | (55,939          | )          |
| Inventories                                                                      |       | —                                          |       | 5,966                             |       | (22,858                     | )          | 851                               |       | —           |       | (16,041          | )          |
| Prepaid expenses                                                                 |       | —                                          |       | (1,406                            | )          | 3,868                       |       | (312                              | )          | —           |       | 2,150            |       |
| Accounts payable  and accrued liabilities                                   |       | —                                          |       | 57,158                            |       | (27,221                     | )          | (3,882                            | )          | —           |       | 26,055           |       |
| Pension and  other postretirement benefit payments                               |       | —                                          |       | (346                              | )          | —                      |       | —                            |       | —           |       | (346             | )          |
| Other                                                                            |       | —                                          |       | 584                               |       | 2,270                       |       | (1                                | )          | —           |       | 2,853            |       |
| Cash provided by  (used for) operations                                          |       | —                                          |       | 3,622                             |       | 47,696                      |       | (40,016                           | )          | —           |       | 11,302           |       |
|                                                                             |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                 |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Expenditures for  property and equipment                                    |       | —                                          |       | (652                              | )          | (35,605                     | )          | (251                              | )          | —           |       | (36,508          | )          |
| Acquisitions of  businesses and facilities                                       |       | —                                          |       | —                            |       | (42,589                     | )          | —                            |       | —           |       | (42,589          | )          |
| Sales of assets                                                                  |       | —                                          |       | 27,249                            |       | —                      |       | —                            |       | —           |       | 27,249           |       |
| Investments in  related parties                                                  |       | 125                                             |       | 38,023                            |       | —                      |       | —                            |       | (38,148          | )          | —           |       |
| Other                                                                            |       | —                                          |       | 13,927                            |       | (19,241                     | )          | 3,920                             |       | —           |       | (1,394           | )          |
| Cash provided by  (used for) investment                                     |       | 125                                             |       | 78,547                            |       | (97,435                     | )          | 3,669                             |       | (38,148          | )          | (53,242          | )          |
|                                                                             |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                       |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| Issuances of  long-term debt                                                     |       | —                                          |       | 30,000                            |       | —                      |       | 120,000                           |       | —           |       | 150,000          |       |
| Payments of  long-term debt                                                      |       | —                                          |       | (57,600                           | )          | —                      |       | —                            |       | —           |       | (57,600          | )          |
| Note payable to  related party, net                                              |       | —                                          |       | (137                              | )          | —                      |       | —                            |       | —           |       | (137             | )          |
| Other                                                                            |       | (125                                            | )          | (1,148                            | )          | —                      |       | 1,000                             |       | 125              |       | (148             | )          |
| Cash provided by  (used for) financing                                      |       | (125                                            | )          | (28,885                           | )          | —                      |       | 121,000                           |       | 125              |       | 92,115           |       |
| Due to (from) affiliates                                                         |       | —                                          |       | (2,408                            | )          | 49,738                      |       | (85,353                           | )          | 38,023           |       | —           |       |
|                                                                             |       |                                            |       |                              |       |                        |       |                              |       |             |       |             |       |
| **Increase  (decrease) in cash and cash equivalents**                       |       | —                                          |       | 50,876                            |       | (1                          | )          | (700                              | )          | —           |       | 50,175           |       |
| **Balance  at beginning of the period**                                          |       | —                                          |       | 85,469                            |       | 34                          |       | 2,668                             |       | —           |       | 88,171           |       |
| **Balance  at end of the period**                                                | ** ** | **$**                                           | **—** | ** **                        | **$**      | **136,345**                 | ** ** | **$**                             | **33**     | ** **       | **$**      | **1,968**        | ** ** | **$** | **—** | ** ** | **$** | **138,346** | ** ** |

 

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***19.******          LegalProceedings and Contingencies***

*LegalProceedings*

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

***ITEM 2.******                                ******MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS***

 

***UnderstandingOur Financial Information***

The following discussion and analysis provides information managementbelieves to be relevant to understanding our financial condition and results ofoperations. For a full understanding of our financial condition and results ofoperations, you should read this discussion along with Management’s Discussionand Analysis of Financial Condition and Results of Operations in our 2006Annual Report on Form 10-K.

This discussion and analysis includes statements regarding our expectationswith respect to our performance, liquidity, and capital resources. Suchstatements, along with any other nonhistorical statements in the discussion,are forward-looking. These forward-looking statements are subject to numerousrisks and uncertainties, including, but not limited, to the risks anduncertainties described in “Item 1A. Risk Factors” of our 2006 Annual Report on Form 10-K, as well asthose factors listed in other documents we file with the Securities andExchange Commission (SEC). There have been no material changes to our riskfactors during the three months ended March 31, 2007, from those listed in our2006 Annual Report on Form 10-K. We do not assume an obligation to update anyforward-looking statement. Our actual results may differ materially from thosecontained in or implied by any of these forward-looking statements.

***Our Segments***

Weoperate our business using five reportable segments:  Building Materials Distribution, WoodProducts, Paper, Packaging & Newsprint, and Corporate and Other. Thesesegments represent distinct businesses that are managed separately because ofdiffering products and services. Each of these businesses requires distinctoperating and marketing strategies. Management reviews the performance of thecompany based on these segments.

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

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

*Paper. *OurPaper segment manufactures and sells uncoated free sheet (including cut-sizeoffice papers, commercial printing paper, envelope papers, and a wide range ofvalue-added papers), market pulp, and containerboard (corrugating medium). Manyof our paper products are commodity products, while others have specializedfeatures that make these products value-added. Our value-added grades 

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include high-bright and colored cut-size office papersand custom-developed specialty papers for such uses as label and release. Wesell to customers both directly from our mills and through distributioncenters. In 2006, approximately 45% of our uncoated free sheet sales volume,including about 80% of our office papers sales volume, was sold to OfficeMax.

*Packaging & Newsprint*.  Our Packaging & Newsprint segmentmanufactures and sells containerboard (linerboard) and newsprint at our mill inDeRidder, Louisiana. We also operate five corrugated container plants in theNorthwest and a sheet feeder plant in Waco, Texas. Our corrugated containersare used in the packaging of fresh fruit and vegetables, processed food,beverages, and other industrial and consumer products. Our Waco plant, known asCentral Texas Corrugated, or CTC, produces corrugated sheets that are sold tosheet plants in the region, where they are converted into corrugated containersfor a variety of customers. Our containerboard and corrugated products are soldby our sales personnel or, in some cases, by brokers. We market our newsprintthrough Abitibi-Consolidated (Abitibi) pursuant to an arrangement wherebyAbitibi purchases all of the newsprint we produce at a price equal to the priceat which Abitibi sells newsprint produced at its mills located in the southernUnited States, less associated expenses and a sales and marketing discount. Thenewsprint price is verified through a third-party review.

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

***Overview of Financial Condition***

*Recent Trends and OperationalOutlook*

Recent trends and the outlook for ourbusinesses are mixed. While housing has experienced a downturn, paper andpackaging markets have been strong.

New residential construction activitycontinued at a slow pace in first quarter 2007 relative to recent years. TheU.S. Department of Commerce reported housing starts at a seasonally adjustedannual rate of 1.52 million units in March 2007, compared with1.97 million units in March 2006 and 1.63 million units in December2006. This reduction in new residential construction activity resulted indecreased demand for the wood and building products that we manufacture andsell. This reduction in demand was met with lower pricing for commodityproducts such as structural panels and structural lumber and lower sales pricesfor and volumes of engineered wood products. These price and demand reductionshave caused some producers to reduce production through curtailment ofoperations or, in some cases, indefinite closure of facilities.

Early in 2007, uncoated free sheet paperprices were generally consistent with fourth quarter 2006 prices. Productionand demand for uncoated free sheet remained relatively balanced during firstquarter 2007. Effective May 2007, we announced a price increase for many of theuncoated grades we produce.

Container markets remained relativelybalanced during the first quarter of 2007, while newsprint demand softened,resulting in pricing pressure.

As a result of solid-wood millcurtailments and some closures, residual chip supply markets in the PacificNorthwest have been very tight in recent quarters. During the latter part ofthe first quarter, supply and demand for chips in the region began to come intobalance, resulting in some pricing moderation. While chip pricing in the regionhas recently improved, the outlook for residual fiber supply in the PacificNorthwest continues to be difficult. These higher wood fiber costs are having asignificant negative impact on our St. Helens, Oregon, pulp and paper mill.Continued weakness in the housing sector may prompt further closures of woodproducts facilities in the region, driving residual fiber supply down furtherand costs up higher. As a result, we may choose to change our operatingconfiguration at that facility, including potentially closing some or all ofthe facility if we cannot operate it profitably. We will continue to evaluateits ongoing financial performance.

During the first quarter, we identifiedperformance issues in recovery boilers at our International Falls, Minnesota,and Wallula, Washington, mills, which resulted in recovery boiler and pulp milldowntime at both of these facilities. This downtime increased maintenancecosts, increased fiber costs (as we purchased fiber from outside sources tomaintain paper production), increased energy costs, and resulted in lost salesopportunities, as we produced less market pulp at our Wallula mill. We estimatethe total 

28

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impact on net income to be approximately$6** **million in first quarter 2007. Wemay incur further costs as we continue to improve the performance of theboilers during our normal maintenance outages in second quarter 2007.

During second quarter 2007, we plan totake the pulp mill and the uncoated free sheet machine at our Wallula papermill down for approximately 30 days to complete the conversion of the uncoatedfree sheet machine to enable it to produce label and release grades as well asits current mix of commodity paper grades. At the same time, we will completelong-term maintenance in our pulp mill and power and recovery areas of thepaper mill. The shutdown is expected to result in approximately 19,000 tons oflost paper production during the second quarter.

***Factors That Affect Our Operating Results***

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

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

·                  Volatility inraw material and energy prices;

·                  Pricingvolatility in our distribution business;

·                  The commoditynature of our products and our ability to maintain margins;

·                  Industry cyclesand capacity utilization rates;

·                  Actions ofsuppliers, customers, and competitors; and

·                  The otherfactors described in “Item 1A. Risk Factors” in our 2006 Annual Report onForm 10-K.

*Commodity and Value-AddedProducts and Product Margins*

Many of theproducts we manufacture and distribute are widely available and can be readilyproduced by our competitors. Because commodity products have few distinguishingqualities from producer to producer, competition for these products isprimarily based on price, which is determined by supply relative to demand.Generally, market conditions beyond our control determine the price for ourcommodity products, and the price for any one or more of these products mayfall below our cash production costs. Therefore, our profitability with respectto these products is highly dependent on managing our cost structure,particularly raw material and energy costs, which also exhibit commoditycharacteristics.

Not all of ourproducts are commodities. Our EWP and specialty papers are differentiated fromcompeting products based on quality and product design as well as relatedcustomer service. In the case of these value-added products, we are generallyable to influence price based on the strength of differentiation and levels ofcustomer service and are generally able to sell these products at highermargins than our commodity products. In order to reduce our sensitivity to thecyclicality of our industry, a fundamental component of our strategy is toincrease production of EWP as a share of our total Wood Products segment salesand increase specialty and premium papers as a percent of our total Papersegment sales. We believe these products are less susceptible to commoditydynamics.

Comparing firstquarter 2007 with first quarter 2006, sales of EWP from our Wood Productssegment decreased from approximately 48% of segment sales in 2006 to 43% ofsales in 2007. The increase in EWP production capacity that we implemented in2005 has positioned us to continue to grow this business; however, the recentslowdown in new residential construction resulted in reductions in our EWPsales in the short term. In our Paper segment, sales of specialty and premiumpapers increased from approximately 32% of uncoated free sheet tons sold duringfirst quarter 2006 to 34% of uncoated free sheet tons sold during the sameperiod in 2007. The announced project to convert our Wallula, Washington,W-3 paper machine to enable it to produce pressure sensitive grades is akey step in 

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providing us with thecapacity to increase production of specialty and premium paper grades. Weanticipate that this project will come on line during second quarter 2007.

*Demand*

The overall levelof demand for the products we make and distribute is affected by, among otherthings, construction activity, manufacturing activity, employment, and consumerspending. Accordingly, we believe that our financial results depend in largepart on general macroeconomic conditions in North America, as well as onregional economic conditions in the geographic markets in which we operate.While no single product line drives our overall financial performance,individual product lines are influenced by conditions in their respectiveindustries. For example:

·                  Demand forbuilding materials, including wood products, depends on new residential andlight commercial construction and residential repair-and-remodeling activity,which are affected by demographic trends, interest rate levels, weather, andgeneral economic conditions. In recent years, demand for wood products has beenhigh due to strong new housing starts, the increasing size of new homes, arobust repair-and-remodeling market, and a recovering light commercialconstruction market. However, during the second half of 2006, there was asignificant increase in the number of homes for sale relative to the monthlysales activity. This has led to a drop in new home construction activity,resulting in significant price declines for many commodity products. Forexample, our Wood Products sales prices for plywood were 12% lower in firstquarter 2007, compared with the same period in 2006. This trend in reducedconstruction activity continued into first quarter 2007 and continued to reducedemand for our products. For example, the sales volumes of LVL and I-joists byour Wood Products segment during first quarter 2007 were down 23% and 20%,respectively, from the same period of 2006.

·                  Historically,demand for uncoated free sheet correlated positively with general economicactivity. However, demand for some communications paper grades such as cut-sizepaper, which we produce, has decreased as the use of electronic transmissionand document storage alternatives has become more widespread and moreefficient.

·                  A largeshare of the demand for corrugated containers, and therefore containerboard, isdriven by manufacturing, specifically the manufacture of nondurable goods. Inaddition, inventory stocking or liquidation of these goods has an impact, as docurrency exchange rates that affect the cost-competitiveness of foreignmanufacturers. Demand continues to be negatively affected by the offshoring ofdurable and nondurable goods manufacturing, as those products are then packagedabroad rather than in North America. U.S. exports of containerboard have alsobeen affected by the large increase of containerboard capacity, especially inChina and Europe, over the past several years.

·                  Demand fornewsprint depends upon prevailing levels of newspaper advertising andcirculation. Demand for newsprint in North America declined approximately 14%between 2002 and 2006, according to Resource Information Systems, Inc. (RISI),due in part to the growth of online media as well as substitution with uncoatedgroundwood grades.

*Supply*

Industry supply ofcommodity wood products and paper is affected by the number of operational oridled facilities, the building of new capacity, and the shutting down ofexisting capacity. 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. Because ofrelatively lower capital investments, lower shutdown and start-up costs, andthe ability in most facilities to reduce production economically by curtailingshifts, wood products manufacturing producers tend to react more quickly tooversupply situations by removing shifts or curtailing facilities than pulp andpaper manufacturers. For example, during the third and fourth quarters of 2006,as structural panel prices fell dramatically, a number of our competitorsreduced shifts or shut down facilities entirely in response to dramaticallyreduced margins. We also curtailed some operations.

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 

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may prompt manufacturersto initiate expansion projects. Currently, a number of OSB producers arestarting up or building new capacity. In some applications, OSB is a competingproduct for plywood, which we produce. These projects were announced during theperiod of high residential construction activity that was witnessed in recentyears. This increase in supply, coupled with dramatically lower demand asconstruction has slowed, has had a negative impact on the price of allstructural panel products, including plywood. Some major OSB producers haveannounced indefinite shutdowns of existing facilities in the face of decliningprices, and others have announced delays in previously announced capacityadditions. A number of OSB producers have announced the intention to produce astrand lumber product that is intended to be a substitute for EWP in someapplications. Their ability to produce such a product and its impact on the EWPmarket is uncertain.

In 2005, faced with declining demand, rising costs (especially energycosts), ongoing dissatisfaction with financial performance, and in the case ofsome Canadian producers, a declining U.S. dollar, several North American paperproducers announced mill closures that decreased or will decrease supply. From2002 to 2006, North American uncoated free sheet, containerboard, and newsprintcapacities declined 6%, 3%, and 19%, respectively, according to RISI. Inaddition, some suppliers have recently announced either modifications to papermachines to move capacity to other grades or shutdowns of paper machines andpaper mills.

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

*Operating Costs*

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

*Labor.*  Ourlabor costs tend to increase steadily due to inflation in healthcare and wagecosts. Labor costs are not as volatile as our energy and wood fiber costs.

As of March 31, 2007, we had10,060 employees. Approximately 4,800, or 48%, of these employees workpursuant to collective bargaining agreements. OurJackson, Alabama, paper mill contract that covers approximately370 workers expired in August 2006, and our contract at ourSt. Jacques, New Brunswick, Canada, I-joist plant that coversapproximately 140 workers expired December 31, 2006. The contractsremain in place pending further negotiations. In April 2007, the unions at ourpaper mill in International Falls, Minnesota, ratified a new, four-year agreement.We are currently in negotiations for a new contract at our plywood and veneerfacility in Brazil. The agreement at our Nampa, Idaho, container plant expiresin second quarter 2007, and the agreement at our Wallula, Washington, containerplant expires in fourth quarter 2007. We do not expect material workinterruptions or increases in our costs during the course of the negotiationswith our collective bargaining units. Nevertheless, if our expectations are notaccurate, we could experience a material labor disruption or significantlyincreased labor costs at one or more of our facilities, any of which couldprevent us from meeting customer demand or reduce our sales and profitability.

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

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|                            | ** ** | **Three Months  Ended March 31** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
|                       |       |                                            |       |   |   |
| Wood Products              |       | 43                                              | %          | 41 | % |
| Paper                      |       | 28                                              | %          | 25 | % |
| Packaging &  Newsprint |       | 18                                              | %          | 13 | % |

 

Our primarysources of logs and wood fiber are timber and byproducts of timber, such aswood chips, wood shavings, and sawdust. Our wood fiber costs also includepurchases of semi-finished materials such as OSB and lumber for use in EWPproduction as well as purchased market pulp, which is used in paper production.We acquire substantially all of our fiber from outside sources, includingpursuant to long-term supply agreements with Forest Capital Partners. In ourWood Products segment, we convert logs into lumber and veneer, and in turn, weconvert veneer into EWP and plywood. Logs are a lower percentage of the totalcost of materials, labor, and other operating expenses in producing engineeredwood than commodity products such as lumber and plywood. While log costs arestill a significant component of costs, as we continue to produce moreengineered wood relative to commodity products, direct log costs decline as apercentage of the total cost of materials, labor, and other operating expenses.We also convert residual wood fiber from our operations, as well as from thirdparties, into particleboard. In our Paper and Packaging & Newsprintsegments, we convert logs and wood chips into pulp, which we sell or use at ourpaper mills to produce paper. On an aggregate basis, we are generally able toproduce all of our pulp needs, generally purchasing and selling similar amountson the open market. However, the recovery boiler outages at our InternationalFalls and Wallula mills contributed to an increased volume of purchased pulpduring first quarter 2007.

Logs and woodfiber are commodities, and prices for logs and wood fiber have historicallybeen cyclical due to changing levels of demand. Log and fiber supply may belimited by public policy or government regulation as well as fire, insectinfestation, disease, ice storms, windstorms, hurricanes, flooding, otherweather conditions, and other natural and man-made causes. Residual chip supplymay be limited due to reduction in primary manufacturing at sawmills andplywood plants. Declines in log and fiber supply, driven primarily by changesin public policy and government regulation, have been severe enough to causethe closure of numerous facilities in some of the regions in which we operate.During first quarter 2007, we temporarily reduced pulp production at ourSt. Helens, Oregon, pulp and paper mill due to the inability to sourcewood fiber on a cost-effective basis. This resulted in approximately5,000 tons of lost pulp production at St. Helens. Any sustainedundersupply and resulting increase in wood fiber prices could decrease ourproduction volumes and/or increase our operating costs. Prices for our productsmight not reflect increases or decreases in log and wood fiber prices, and as aresult, our operating margins could fluctuate. Market prices for a variety offiber sources, including logs and chips for our Northwest operations and logsfor our Minnesota operations, were high relative to historical standards in thefirst half of 2006. While wood costs came down in Minnesota during the secondhalf of 2006 and into the first quarter of 2007, they are still high byhistorical standards. In the Pacific Northwest, residual chip costs began tocome down later in first quarter 2007 but continue to be high by historicalstandards, and availability continues to be challenging. Because residual fiberin the Pacific Northwest comes predominately from sawmills and plywood plants,curtailments in these mills as a result of decreased demand for these productsrelated to the housing slowdown will continue to impact the availability ofchips for our Northwest pulp and paper operations. Relative to historicalstandards, fiber costs were high in Louisiana in first quarter 2007 due tounusually high and persistent rainfall, which limited access to many harvestareas and limited supply availability.

*Other rawmaterials and energy purchasing and pricing. *We purchase other raw materials and energy used tomanufacture our products in both the open market and through long-termcontracts. These contracts are generally with regional suppliers who agree tosupply all of our needs for a certain raw material or energy at one of ourfacilities. These contracts normally contain minimum purchase requirements andare for terms of various lengths. They also contain price adjustment mechanismsthat take into account changes in market prices. Therefore, although ourlong-term contracts provide us with supplies of raw materials and energy thatare more stable than open-market purchases, in many cases, they may notalleviate fluctuations in market prices.

Our costs will rise if prices for our raw materials or energyrise. Specifically, some of our key chemicals, including pulping and bleachingchemicals consumed in our Paper and Packaging & 

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Newsprint mills and glues and resins consumed in our Wood Productsoperations, are heavily influenced by energy costs. A number of our majorsuppliers have obtained price increases tied to their increased 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. *Energy prices, particularlyfor electricity, natural gas, and fuel oil, have been volatile in recent yearsand currently exceed historical averages. In addition, we have limitedflexibility to switch between fuel sources in the short term; accordingly, wehave significant exposure to natural gas price changes. Energy costsrepresented the following percentages of materials, labor, and other operatingexpenses for our Wood Products, Paper, and Packaging & Newsprintsegments:
|                            | ** ** | **Three Months  Ended March 31** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
|                       |       |                                            |       |   |   |
| Wood Products              |       | 4                                               | %          | 4 | % |
| Paper                      |       | 17                                              | %          | 17 | % |
| Packaging &  Newsprint |       | 15                                              | %          | 16 | % |

 

During January andFebruary 2007, we had derivative instruments related to approximately 90% ofour natural gas purchases, which resulted in approximately $9 million ofhigher energy costs in first quarter 2007 than we would have had if we had nothedged our exposure to changing prices. As of March 31, 2007, we hadentered into derivative instruments related to approximately 10% of ourforecasted natural gas purchases from July 2007 through October 2007.

*Chemicals. *Importantchemicals we use in the production of our products include precipitated calciumcarbonate, sodium chlorate, sodium hydroxide, dyes, resins, and adhesives.Purchases of chemicals represented the following percentages of materials,labor, and other operating expenses for our Wood Products, Paper, andPackaging & Newsprint segments:
|                            | ** ** | **Three Months  Ended March 31** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
|                       |       |                                            |       |   |   |
| Wood Products              |       | 6                                               | %          | 6 | % |
| Paper                      |       | 14                                              | %          | 13 | % |
| Packaging &  Newsprint |       | 4                                               | %          | 5 | % |

 

We have experienced higher chemical costs during first quarter2007 in our Paper segment, compared with the same period in 2006, due in partto increases in energy and transportation costs sustained by our chemicalsuppliers that they have partially passed through to us.

*Inflationaryand seasonal influences. *Otherthan the effects of higher energy costs, which we describe in our 2006 AnnualReport on Form 10-K, we believe inflation has not had a materialeffect on our financial condition or results of operations. However, there canbe no assurance that we will not be affected by inflation in the future.Seasonal changes in levels of building activity affect our building productsbusinesses. We typically have higher sales and working capital in the secondand third quarters because of warmer weather. To a lesser degree, our paperbusinesses also experience some seasonality in their businesses, basedprimarily on buying patterns associated with particular products. For example,the demand for our corrugated containers is influenced by agricultural demandin the Northwest. In addition, seasonally cold weather increases costs,especially energy consumption, at all of our manufacturing facilities.

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# ***Acquisitions***

# ***Forest ProductsAcquisition***

Our operationsbegan on October 29, 2004 (inception), when we acquired the forestproducts and paper assets of OfficeMax (the Forest Products Acquisition). Weaccounted for the Forest Products Acquisition using the purchase method ofaccounting. We allocated the assets acquired and liabilities assumed based ontheir estimated fair values at the acquisition date. Estimated fair values werederived through consideration and application of standard valuation approachesand techniques. The excess of the purchase price over the fair value of assetsacquired and liabilities assumed was allocated to goodwill. For moreinformation, see Note 11, Goodwill and Intangible Assets, of the Notes toConsolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our2006 Annual Report on Form 10-K.

As part of the Forest Products Acquisition, we entered into an AdditionalConsideration Agreement with OfficeMax, pursuant to which we agreed to adjustthe purchase price based on changes in paper prices over the six-year periodfollowing the Forest Products Acquisition. Under the Additional ConsiderationAgreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximumaggregate amount of $125.0 million, in each case net of payments received.After each anniversary of the Forest Products Acquisition, we review paperprices with the provisions of the Additional Consideration Agreement todetermine whether any amounts are owed or receivable under the agreement. Forthe first and second anniversary periods, which ended October 29, 2005 and2006, neither Boise nor OfficeMax owed additional consideration for thepurchase price. Based on the actual market price for the benchmark grade of cut-sizeoffice paper during the first six months of the third anniversary period and ifMarch prices held for the remaining six months, we would owe OfficeMaxapproximately $13 million upon completion of the third anniversary periodunder the Additional Consideration Agreement. Any payments made or receivedpursuant to the Additional Consideration Agreement will be treated asadjustments to the purchase price and, therefore, will not be reported in ourConsolidated Statement of Income but will be included in consolidated earningsbefore interest, taxes, depreciation, and amortization (EBITDA) for purposes ofcertain covenants under our debt agreements. For more information about theAdditional Consideration Agreement, see “Item 13.  Certain Relationships and RelatedTransactions, and Director Independence” of our 2006 Form 10-K.

# *RestructuringActivities*

Inconnection with the Forest Products Acquisition, we evaluated the acquiredfacilities and organizational structure. In accordance with the provisions ofEmerging Issues Task Force (EITF) 95-3, *Recognitionof Liabilities in Connection With a Purchase Business Combination*,exit activities related to the Forest Products Acquisition increased goodwill.We had one year from the acquisition date to finalize our restructuring plansand adjust goodwill.

At March 31,2007, we had approximately $0.4 million of restructuring reserves relatedto severance costs recorded in “Accrued liabilities, Compensation and benefits”on our Consolidated Balance Sheet. The severance costs related to costs forapproximately 350 terminated employees. The remaining reserve relates toseverance payments that will be paid by the end of 2007. Of the$0.4 million remaining restructuring reserve, $0.3 million isrecorded in our Paper segment, and $0.1 million is in Corporate and Other.Restructuring reserve liability account activity related to these charges is asfollows:

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|                                                  | ** ** | **Severance**  | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **(millions)** | ** ** |
|                                             |       |           |       |       |       |       |       |
| 2004  restructuring reserve                      |       | $              | 13.8       |       | $          | 0.5        |       | $ | 14.3 |   |
| Charges against  reserve                         |       | (1.0           | )          | —     |       | (1.0       | )          |
| Restructuring  reserve at December 31, 2004 |       | 12.8           |       | 0.5        |       | 13.3       |       |
|                                             |       |           |       |       |       |       |       |
| Additions to  restructuring reserve              |       | 6.9            |       | 0.2        |       | 7.1        |       |
| Charges against  reserve                         |       | (16.2          | )          | (0.6       | )          | (16.8      | )          |
| Restructuring  reserve at December 31, 2005 |       | 3.5            |       | 0.1        |       | 3.6        |       |
|                                             |       |           |       |       |       |       |       |
| Charges against  reserve                         |       | (2.9           | )          | (0.1       | )          | (3.0       | )          |
| Restructuring  reserve at December 31, 2006 |       | 0.6            |       | —     |       | 0.6        |       |
|                                             |       |           |       |       |       |       |       |
| Charges against  reserve                         |       | (0.2           | )          | —     |       | (0.2       | )          |
| Restructuring  reserve at March 31, 2007    | ** ** | **$**          | **0.4**    | ** ** | **$**      | **—** | ** ** | **$** | **0.4** | ** ** |

 

# ***Central TexasCorrugated Acquisition***

On February 1, 2006, we purchased the assets of Central TexasCorrugated (CTC) in Waco, Texas, for an aggregate purchase price of$43.8 million, including fees and expenses but before working capitaladjustments. In 2006, we paid approximately $42.6 million of cash for theacquisition, which is net of a $2.0 million holdback that is payable infive years. At March 31, 2007, “Other long-term liabilities” on ourConsolidated Balance Sheet included a $1.4 million discounted holdback(including accrued accretion expense). CTC manufactures corrugated sheets thatit sells primarily to regional container plants in Texas, Louisiana, Arkansas,and Mexico. CTC is located close to our mill in DeRidder, Louisiana, whichproduces linerboard used in CTC’s manufacturing processes. During first quarter2007, we produced approximately 138,000 short tons of linerboard in ourPackaging & Newsprint segment, and our Paper segment producedapproximately 32,000 tons of corrugating medium. Our corrugated containersand sheet plants consumed approximately 125,000 tons of containerboard, orthe equivalent of 74% of our containerboard production.

We accounted forthe acquisition using the purchase method of accounting. As a result, thepurchase price was allocated to the tangible and intangible assets acquired andliabilities assumed based on their respective fair values as of the date of theacquisition. For more information, see Note 4, Purchase of Central TexasCorrugated’s Assets, of the Notes to Consolidated Financial Statements in “Item8. Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

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***OurOperating Results***

The followingtables set forth our operating results in dollars and as a percentage of salesfor the three months ended March 31, 2007 and 2006:
|                                                 | ** ** | **Three Months Ended  March 31** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(millions)**                                  | ** ** |
| **Sales**                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Trade                                           |       | $                                               | 1,163.2    |   | $ | 1,337.5 |   |
| Related parties                                 |       | 157.8                                           |       | 132.8 |   |
|                                            |       | 1,321.0                                         |       | 1,470.3 |   |
|                                            |       |                                            |       |   |   |
| **Costs  and expenses**                         | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses |       | 1,156.9                                         |       | 1,310.8 |   |
| Depreciation,  amortization, and depletion      |       | 40.4                                            |       | 36.7 |   |
| Selling and  distribution expenses              |       | 68.4                                            |       | 71.1 |   |
| General and  administrative expenses            |       | 19.5                                            |       | 21.4 |   |
| Other (income)  expense, net                    |       | 2.5                                             |       | (2.1 | ) |
| * *                                        |       | 1,287.7                                         |       | 1,437.9 |   |
| * *                                        | * *   | * *                                        | * *   | * * | * * |
| **Income  from operations**                     | ** ** | **$**                                           | **33.3**   | ** ** | **$** | **32.4** | ** ** |

 
|                                                 | ** ** | **(percentage of sales)** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|
| **Sales**                                       | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Trade                                           |       | 88.1                                | %          | 91.0 | % |
| Related parties                                 |       | 11.9                                |       | 9.0 |   |
|                                            |       | 100.0                               | %          | 100.0 | % |
|                                            |       |                                |       |   |   |
| **Costs  and expenses**                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses |       | 87.6                                | %          | 89.2 | % |
| Depreciation,  amortization, and depletion      |       | 3.0                                 |       | 2.5 |   |
| Selling and  distribution expenses              |       | 5.2                                 |       | 4.8 |   |
| General and  administrative expenses            |       | 1.5                                 |       | 1.5 |   |
| Other (income)  expense, net                    |       | 0.2                                 |       | (0.2 | ) |
|                                            |       | 97.5                                | %          | 97.8 | % |
|                                            |       |                                |       |   |   |
| **Income from operations**                      | ** ** | **2.5**                             | **%**      | **2.2** | **%** |

 

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***Sales Volumes and Prices***

Set forth below are our segment sales volumes and averagenet selling prices for our principal products for the three months endedMarch 31, 2007 and 2006.
|                                      | ** ** | **Three Months  Ended March 31** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **(millions)**                                  | ** ** |
| **Building  Materials Distribution** | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Sales dollars                        |       | $                                               | 608.7      |   | $ | 761.8 |   |
|                                      |            |                                                 |            |  |  |  |  |

 
|                           | ** ** | **(percentage of Building Materials  Distribution sales)** | ** ** |
|---------------------------|------------|--------------------------------------------------------------------------------|------------|
| Product Line  Sales       |       |                                                                           |       |   |   |
| Commodity                 |       | 44                                                                             | %          | 49 | % |
| Engineered wood  products |       | 15                                                                             |       | 15 |   |
| General line items        |       | 41                                                                             |       | 36 |   |

 
|                                             | ** ** | **(millions)** | ** ** |
|---------------------------------------------|------------|----------------|------------|
| **Sales  Volumes**                          | ** ** | ** **     | ** ** | ** ** | ** ** |
| **Wood Products**                           | ** ** | ** **     | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (cubic feet) |       | 3              |       | 4 |   |
| I-joists  (equivalent lineal feet)          |       | 47             |       | 59 |   |
| Plywood (sq.  ft.) (3/8” basis)        |       | 310            |       | 315 |   |
| Lumber (board  feet)                        |       | 56             |       | 74 |   |
| Particleboard (sq. ft.)  (3/4” basis)  |       | 37             |       | 38 |   |

 
|                                          | ** ** | **(thousands of short tons, except  corrugated containers)** | ** ** |
|------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| **Paper**                                | ** ** | ** **                                                                            | ** ** | ** ** | ** ** |
| Uncoated free  sheet                     |       | 380                                                                                   |       | 393 |   |
| Containerboard  (medium)                 |       | 32                                                                                    |       | 33 |   |
| Market pulp                              |       | 23                                                                                    |       | 35 |   |
| ** **                               | ** ** | **435**                                                                               | ** ** | **461** | ** ** |
| ** **                               | ** ** | ** **                                                                            | ** ** | ** ** | ** ** |
| **Packaging &  Newsprint**      | ** ** | ** **                                                                            | ** ** | ** ** | ** ** |
| Containerboard  (linerboard)             |       | 65                                                                                    |       | 76 |   |
| Newsprint                                |       | 107                                                                                   |       | 101 |   |
| Corrugated containers  and sheets (mmsf) |       | 1,634                                                                                 |       | 1,504 |   |

 
|                                                  | ** ** | **(dollars per unit)** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| **Average  Net Selling Prices**                  | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Wood  Products**                               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (100 cubic feet)  |       | $                                | 1,749      |   | $ | 1,902 |   |
| I-joists (1,000  equivalent lineal feet)         |       | 1,044                            |       | 1,097 |   |
| Plywood (1,000  sq. ft.) (3/8” basis)       |       | 244                              |       | 278 |   |
| Lumber (1,000  board feet)                       |       | 448                              |       | 509 |   |
| Particleboard (1,000  sq. ft.) (3/4” basis) |       | 321                              |       | 272 |   |
|                                                  |            |                                  |            |  |  |  |  |

 
|                                           | ** ** | **(dollars per short ton, except  corrugated containers and sheets)** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| **Paper**                                 | ** ** | ** **                                                                                               | ** ** | ** ** | ** ** |
| Uncoated free  sheet                      |       | $                                                                                                        | 846        |   | $ | 747 |   |
| Containerboard  (medium)                  |       | 423                                                                                                      |       | 343 |   |
| Market pulp                               |       | 516                                                                                                      |       | 386 |   |
| ** **                                | ** ** | ** **                                                                                               | ** ** | ** ** | ** ** |
| **Packaging &  Newsprint**       | ** ** | ** **                                                                                               | ** ** | ** ** | ** ** |
| Containerboard  (linerboard)              |       | $                                                                                                        | 375        |   | $ | 318 |   |
| Newsprint                                 |       | 524                                                                                                      |       | 529 |   |
| Corrugated containers  and sheets ($/msf) |       | 51                                                                                                       |       | 47 |   |

 

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***OperatingResults***

# **Sales**

For the threemonths ended March 31, 2007, total sales decreased $149.3 million, or 10%, to $1.3 billion from$1.5 billion during the three months ended March 31, 2006. The decrease was primarily driven byreduced sales prices and sales volumes in our Building Materials Distributionand Wood Products segments offset, in part, by increased sales prices in ourPaper and Packaging & Newsprint segments.

*Building Materials Distribution.*  Sales decreased$153.1 million, or 20%, to $608.7 million for the three months ended March 31, 2007, from$761.8 million for the three months ended March 31, 2006. Thereduction in sales was the result of lower sales volumes and sales prices,which were down 11% and 10%, respectively, as residential construction marketscontinued to be relatively weak.

*WoodProducts.* Sales decreased $58.7 million, or 19%,to $253.9 million for thethree months ended March 31, 2007, from $312.6 million for the threemonths ended March 31, 2006. The decreasewas driven by lower sales prices in all products except particleboard and lowersales volumes in all products. Sales volumes for LVL, I-joists, plywood, lumber andparticleboard were down 23%, 20%, 2%, 24% and 1%, respectively.  Sales prices for LVL and I-joists were down8% and 5%, and sales prices for plywood and lumber were both down 12%, whileparticleboard sales prices increased 18%. The price and volume decreases wereprimarily the result of continued weakness in residential construction markets.

*Paper.*  Sales increased $24.6 million, or 7%, to $395.0 million for the three months endedMarch 31, 2007, from $370.4 million for the three months endedMarch 31, 2006. Price increaseswere driven by continued firm demand coupled with stable production capacity.Commodity sales prices were up 17%, and specialty and premium sales pricesincreased 6%. Market pulp prices were up 34%; however, our pulp sales volumesdeclined 32%, due primarily to downtime taken at our St. Helens and Wallulamills.

*Packaging & Newsprint. *Sales increased $15.2 million, or 8%, to$194.0 million for thethree months ended March 31, 2007, from $178.8 million for the threemonths ended March 31, 2006. The increase was driven by increased corrugated container and sheetvolumes and prices and increased linerboard prices, as demand continued to bestrong and capacity remained stable. First quarter 2007 includes CTC sales forthe entire period, while the comparable period in 2006 included CTC sales foronly a portion of the quarter. These increases were offset, in part, by lowernewsprint prices, as demand continued to decline and capacity remained stable,resulting in reduced prices.

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

Materials, labor, andother operating expenses decreased $153.9 million,or 12%, to $1.2 billion forthe three months ended March 31, 2007,****comparedwith $1.3 billion during the same period in the prior year. The decrease was driven by lower pricesfor materials purchased by our Building Materials Distribution segment forresale, lower chemical and energy costs in our Packaging & Newsprintsegment, and lower fiber costs in Wood Products. Offsettingthese decreases were higher fiber and chemical costs in our Paper segment andhigher fiber costs in Packaging & Newsprint.

Depreciation,amortization, and depletion expenses increased $3.7 million, or 10%, to $40.4 million for the three months endedMarch 31, 2007, compared with $36.7 million for the same period inthe prior year. As a percentage of sales, these costs increased to 3.0% in 2007 from 2.5% in 2006. The increase was primarily the result of our reviewingthe estimated useful lives of some of our depreciable assets and determiningthat some of our assets would be used for a shorter period of time than thedepreciable lives previously assigned to them. As a result, we revised ourdepreciation estimates to reflect the remaining expected use of the assets.

Selling anddistribution expenses decreased $2.7 million,or 4%, to $68.4 million forthe three months ended March 31, 2007, compared with $71.1 millionfor the same period in the prior year. First quarter 2006 included a$2.3 million write-off of bad debt related to the bankruptcy of acustomer.

General andadministrative expenses decreased $1.9 million,or 9%, to $19.5 million forthe three months ended March 31, 2007, compared with $21.4 millionfor the same period in the prior year. 

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Relative to the threemonths ended March 31, 2006, the decrease related primarily to lowerpayroll and benefit costs and training expenditures, offset in part by higherlease costs.

Other (income)expense, net, was $2.5 million of expense for the three months endedMarch 31, 2007, compared with $2.1 million of income for the sameperiod in the prior year. Other (income) expense, net, for the three monthsended March 31, 2007, primarily included $1.3 million of expenserelated to the closure of our converting facility in Salem, Oregon (which weexpect to close by the end of third quarter 2007) and $1.0 million ofexpense related to the net loss on sales of assets. For the three months endedMarch 31, 2006, other (income) expense, net, primarily included$3.7 million of income for changes in our retiree healthcare programs,partially offset by $1.6 million of expense for the loss on the sale of ourheadquarters building.

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

Income from operations increased $0.9 million, or 3%, to $33.3 million for the three months endedMarch 31, 2007, from $32.4 million in the same period a year ago. Theincrease was primarily the result of higher income in our Paper andPackaging & Newsprint segments offset, in part, by lower income inBuilding Materials Distribution and Wood Products.

*BuildingMaterials Distribution.* Segment income decreased $8.1 million, or 44%, to$10.5 million for the threemonths ended March 31, 2007, from $18.6 million for the three monthsended March 31, 2006. The decrease was driven by lower commodity and EWPprices and lower overall sales volumes, reflecting softer residentialconstruction markets. These decreases were offset, in part, by lower prices formaterials purchased and lower operating costs.

*WoodProducts. *Segment income decreased $15.1 million, or 80%, to$3.7 million for the threemonths ended March 31, 2007,compared with $18.8 million for the three months ended March 31,2006. The decrease was drivenby lower sales prices and volumes of EWP and lower lumber and plywood pricescoupled with higher conversion costs, partially offset by higher particleboardprices and lower wood fiber costs.

*Paper.*  Segmentincome increased $17.2 millionto $18.0 million for thethree months ended March 31, 2007, compared with $0.8 million ofincome for the three months ended March 31, 2006. The increase was drivenprimarily by improved prices that were partially offset by higher fiber,chemical, and energy costs.

*Packaging &Newsprint. *Segment income increased $7.2 million to$8.1 million for the threemonths ended March 31, 2007,compared with $0.9 million for the three months endedMarch 31, 2006. The increase wasdriven by improved pricing in the packaging business (linerboard and corrugatedcontainers and sheets) and increased container and sheet sales volumes and lowerenergy and chemical costs offset, in part, by lower linerboard sales volumes, higherfiber costs, and lower newsprint prices.

*Other*

*Interest expense. *For thethree months ended March 31, 2007, interest expense was$22.3 million, compared with $30.2 million in the same period a yearago. The decrease in interest expense is primarily attributable to a $460.4 milliondecrease in long-term debt. At March 31, 2007, our long-term debt was$1.3 billion, compared with $1.7 billion in the prior year. Thedecrease in long-term debt is primarily attributable to repaying the notepayable to a related entity, Boise Land & Timber Corp., paying downthe Tranche D term loan, and borrowings secured by receivables. For moreinformation, see “Financing Activities” under Liquidity and Capital Resourcesin this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

*Incometax provision.*  Incometax expense was $1.2 million for the three months ended March 31,2007 and 2006.

***Liquidity and Capital Resources***

We believe thatfunds generated from operations and available borrowing capacity will be adequateto fund debt service requirements, capital expenditures, and working capitalrequirements for 

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the next 12 months. Ourability to continue to fund these items may be affected by general economic,financial, competitive, legislative, and regulatory factors.

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

***OperatingActivities***

We operate in a cyclical industry, and our operating cash flows varyaccordingly. Our principal operating cash expenditures are for purchasedinventories, compensation, fiber, energy, and interest. For the three monthsended March 31, 2007 and 2006, our operating activities provided$10.8 million and $11.3 million of cash. Relative to 2006, thedecrease in cash provided by operations relates primarily to changes in working capital.Unfavorable changes in working capital used $53.3 million of cash fromoperations. Working capital is subject to cyclical operating needs, the timingof the collection of receivables, the payment of payables and expenses, and toa lesser extent, seasonal fluctuations in our operations. In first quarter2007, the increase in working capital was primarily attributable to higherreceivables in Building Materials Distribution and, to a lesser extent,increased inventory levels in that segment. These increases were partiallyoffset by higher overall accounts payable and accrued liabilities. Higher receivablesin Building Materials Distribution reflect increased sales of approximately34%, comparing March 2007 sales with December 2006 sales. The increase ininventories primarily reflects seasonal inventory changes. Partially offsettingthe unfavorable change in working capital was higher net income reported duringthe three months ended March 31, 2007. As discussed under “Operating Results”above, the first quarter 2007 increase in income was primarily the result ofhigher segment income in our Paper and Packaging & Newsprint segments,which was driven primarily by favorable uncoated free sheet prices in our Papersegment and favorable linerboard, corrugated container, and corrugated sheetprices, in our Packaging & Newsprint segment.

For the three months ended March 31,2006, our operating activities provided $11.3 million of cash. In 2006,items included in net income provided$52.6 million of cash. Unfavorablechanges in working capital and other items used $41.3 million of cash fromoperations. The 2006 increase in working capital was primarilyattributable to higher receivables in Building Materials Distribution and, to alesser extent, increased company inventory levels. These increases werepartially offset by higher overall accounts payable and accrued liabilities.Higher receivables in Building Materials Distribution reflected increased saleswhen comparing March 2006 sales with December 2005 sales.

***InvestmentActivities***

Cash investing activities used $43.7 million for the three months ended March 31, 2007,compared with $53.2 million during the same period in 2006. In 2007,investing activities were primarily for purchases of property, plant, andequipment, which used $47.2 million of cash. Approximately$17 million of these expenditures relate to the reconfiguration of thepaper machine at our pulp and paper mill in Wallula, Washington, to produceboth pressure sensitive paper and commodity uncoated free sheet. We estimatespending approximately $75 million to $80 million in total for the project.As of March 31, 2007, spending on this project totaled $51 million.We expect to incur the remainder during the balance of 2007.

In 2006, investingactivities included $42.6 million of cash paid for the purchase of CTC’sassets in Waco, Texas, partially offset by $27.2 million of proceeds fromthe sale of our headquarters building in Boise, Idaho. In connection with thesale, we leased back approximately 65% of the building over a staggered leaseterm of ten to 12 years. Purchases of property, plant, and equipment alsoused $36.5 million during first quarter 2006. Capital expenditures for property andequipment consisted primarily of expansion, business improvement andquality/efficiency projects, replacement projects, and ongoing environmentalcompliance.

We expect capitalinvestments in 2007 to total approximately $195 million, excludingacquisitions. This level of capital expenditures could increase or decrease asa result of a number of factors, including our financial results and futureeconomic conditions. Our capital spending in 2007 will be for expansion (suchas the Wallula, Washington, project described above), business improvement andquality/efficiency 

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projects, replacementprojects, and ongoing environmental compliance. During 2006, we spent$9 million on environmental compliance. We expect to spend approximately$7 million in 2007 for this purpose.

***FinancingActivities***

Cash provided by financing activities was$53.9 million for the three months ended March 31, 2007, comparedwith $92.1 million for the same period in 2006. In 2007, the cash providedwas primarily the result of a net $60.0 million of borrowings under ouraccounts receivable securitization program, which was partially offset by$2.8 million of cash tax distributions to our equity holders and therepayment of $3.2 million of short-term borrowings. In 2006, the$92.1 million of cash provided by financing activities included a$120.0 million increase in our borrowings under our accounts receivablesecuritization program, partially offset by a $27.6 million prepayment onour Tranche D term loan, which was primarily paid with the proceeds fromthe sale of our headquarters building.

At March 31,2007, and December 31, 2006, our short- and long-term debt and theinterest rates on that debt were as follows:
| ** **                                      | ** ** | **March 31, 2007** | ** **  | **December 31, 2006**    | ** ** |
|-------------------------------------------------|------------|------------------------------|-------------|------------------------------------|------------|
| ** **                                      | ** ** | **Amount**                   | ** **  | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** | **Amount** | ** ** | **Interest  Rate  Without  Swaps** | ** ** | **Interest  Rate  With  Swaps** | ** ** |
| ** **                                      | ** ** | **(millions)**               | ** **  | ** **                         | ** ** | ** ** | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                            |       |                         |        |                               |       |   |   |   |   |   |   |   |   |
| Revolving credit  facility, due 2010            |       | $                            | —      |                               | N/A        |   | N/A |   | $ | — |   | N/A |   | N/A |   |
| Tranche D term  loan, due 2011             |       | 538.9                        |        | 6.8                                | %          | 6.6 | % | 538.9 |   | 7.1 | % | 6.8 | % |
| Senior unsecured  floating-rate notes, due 2012 |       | 250.0                        |        | 8.2                                | %          | 7.6 | % | 250.0 |   | 8.2 | % | 7.6 | % |
| 7.125% senior  subordinated notes, due 2014     |       | 400.0                        |        | 7.1                                | %          | N/A |   | 400.0 |   | 7.1 | % | N/A |   |
| Borrowings secured by  receivables              |       | 85.0                         |        | 5.3                                | %          | N/A |   | 25.0 |   | 5.6 | % | N/A |   |
| Long-term debt                                  |       | 1,273.9                      |        | 7.1                                | %          | 6.9 | % | 1,213.9 |   | 7.3 | % | 7.1 | % |
| Short-term borrowings                           |       | —                       |        | N/A                                |       | N/A |   | 3.2 |   | 6.0 | % | N/A |   |
| Total debt                                      | ** ** | **$**                        | **1,273.9** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,217.1** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

*Senior Secured Credit Facilities*

At March 31,2007, and December 31, 2006, Boise Cascade, L.L.C. (Boise LLC) andaffiliates had a $475.0 million senior secured revolving credit facility(due in 2010) and an $840.0 million Tranche D term loan (due in2011). These borrowings represented our senior secured credit facilities (theFacilities).

At March 31, 2007, andDecember 31, 2006, our revolving credit facility agreementpermitted us to borrow up to $475.0 million for general corporatepurposes. At March 31, 2007, we had no borrowings outstanding under ourrevolving credit facility; however, $42.7 million of letters of creditwere considered a draw on the revolver, reducing our borrowing capacity to$432.3 million. Borrowings under our revolving credit facility are basedon the prime rate, the federal funds effective rate, or the LondonInterbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustmentbased on the ratio of our total indebtedness to our last four quarters ofconsolidated earnings before interest, taxes, depreciation, and amortization(EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to1.25% or the federal funds effective rate plus 1.00% to 1.75% or(ii) LIBOR plus 1.50% to 2.25%. For the three months endedMarch 31, 2007, and the year ended December 31, 2006, the averageinterest rate for our borrowings under the revolver was 6.0%. Letters of creditare subject to a 0.25% fronting fee payable to the issuing bank and a feepayable to the lenders equal to the product of the interest rate spreadapplicable to LIBOR borrowings under our revolving credit facility and thedaily average amount available for drawing under the outstanding letters ofcredit. The minimum and maximum borrowings under the revolver were zero and$1.5 million during the three months ended March 31, 2007, and zeroand $30.0 million during the year ended December 31, 2006. Theweighted average amounts of borrowings outstanding under the revolver duringthe three months ended March 31, 2007 and 2006, were $0.1 million and$2.3 million. The revolving credit facility provides for a commitment feeof 0.50% per annum payable to the lenders on the average daily unused portionof the revolving credit facility. We also have a swingline option under therevolver, which allows us to borrow at negotiated rates up to an aggregate of$40.0 million from individual banks that are parties to the agreement.Swingline borrowings are considered borrowings under the revolving credit facilityagreement.

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At March 31, 2007,and December 31, 2006, we had $538.9 million outstanding under theTranche D term loan, and our borrowing rates were 6.8% and 7.1%.Borrowings under the Tranche D term loan are based on (i) the higher ofthe prime rate plus 0.50% or the federal funds effective rate plus 1.00% or(ii) LIBOR plus 1.50%. As a result of a $200.0 million prepayment inOctober 2005, we are not required to make scheduled principal payments on theTranche D term loan until 2011, at which time the principal balance isdue.

Borrowings under theFacilities are subject to financial covenants and restrictions, including aminimum interest expense coverage ratio, maximum leverage ratio, andlimitations on capital expenditures. At March 31, 2007 and 2006, we werein compliance with these covenants.

*Senior Notes*

In October 2004, BoiseLLC issued $250.0 million of senior unsecured floating-rate notes due in2012 and $400.0 million of 7.125% senior subordinated notes due in 2014.Net proceeds from the notes were used to fund a portion of the purchase pricefor the Forest Products Acquisition. In July 2005, we completed anexchange offer whereby all of our senior unsecured floating-rate notes andsenior subordinated notes were exchanged for registered securities withidentical terms (other than terms relating to registration rights) to the notesissued in October 2004. We may redeem all or part of the notes at any time atredemption prices set forth in the indenture. If we sell specific assets orexperience specific kinds of changes in control, we must offer to purchase thenotes. The senior unsecured floating-rate notes bear interest at a floatingrate equal to LIBOR plus 2.9%. At March 31, 2007, and December 31,2006, our borrowing rate for the $250.0 million senior unsecuredfloating-rate notes was 8.2%.

*Amendment and Restatement*

On May 3, 2007, weamended and restated our Facilities. The major changes resulting from theamendment and restatement were as follows:

·                  We reduced the size of our revolvingcredit facility from $475 million to $450 million. The maturity of therevolving credit facility did not change as a result of the amendment andrestatement.

·                  We borrowed $525 million under a newTranche E term loan (which matures in April 2014) and used the proceeds torepay the Tranche D term loan in full. We are required to make scheduledprincipal payments on the Tranche E term loan in the amount of $3.9 million in2007, $5.3 million in each of 2008 through 2012, $248.7 million in 2013 and$246.1 million in 2014. Tranche E borrowings under the amended and restatedcredit facility may be priced at either (i) the higher of the prime rate plus50 basis points or the federal funds effective rate plus 100 basis points, or(ii) the LIBOR plus 150 basis points.

·                  We obtained $200 million ofcommitments for a delayed-draw term loan that we plan to use to refinance themajority of our existing $250 million senior floating rate notes due 2012 whenthey become callable at par on October 15, 2007. The delayed-draw term loan hasa commitment fee of 150 basis points per annum until drawn. Once drawn, thepricing is the same as for the Tranche E term loan. We are required to makescheduled principal payments on the delayed-draw term loan in the amount of$0.5 million in 2007, $2.0 million in each of 2008 through 2012, $95.3 millionin 2013 and $94.2 million in 2014.

·                  We revised our covenants to give usadditional flexibility to make acquisitions, incur future indebtedness,complete asset sales, make capital expenditures, make distributions to ourinvestors or repay debt other than our senior secured debt. Under the amendedand restated credit agreement, we remain subject to maintenance of a maximumleverage ratio and a minimum interest coverage ratio; however, these financialmaintenance covenants are only applicable to the $450 million revolving creditportion of the agreement and function as debt incurrence covenants with respectto the remainder of the facility.

*Borrowings Secured by Receivables*

In October2005, our wholly owned subsidiary, Boise LLC, and several of its subsidiaries,including Birch Creek Investments, L.L.C. (Birch Creek), entered into anaccounts receivable securitization program with Bank of America NationalAssociation and Calyon New York Branch (the Investors). Under this three-yearprogram, Boise LLC sells its interest in a defined pool of accounts receivablegenerated by its domestic operations on a revolving basis to Birch Creek, aconsolidated, wholly owned, special-purpose subsidiary. In turn, Birch Creeksells the receivables to the affiliates of the Investors. Because Boise LLC hasthe right to repurchase the sold receivables, sales of receivables under theprogram are accounted for as a secured borrowing. At March 31, 2007, andDecember 31, 2006, we had $85.0 million and $25.0 millionoutstanding under our accounts receivable securitization program. Thereceivables outstanding and the corresponding debt are included as “Receivables”and “Long-term debt,” respectively, on our Consolidated Balance Sheets. Werecord the financing costs associated with the program in “Interest expense” inour Consolidated Statements of Income. The cost of funds under this programvaries based on changes in interest rates. At March 31, 2007, andDecember 31, 2006, the interest rates for borrowings secured byreceivables were 5.3% and 5.6%.

Under the accounts receivablesecuritization program, the maximum borrowing amount is subject to change basedon the level of eligible receivables and restrictions on concentrations ofreceivables and, at March 31, 2007, could not exceed $238.2 million.The accounts receivable securitization program contains the same financialcovenants as our senior secured credit facilities.

*Other*

We have entered intointerest rate swaps to hedge the majority of the cash flow risk from thevariable interest payments on our variable-rate debt. These swaps gave useffective interest rates on all of our long-term variable-rate debt of 6.7% and7.0% at March 31, 2007, and December 31, 2006, respectively. Foradditional information on our interest rate swaps, see Note 13, FinancialInstruments, in “Item 1. Consolidated Financial Statements” of this Form 10-Q.

We paid approximately$85.9 million of fees and expenses associated with our senior securedcredit facilities, our senior unsecured floating-rate notes, and our seniorsubordinated notes, which we entered into in October 2004. The fees are beingamortized over the terms of the loans, which range from six to ten years. AtMarch 31, 2007, and December 31, 2006, we had $29.9 million and$31.5 million of costs recorded in “Deferred financing costs” on ourConsolidated Balance Sheets.

At March 31, 2007,and December 31, 2006, our average effective interest rates, including theeffect of our interest rate swaps, on all of our long-term debt were 6.9% and7.1%.

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Forboth the three months ended March 31, 2007 and 2006, cash payments forinterest, net of interest capitalized, were $15.8 million.

Foradditional information on our interest rate swaps, see Note 13, FinancialInstruments, in “Item 1. Consolidated Financial Statements” of this Form 10-Q.

***Contractual Obligations***

For information on contractual obligations, seeContractual Obligations in “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in our 2006 Annual Report on Form 10-K. AtMarch 31, 2007, there have been no material changes to our contractualobligations outside the normal course of business.

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

At March 31,2007, and December 31, 2006, we had no off-balance-sheet arrangements withunconsolidated entities.

***Guarantees***

Note 19, Commitments and Guarantees, of the Notes to ConsolidatedFinancial Statements in “Item 8. Consolidated Financial Statements” in our 2006 Annual Report on Form10-K describes the nature of our guarantees, including the approximate terms ofthe guarantees, how the guarantees arose, the events or circumstances thatwould require us to perform under the guarantees, and the maximum potentialundiscounted amounts of future payments we could be required to make. Therehave been no material changes to the guarantees disclosed in our 2006 AnnualReport on Form 10-K.

***Environmental***

For information onenvironmental issues, see Environmental in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in our 2006 Annual Report onForm 10-K.

***Critical Accounting Estimates***

Criticalaccounting estimates are those that are most important to the portrayal of ourfinancial condition and results. These estimates require management’s mostdifficult, subjective, or complex judgments, often as a result of the need toestimate matters that are inherently uncertain. We review the development,selection, and disclosure of our critical accounting estimates with the AuditCommittee of our board of directors. For information about critical accountingestimates, see Critical Accounting Estimates in “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in our 2006 Annual Report onForm 10-K.

***Recently Adopted Accounting Standards***

In January 2007, we adopted Financial Accounting Standards Board (FASB)Staff Position (FSP) No. AUG AIR-1, *Accountingfor Planned Major Maintenance Activities*and began expensing the costs of periodic major overhauls andmaintenance of plant and equipment as incurred. Prior to the adoption of thisFSP, we charged planned shutdown maintenance costs in our Paper andPackaging & Newsprint segments to income (loss) ratably over the year.We recast our 2006 interim financial information included in this Form 10-Qusing the direct expense method. As a result of adopting this FSP, we reduced “Materials,labor, and other operating expenses” $1.9 million and increased “Netincome” by the same amount for the three months ended March 31, 2006. Of the$1.9 million adjustment, we recorded $3.4 million of income in ourPaper segment and a $1.5 million loss in our Packaging &Newsprint segment. The FSP increases the volatility of earnings in the period aplanned shutdown occurs, but it has no impact on our annual results ofoperations.

In January 2007, we adopted FASBInterpretation (FIN) No. 48, *Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109*.FIN No. 48 clarifies the criteria for recognizing tax benefits under FASBStatement No. 109, *Accounting forIncome Taxes*. It also requires 

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additional financial statement disclosuresabout uncertain tax positions. Because the majority of our businesses andassets are held and operated by limited liability companies and the incometaxes of these operations are payable by our equity holders, it did not have amaterial impact on our financial position or results of operations. For moreinformation, see Note 7, Income Taxes. Events could arise in the futurethat would cause the adoption of this interpretation to have a material impacton our financial statements. For example, if our tax status were to change inthe future, we would have to reevaluate the impact of FIN No. 48 on ourfinancial position and results of operations at that time.

In December 2006, we adopted SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans — anAmendment of FASB Statements No. 87, 88, 106, and 132(R)*, whichrequired us to recognize the funded status of our pension and otherpostretirement benefit plans on our 2006 Consolidated Balance Sheet. It alsorequired us to recognize the actuarial and experience gains and losses and theprior service costs and credits as a component of other comprehensive income,net of tax, in our Consolidated Statement of Capital. In connection withadopting SFAS No. 158, we reduced our liabilities $38.1 million andincreased capital by about the same amount. Retrospective application was notpermitted. For more information, see Note 15, Retirement and Benefit Plans, ofthe Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our2006 Annual Report on Form 10-K.

In December 2006, we adopted Staff Accounting Bulletin (SAB) Topic 1N, *Financial Statements — Considering the Effects ofPrior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements* (SAB 108). SAB 108 addresses how the effects ofprior-year uncorrected misstatements should be considered when quantifyingmisstatements in current-year financial statements. SAB 108 requiresregistrants to quantify misstatements using both the balance sheet and incomestatement approaches and to evaluate whether either approach results inquantifying an error that is material in light of relevant quantitative andqualitative factors. SAB 108 did not have a material impact on ourfinancial position or results of operations.

In February 2006, we adopted FSP No. FAS 123(R)-4, *Classification of Options and Similar Instruments Issued as EmployeeCompensation That Allow for Cash Settlement Upon the Occurrence of a ContingentEvent*. FAS 123(R)-4 requires companies to assess the probabilitythat a contingent cash settlement event will occur when it determines theclassification of options or other similar instruments issued as part ofemployee compensation arrangements. Because redemption by Forest ProductsHoldings, our equity sponsor, and the expected parallel redemptions of theSeries B and Series C equity units granted to our employees under theManagement Equity Agreement are a contingent event outside employees’ controland not currently deemed probable of occurring, we account for the units usingequity plan accounting in accordance with FAS 123(R)-4.

***ITEM 3.******         ******QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISKS***

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

Inaccordance with Statement of Financial Accounting Standards No. 133, *Accounting for Derivative Instruments and HedgingActivities*, as amended, we record all derivative instruments asassets or liabilities on our Consolidated Balance Sheets at fair value. Thefair value of these instruments is determined by third parties. Changes in thefair value of derivatives are recorded in either “Net income (loss)” or “Othercomprehensive income,” as appropriate. The gain or loss on derivativesdesignated as cash flow hedges is included in “Other comprehensive income” inthe period in which changes in fair 

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value occur and isreclassified to income (loss) in the period in which the hedged item affectsincome (loss), and any ineffectiveness is recognized currently in ourConsolidated Statements of Income (Loss). The gain or loss on derivativesdesignated as fair value hedges and the offsetting gain or loss on the hedgeditem attributable to the hedged risk are included in income (loss) in theperiod in which changes in fair value occur. The gain or loss on derivativesthat have not been designated as hedging instruments is included in income(loss) in the period in which changes in fair value occur.

*Interest Rate Risk*

Our debt ispredominantly variable-rate. We manage interest rate risk on our variable-ratedebt by entering into interest rate swaps. At March 31, 2007, theestimated current market value of our fixed-rate debt, based on then-currentinterest rates for similar obligations with like maturities, was approximately$6.3 million less than the amount reported on our Consolidated BalanceSheet.

At March 31, 2007, we had six interest rate swapsto hedge our exposure to interest rate fluctuations associated with a portionof our variable-rate debt. The swaps effectively hedge $500 million of ourvariable-rate debt exposure through 2009 and $250 million of exposureduring 2010. Assuming no changes in interest rates, we expect to reclassify $6.3 millionof amounts recorded in “Accumulated other comprehensive income” as a decreasein interest expense during the remainder of 2007. At March 31, 2007, therewas no ineffectiveness related to these hedges.

*Energy Risk*

We enter into natural gas swaps, options, or acombination of these instruments to hedge the variable cash flow risk ofnatural gas purchases at index prices. As of March 31, 2007, we hadentered into derivative instruments related to approximately 10% of ourforecasted natural gas purchases from July 2007 through October 2007.

*Foreign Currency Risk*

At March 31, 2007, we had no material fair valueof foreign currency hedges.

***ITEM 4.******         ******CONTROLS AND PROCEDURES***

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

*Evaluationof Disclosure Controls and Procedures*

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

We evaluate the effectiveness of our disclosure controls and procedureson at least a quarterly basis. A number of key components in our internalcontrol system assist us in these evaluations. Since the company’s inception,we have had a disclosure committee. The committee meets regularly and includesinput from our senior management, general counsel, internal audit staff, andindependent accountants. This committee is charged with considering andevaluating 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 audit staff uses a web-based application that helps toidentify, document, and test our internal controls. Our 

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intent is to maintain disclosure controls and procedures asdynamic processes that change as our business and working environments change.

Our management, with the participation of our CEO and CFO, hasevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the quarter covered by the quarterlyreport on this Form 10-Q. Based on that evaluation, the CEO and CFOhave concluded that, as of such date, our disclosure controls and procedureswere effective in meeting the objectives for which they were designed and wereoperating at a reasonable assurance level. Furthermore, the company’smanagement noted that as a result of their evaluation of changes in internalcontrol over financial reporting, they identified no changes during the firstquarter of 2007 that materially affected, or would be reasonably likely tomaterially affect, the company’s internal control over financial reporting.

*Limitationson the Effectiveness of Controls and Procedures*

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

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**PART II—OTHER INFORMATION**

***ITEM 1.******         ******LEGAL PROCEEDINGS***

*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***

This QuarterlyReport on Form 10-Q contains forward-looking statements. Statementsthat are 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 the Overview of FinancialCondition section of Management’s Discussion and Analysis of FinancialCondition and Results of Operations. We cannot guarantee that our actualresults will be consistent with the forward-looking statements we make in thisreport. You should review carefully the risk factors listed in “Item 1A.  Risk Factors” of our 2006 Annual Report onForm 10-K, as well as those factors listed in other documents we file withthe Securities and Exchange Commission (SEC). There have been no materialchanges to our risk factors for the three months ended March 31, 2007,from those listed in our 2006 Annual Report on Form 10-K.

***ITEM 1B.******      ******UNRESOLVED STAFF COMMENTS***

We have no unresolvedcomments from the Commission staff.

***ITEM 2.******         ******UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS***

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 exhibitsare listed 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/ Samuel K. Cotterell                                     |   |
|   |   | Samuel K. Cotterell  Vice President and Controller          |
|   |   | (As Duly Authorized Officer and Chief   Accounting Officer) |

 

Date:  May 9, 2007

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

**INDEX TO EXHIBITS**

Filed With theQuarterly Report on Form 10-Q for the Quarter Ended March 31, 2007
| Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1   |       | 2007 Annual Incentive Award Notifications With  Respect to Boise Incentive and Performance Plan                                                                                                                                                                                                                                                                                                                                                              |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.2   |       | Amendment and Restatement Agreement dated as of May  3, 2007, between Boise Cascade Holdings, L.L.C., Boise Cascade, L.L.C., the  Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative  Agent; including form of Third Amended and Restated Credit Agreement dated as  of May 3, 2007, between Boise Cascade Holdings, L.L.C., Boise Cascade, L.L.C.,  the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative  Agent |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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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