**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549  **FORM 10-Q

** **
| x                                                     | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------|
|                                                  | ** **                                                                                   |
| **For the quarterly period ended June 30, 2007** |

 
| o                                                                                                                                                                                                                                                                                                    | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
| **For the transition period from                        to                      ** |

 

**Commission File Number:  333-122770**

**Boise CascadeHoldings, L.L.C.**(Exact name 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 x

Indicate by check markwhether the 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-accelerated filer  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 onJuly 31, 2007, were as follows:

 

| **Series**                  |   | **Units  Outstanding as of July 31, 2007** |
|-----------------------------|--------|--------------------------------------------|
|                        |   |                                       |
| Series A  Common Units |   | 66,000,000                                 |
| Series B  Common Units |   | 547,352,490                                |
| Series C  Common Units |   | 39,527,950                                 |

 

These units areneither registered nor publicly traded.

 

 

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**Table of Contents**
| **PART I—FINANCIAL INFORMATION** |
|---------------------------------------|
|                                  |   |   |   |   |   |   |
| Item 1.                               |   | Consolidated Financial Statements |   | 1 |
|                                  |   | Notes to Unaudited Quarterly Consolidated Financial  Statements |   | 7 |
|                                  |   | 1. |   | Basis  of Presentation |   | 7 |
|                                  |   | 2. |   | Purchase of OfficeMax’s Forest Products and Paper  Assets |   | 7 |
|                                  |   | 3. |   | Transactions With Related Parties |   | 8 |
|                                  |   | 4. |   | Vendor and Customer Rebates and Allowances |   | 9 |
|                                  |   | 5. |   | Other  (Income) Expense, Net |   | 9 |
|                                  |   | 6. |   | Leases |   | 9 |
|                                  |   | 7. |   | Income Taxes |   | 10 |
|                                  |   | 8. |   | Receivables |   | 11 |
|                                  |   | 9. |   | Inventories |   | 11 |
|                                  |   | 10. |   | Property  and Equipment |   | 11 |
|                                  |   | 11. |   | Goodwill and Intangible Assets |   | 11 |
|                                  |   | 12. |   | Asset Retirement Obligations |   | 13 |
|                                  |   | 13. |   | Debt |   | 13 |
|                                  |   | 14. |   | Financial  Instruments |   | 16 |
|                                  |   | 15. |   | Recently Adopted Accounting Standards |   | 17 |
|                                  |   | 16. |   | Retirement and Benefit Plans |   | 18 |
|                                  |   | 17. |   | Segment  Information |   | 19 |
|                                  |   | 18. |   | Commitments and Guarantees |   | 21 |
|                                  |   | 19. |   | Consolidating Guarantor and Nonguarantor Financial  Information |   | 22 |
|                                  |   | 20. |   | Legal Proceedings and Contingencies |   | 33 |
|                                  |   |   |   |   |   |   |
| Item 2.                          |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   | 33 |
|                                  |   | Understanding Our Financial Information |   | 33 |
|                                  |   | Our Segments |   | 33 |
|                                  |   | Overview of Financial Condition |   | 34 |
|                                  |   | Factors That Affect Our Operating Results |   | 35 |
|                                  |   | Acquisitions |   | 40 |
|                                  |   | Our Operating Results |   | 42 |
|                                  |   | Liquidity and Capital Resources |   | 47 |
|                                  |   | Contractual  Obligations |   | 51 |
|                                  |   | Off-Balance-Sheet  Activities |   | 51 |
|                                  |   | Guarantees |   | 51 |
|                                  |   | Environmental |   | 51 |
|                                  |   | Critical Accounting Estimates |   | 51 |
|                                  |   | Recently Adopted Accounting Standards |   | 51 |
|                                  |   |   |   |   |   |   |
| Item 3.                          |   | Quantitative and Qualitative Disclosures About Market  Risks |   | 53 |
|                                  |   |   |   |   |   |   |
| Item 4.                          |   | Controls and Procedures |   | 54 |
|                                  |   |   |   |   |   |   |
| **PART  II—OTHER INFORMATION**   |
| ** **                            |
| Item 1.                          |   | Legal  Proceedings |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 1A.                         |   | Risk Factors |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 1B.                         |   | Unresolved Staff Comments |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 2.                               |   | Unregistered Sales of Equity Securities and Use of  Proceeds |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 3.                               |   | Defaults Upon Senior Securities |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 4.                               |   | Submission of Matters to a Vote of Securityholders |   | 55 |
|                                  |   |   |   |   |   |   |
| Item  5.                              |   | Other  Information |   | 55 |
|                                  |   |   |   |   |   |   |
| Item 6.                          |   | Exhibits |   | 55 |

 

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

----

**PART 1—FINANCIAL INFORMATION**

 

***ITEM 1.          CONSOLIDATEDFINANCIAL STATEMENTS***

 

**Boise CascadeHoldings, L.L.C.Consolidated Statements of Income**(unaudited)

** **
| ** **                                      | ** ** | **Three Months Ended   June 30** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **(thousands)**                                      | ** ** |
| ** **                                      | ** ** | ** **                                           | ** ** |
| **Sales**                                       | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Trade                                           |       | $                                                    | 1,288,921  |   | $ | 1,415,784 |   |
| Related parties                                 |       | 159,477                                              |       | 144,005 |   |
|                                            |       | 1,448,398                                            |       | 1,559,789 |   |
|                                            |       |                                                 |       |   |   |
| **Costs and expenses**                          | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Materials, labor, and  other operating expenses |       | 1,270,294                                            |       | 1,362,517 |   |
| Depreciation,  amortization, and depletion      |       | 40,722                                               |       | 38,459 |   |
| Selling and distribution  expenses              |       | 73,620                                               |       | 71,607 |   |
| General and  administrative expenses            |       | 20,210                                               |       | 26,158 |   |
| Other (income) expense,  net                    |       | (5,091                                               | )          | 3,233 |   |
|                                            |       | 1,399,755                                            |       | 1,501,974 |   |
|                                            |       |                                                 |       |   |   |
| **Income from operations**                      |       | 48,643                                               |       | 57,815 |   |
|                                            |       |                                                 |       |   |   |
| Foreign exchange gain                           |       | 2,020                                                |       | 1,360 |   |
| Change in fair value of  interest rate swaps    |       | 5,395                                                |       | — |   |
| Interest expense                                |       | (24,352                                              | )          | (28,610 | ) |
| Interest income                                 |       | 642                                                  |       | 934 |   |
|                                            |       | (16,295                                              | )          | (26,316 | ) |
| ** **                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Income before income taxes**                  |       | 32,348                                               |       | 31,499 |   |
| Income tax provision                            |       | (3,450                                               | )          | (305 | ) |
| **Net income**                                  | ** ** | **$**                                                | **28,898** | ** ** | **$** | **31,194** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

1

----

**Boise CascadeHoldings, L.L.C.Consolidated Statements of Income**(unaudited)

** **
| ** **                                      | ** ** | **Six Months Ended   June 30** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | ** **                                         | ** ** |
| ** **                                      | ** ** | **(thousands)**                                    | ** ** |
| ** **                                      | ** ** | ** **                                         | ** ** |
| **Sales**                                       | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Trade                                           |       | $                                                  | 2,452,094  |   | $ | 2,753,282 |   |
| Related parties                                 |       | 317,272                                            |       | 276,770 |   |
|                                            |       | 2,769,366                                          |       | 3,030,052 |   |
|                                            |       |                                               |       |   |   |
| **Costs and expenses**                          | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Materials, labor, and  other operating expenses |       | 2,427,193                                          |       | 2,673,329 |   |
| Depreciation,  amortization, and depletion      |       | 81,082                                             |       | 75,116 |   |
| Selling and  distribution expenses              |       | 142,028                                            |       | 142,684 |   |
| General and  administrative expenses            |       | 39,705                                             |       | 47,620 |   |
| Other (income) expense,  net                    |       | (2,545                                             | )          | 1,108 |   |
|                                            |       | 2,687,463                                          |       | 2,939,857 |   |
|                                            |       |                                               |       |   |   |
| **Income from operations**                      |       | 81,903                                             |       | 90,195 |   |
|                                            |       |                                               |       |   |   |
| Foreign exchange gain                           |       | 2,262                                              |       | 1,739 |   |
| Change in fair value of  interest rate swaps    |       | 5,395                                              |       | — |   |
| Interest expense                                |       | (46,695                                            | )          | (58,786 | ) |
| Interest income                                 |       | 1,243                                              |       | 1,538 |   |
|                                            |       | (37,795                                            | )          | (55,509 | ) |
| ** **                                      | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| **Income before income taxes**                  |       | 44,108                                             |       | 34,686 |   |
| Income tax provision                            |       | (4,673                                             | )          | (1,523 | ) |
| **Net income**                                  | ** ** | **$**                                              | **39,435** | ** ** | **$** | **33,163** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

2

----

**Boise Cascade Holdings, L.L.C.Consolidated Balance Sheets**(unaudited)

 
| ** **                                       | ** **   | **June 30,** | ** **    | **December 31,** | ** **   |
|--------------------------------------------------|--------------|-------------------|---------------|-----------------------|--------------|
| ** **                                       | ** **   | **2007**          | ** **    | **2006**              | ** **   |
| ** **                                       | ** **   | ** **        | ** **    |
| ** **                                       | ** **   | **(thousands)**   | ** **    |
| ** **                                       | ** **   | ** **        | ** **    |
| **ASSETS**                                       | ** **   | ** **        | ** **    | ** **            | ** **   |
| ** **                                       | ** **   | ** **        | ** **    | ** **            | ** **   |
| **Current**                                      | ** **   | ** **        | ** **    | ** **            | ** **   |
| Cash and cash  equivalents                       |         | $                 | 74,837        |                  | $            | 45,169 |   |
| Receivables                                      |         |              |          |                  |         |
| Trade, less allowances of $1,525 and $1,734 |         | 397,196           |          | 327,138               |         |
| Related parties                                  |         | 47,376            |          | 37,986                |         |
| Other                                            |         | 12,522            |          | 19,027                |         |
| Inventories                                      |         | 638,029           |          | 640,826               |         |
| Other                                            |         | 17,540            |          | 13,027                |         |
|                                             |         | 1,187,500         |          | 1,083,173             |         |
|                                             |         |              |          |                  |         |
| **Property**                                     | *** *** | *** ***      | *** ***  | *** ***          | *** *** |
| Property and  equipment, net                     |         | 1,472,888         |          | 1,462,315             |         |
| Fiber farms and  deposits                        |         | 42,509            |          | 40,492                |         |
|                                             |         | 1,515,397         |          | 1,502,807             |         |
|                                             |         |              |          |                  |         |
| **Deferred  financing costs**                    |         | 29,195            |          | 31,474                |         |
| **Goodwill**                                     |         | 21,846            |          | 21,846                |         |
| **Intangible  assets, net**                      |         | 35,168            |          | 37,507                |         |
| **Other  assets**                                |         | 26,497            |          | 28,390                |         |
| **Total assets**                                 | ** **   | **$**             | **2,815,603** | ** **            | **$**        | **2,705,197** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

3

----

**Boise Cascade Holdings, L.L.C.Consolidated Balance Sheets (continued)**(unaudited)

 
| ** **                                                                                                                                               | ** **   | **June 30,** | ** **    | **December 31,** | ** **   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------|---------------|-----------------------|--------------|
| ** **                                                                                                                                               | ** **   | **2007**          | ** **    | **2006**              | ** **   |
| ** **                                                                                                                                               | ** **   | ** **        | ** **    |
| ** **                                                                                                                                               | ** **   | **(thousands)**   | ** **    |
| ** **                                                                                                                                               | ** **   | ** **        | ** **    |
| **LIABILITIES  AND CAPITAL**                                                                                                                             | ** **   | ** **        | ** **    | ** **            | ** **   |
| ** **                                                                                                                                               | ** **   | ** **        | ** **    | ** **            | ** **   |
| **Current**                                                                                                                                              | ** **   | ** **        | ** **    | ** **            | ** **   |
| Short-term  borrowings                                                                                                                                   |         | $                 | —        |                  | $            | 3,200 |   |
| Current portion  of long-term debt                                                                                                                       |         | 5,250             |          | —                |         |
| Accounts payable                                                                                                                                         |         | 386,310           |          | 341,201               |         |
| Accrued  liabilities                                                                                                                                     |         |              |          |                  |         |
| Compensation and benefits                                                                                                                                |         | 82,901            |          | 93,287                |         |
| Interest payable                                                                                                                                         |         | 11,785            |          | 11,847                |         |
| Other                                                                                                                                                    |         | 45,578            |          | 54,600                |         |
|                                                                                                                                                     |         | 531,824           |          | 504,135               |         |
|                                                                                                                                                     |         |              |          |                  |         |
| **Debt**                                                                                                                                                 | *** *** | *** ***      | *** ***  | *** ***          | *** *** |
| Long-term debt,  less current portion                                                                                                                    |         | 1,238,438         |          | 1,213,900             |         |
| ** **                                                                                                                                               | ** **   | ** **        | ** **    | ** **            | ** **   |
| **Other**                                                                                                                                                | ** **   | ** **        | ** **    | ** **            | ** **   |
| Compensation and  benefits                                                                                                                               |         | 126,344           |          | 111,676               |         |
| Other long-term  liabilities                                                                                                                             |         | 38,465            |          | 36,642                |         |
|                                                                                                                                                     |         | 164,809           |          | 148,318               |         |
|                                                                                                                                                     |         |              |          |                  |         |
| **Redeemable  equity units**                                                                                                                             | ** **   | ** **        | ** **    | ** **            | ** **   |
| Series B  equity units — 16,995,889 and 17,107,889 units outstanding                                                                      |         | 17,365            |          | 17,477                |         |
| Series C  equity units — 39,527,950 and 39,576,540 units outstanding                                                                      |         | 7,984             |          | 6,434                 |         |
|                                                                                                                                                     |         | 25,349            |          | 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                                             |         | 75,421            |          | 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 |         | 765,681           |          | 724,988               |         |
| Series C  equity units — no par value; 44,000,000 and 44,000,000 units authorized                                                         |         | 14,081            |          | 11,655                |         |
| **Total  capital**                                                                                                                                       |         | 855,183           |          | 814,933               |         |
| ** **                                                                                                                                               | ** **   | ** **        | ** **    | ** **            | ** **   |
| **Total liabilities and capital**                                                                                                                        | ** **   | **$**             | **2,815,603** | ** **            | **$**        | **2,705,197** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

* *

4

----

**Boise Cascade Holdings, L.L.C.Consolidated Statements of Cash Flows**(unaudited)
| ** **                                                                       | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                     | ** ** | **2006** | ** ** |
| ** **                                                                       | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **(thousands)**                              | ** ** |
| ** **                                                                       | ** ** | ** **                                   | ** ** |
| **Cash provided by (used for)  operations**                                      | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| Net income                                                                       |       | $                                            | 39,435     |   | $ | 33,163 |   |
| Items in net income not  using (providing) cash                                  |       |                                         |       |   |   |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | 82,260                                       |       | 77,567 |   |
| Related-party  interest expense                                                  |       | —                                       |       | 8,922 |   |
| Deferred income  taxes                                                           |       | 1,913                                        |       | — |   |
| Pension and  other postretirement benefit expense                                |       | 12,538                                       |       | 13,977 |   |
| Gain on changes  in retiree healthcare programs                                  |       | (4,367                                       | )          | (3,741 | ) |
| Change in fair  value of interest rate swaps                                     |       | (5,395                                       | )          | — |   |
| Management  equity units expense                                                 |       | 1,550                                        |       | 1,965 |   |
| Other                                                                            |       | (2,319                                       | )          | (90 | ) |
| Decrease (increase) in  working capital, net of acquisitions                     |       |                                         |       |   |   |
| Receivables                                                                      |       | (73,658                                      | )          | (69,188 | ) |
| Inventories                                                                      |       | (365                                         | )          | (18,820 | ) |
| Prepaid expenses                                                                 |       | (1,456                                       | )          | (2,465 | ) |
| Accounts payable  and accrued liabilities                                        |       | 22,336                                       |       | 36,498 |   |
| Pension and other  postretirement benefit payments                               |       | (524                                         | )          | (463 | ) |
| Current and deferred  income taxes                                               |       | 1,712                                        |       | 4,263 |   |
| Other                                                                            |       | 3,959                                        |       | 1,484 |   |
| Cash provided by  operations                                                     |       | 77,619                                       |       | 83,072 |   |
|                                                                             |       |                                         |       |   |   |
| **Cash provided by (used for)  investment**                                      | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| Expenditures for  property and equipment                                         |       | (89,913                                      | )          | (71,344 | ) |
| Acquisitions of  businesses and facilities                                       |       | —                                       |       | (42,549 | ) |
| Sales of assets                                                                  |       | 16,903                                       |       | 27,744 |   |
| Other                                                                            |       | 1,291                                        |       | 1,737 |   |
| Cash used for  investment                                                        |       | (71,719                                      | )          | (84,412 | ) |
|                                                                             |       |                                         |       |   |   |
| **Cash provided by (used for)  financing**                                       | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| Issuances of long-term  debt                                                     |       | 705,000                                      |       | 238,300 |   |
| Payments of long-term  debt                                                      |       | (675,212                                     | )          | (259,100 | ) |
| Short-term borrowings                                                            |       | (3,200                                       | )          | — |   |
| Note payable to related  party, net                                              |       | —                                       |       | (1,139 | ) |
| Proceeds from changes  to interest rate swaps                                    |       | 2,848                                        |       | 25,620 |   |
| Tax distributions to  members                                                    |       | (2,753                                       | )          | (10,725 | ) |
| Other                                                                            |       | (2,915                                       | )          | 132 |   |
| Cash provided by  (used for) financing                                           |       | 23,768                                       |       | (6,912 | ) |
|                                                                             |       |                                         |       |   |   |
| **Increase (decrease) in cash and  cash equivalents**                            |       | 29,668                                       |       | (8,252 | ) |
|                                                                             |       |                                         |       |   |   |
| **Balance at beginning of the  period**                                          |       | 45,169                                       |       | 88,171 |   |
|                                                                             |       |                                         |       |   |   |
| **Balance at end of the period**                                                 | ** ** | **$**                                        | **74,837** | ** ** | **$** | **79,919** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

5

----

**Boise Cascade Holdings, L.L.C.Consolidated Statements of Capital**(unaudited)
| ** **                                                   | ** ** | **Series A  Equity Units** | ** ** | **Series B  Equity Units** | ** ** | **Series C  Equity Units** | ** **  | **Total**  | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|-------------|------------|------------|
| ** **                                                   | ** ** | **Units**                            | ** ** | **Amount**                           | ** ** | **Units**                            | ** **  | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Capital** | ** ** |
| ** **                                                   | ** ** | ** **                           | ** ** | ** **                           | ** ** | ** **                           | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **(thousands)**                      | ** ** |
| ** **                                                   | ** ** | ** **                           | ** ** |
| Balance at  December 31, 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)                                               |       | —                               |       | —                               |       | —                               |        | 39,435     |       | — |   | — |   | 39,435 |   |
| Other comprehensive  income, net of tax (a) (b)    | ** ** | ** **                           | ** ** | ** **                           | ** ** | ** **                           | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flow hedges                                             |       | —                               |       | —                               |       | —                               |        | 6,946      |       | — |   | — |   | 6,946 |   |
| Unfunded accumulated benefit obligation                      |       | —                               |       | —                               |       | —                               |        | (5,991     | )          | — |   | — |   | (5,991 | ) |
| Paid-in-kind  dividend                                       |       | —                               |       | 2,728                                |       | —                               |        | (2,728     | )          | — |   | — |   | — |   |
| Tax  distributions to members                                |       | —                               |       | (5,597                               | )          | —                               |        | 5,597      |       | — |   | — |   | — |   |
| Allocation of  profit interest to Series C equity units |       | —                               |       | —                               |       | —                               |        | (2,426     | )          | — |   | 2,426 |   | — |   |
| Other                                                        |       | —                               |       | —                               |       | —                               |        | (140       | )          | — |   | — |   | (140 | ) |
| **Balance  at June 30, 2007 (c)**                       | ** ** | **66,000**                           | ** ** | **$**                                | **75,421** | ** **                           | **530,357** | ** ** | **$**      | **765,681** | ** ** | **—** | ** ** | **$** | **14,081** | ** ** | **$** | **855,183** | ** ** |

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(a)             Totalcomprehensive income for the three and six months ended June 30, 2007, was$23.9 million and $40.4 million, compared with $24.7 million and$32.7 million for the three and six months ended June 30, 2006.

(b)            Totalother comprehensive income for the three and six months ended June 30,2007, was $(5.0) million and $1.0 million, compared with$(8.8) million and $(0.8) million for the three and six months endedJune 30, 2006.

(c)             Accumulatedother comprehensive income at June 30, 2007, and December 31, 2006,was $41.4 million and $40.5 million, respectively.

**See accompanying notes to unaudited quarterly consolidatedfinancial statements.**

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

***1.             Basis ofPresentation***

Asused in these consolidated financial statements, the terms “Boise” and “we”refer to Boise Cascade Holdings, L.L.C., and its consolidated subsidiaries. Weare a diversified North American paper and forest products companyheadquartered in Boise, Idaho. We operate our business in the following fivereportable segments: Building Materials Distribution, Wood Products, Paper,Packaging & Newsprint, and Corporate and Other. See Note 17,Segment Information, for additional information 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 and six months ended June 30, 2007 and2006, involved estimates and accruals. Actual results may vary from thoseestimates. Quarterly results are not necessarily indicative of results that maybe expected 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 15,Recently Adopted Accounting Standards.

***2.***             ***Purchase of OfficeMax’s ForestProducts and Paper Assets***

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 ofcut-size office paper through June 2007, and if June prices hold for theremaining portion of the anniversary period, we would owe OfficeMaxapproximately $33 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 Related Transactions,and Director Independence” of our 2006 Annual Report on Form 10-K.

# *Restructuring Activities*

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 

7

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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 June 30,2007, we had approximately $0.2 million of restructuring reserves relatedto severance costs recorded in “Accrued liabilities, Compensation and benefits”on our Consolidated Balance Sheet. The severance costs related to approximately350 terminated employees. The remaining reserve relates to severancepayments that will be paid by the end of 2007. Of the $0.2 millionremaining restructuring reserve, $0.1 million is recorded in our Papersegment, and $0.1 million is in Corporate and Other. Restructuring reserveliability account activity related to these charges is as follows:

 
| ** **                                       | ** ** | **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                         |       | (414            | )          | —     |       | (414       | )          |
| Restructuring reserve  at June 30, 2007     | ** ** | **$**           | **199**    | ** ** | **$**      | **—** | ** ** | **$** | **199** | ** ** |

 

***3.             Transactions WithRelated 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 June 30, 2007 and 2006, sales to OfficeMax were$159.5 million and $144.0 million, respectively. Sales to OfficeMaxwere $317.3 million and $276.8 million for the six months endedJune 30, 2007 and 2006, respectively. These sales are included in “Sales,Related parties” in the Consolidated Statements of Income.

*Debt and Interest*

In November 2006, we repaid a related-party notepayable to Boise Land & Timber Corp. in full. For the three and sixmonths ended June 30, 2006, interest expense in our ConsolidatedStatements of Income included $3.5 million and $8.9 million,respectively, of related-party interest expense.

*Equity Distributions*

The majority 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 six months ended June 30, 2007,we made no cash distributions to Forest Products Holdings (FPH), our majorityowner, or management investors; however, we made $2.8 million of cashdistributions to OfficeMax to fund its tax obligations related to itsinvestment in us.

During the six months ended June 30, 2006, we made $10.5 millionof cash distributions to FPH, which in turn paid $9.4 million to MadisonDearborn Partners (MDP), our equity sponsor, and $1.1 million tomanagement investors. During this period we also made $0.2 million of cashdistributions to OfficeMax to fund its tax obligations related to itsinvestment in us.

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

We receive rebates andallowances from our vendors under a number of different programs, includingvendor marketing programs. At June 30, 2007, and December 31, 2006,we had $2.7 million and $4.3 million, respectively, of vendor rebatesand allowances recorded in “Receivables, Other” on the Consolidated BalanceSheets. These rebates and allowances are accounted for in accordance withEITF 02-16, *Accounting by a Customer(Including a Reseller) for Certain Consideration Received From a Vendor*.Rebates and allowances received from our vendors are recognized as a reductionof “Materials, labor, and other operating expenses” when the product is sold,unless the rebates and allowances are linked to a specific incremental cost tosell a vendor’s product. Amounts received from vendors that are linked tospecific selling and distribution expenses are recognized as a reduction of “Sellingand distribution expenses” in the period the expense is incurred.

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates provided to our customers are accounted for inaccordance with EITF 01-09, *Accounting forConsideration Given by a Vendor to a Customer*. The rebates arerecorded as a decrease in sales. At June 30, 2007, and December 31,2006, we had $17.1 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  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                              | ** ** | ** **                                     | ** ** |
| ** **                              | ** ** | **(thousands)**                                | ** ** |
| ** **                              | ** ** | ** **                                     | ** ** |
| Changes in  retiree healthcare programs |       | $                                              | (4,367     | )                                            | $          | — |   | $ | (4,367 | ) | $ | (3,741 | ) |
| Sales of assets,  net                   |       | (1,700                                         | )          | 822                                          |       | (701 | ) | 2,408 |   |
| Project costs                           |       | 10                                             |       | 2,135                                        |       | 249 |   | 2,135 |   |
| Other, net (a)                          |       | 966                                            |       | 276                                          |       | 2,274 |   | 306 |   |
| ** **                              | ** ** | **$**                                          | **(5,091** | **)**                                        | **$**      | **3,233** | ** ** | **$** | **(2,545** | **)** | **$** | **1,108** | ** ** |

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(a)                                  The three and six months ended June 30,2007, included $0.7 million and $2.0 million of expense related to theclosure of our paper converting facility in Salem, Oregon, which we expect toclose by the end of third quarter 2007.

***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 or reimbursementsprovided by the lessor. Rental expense for operating leases was$6.3 million and $6.2 million for the three months endedJune 30, 2007 and 2006, and $12.6 million and $11.2 million forthe six months ended June 30, 2007 and 2006, respectively. Sublease rentalincome was not material in any of the periods presented.

Fornoncancelable operating leases with remaining terms of more than one year, theminimum lease payment requirements are $10.4 million for the remainder of2007, $19.7 million in 2008, $18.2 million in 2009,$16.7 million in 2010, $13.6 million in 2011, and $11.9 millionin 2012, with total payments thereafter of $51.1 million. These futureminimum lease payment requirements have not been reduced by sublease rentalsdue in the future under noncancelable subleases. Minimum sublease incomereceived in the future is not expected to be material.

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In second quarter 2007, we sold our newly constructed building materialsdistribution center in Milton, Florida, for $10.1 million, net of relatedfees and expenses. The proceeds were used to make debt repayments. Inconnection with the sale, we leased back the facility over a 15-year leaseterm. The lease is accounted for as an operating lease. The minimum leasepayment requirements related to the transaction are included in the minimumlease payments disclosed above.

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$1.7 million loss recorded in “Other (income) expense, net” in ourConsolidated Statement of Income. The proceeds were used to pay down ourTranche D term loan. In connection with the sale, we leased backapproximately 65% of the building over a staggered lease term of ten to12 years. The lease is accounted for as an operating lease. The minimumlease payment requirements related to the transaction are included in theminimum 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 seven years, with fixed payment terms similar to those inthe original lease agreements.

***7.             Income Taxes***

The majority of our businesses andassets are held and operated by limited liability companies, which are notsubject to entity-level federal or state income taxation. The income taxes inrespect to these operations are payable by our equity holders in accordancewith their respective ownership percentages. We make cash distributions topermit the members of Boise and affiliates to pay these taxes. For the threemonths ended June 30, 2007 and 2006, we made zero and $10.7 millionof cash distributions, respectively, to permit our equity holders to pay thesetaxes and $2.8 million and $10.7 million for the six months endedJune 30, 2007 and 2006, respectively. Both our senior credit facilitiesand the indenture governing our notes permit these distributions.

Boise Cascade Holdings, L.L.C., orone of our subsidiaries files federal income tax returns in the U.S. and Canadaand various state and foreign income tax returns in the major statejurisdictions of Alabama, Idaho, Louisiana, Oregon, Minnesota, Texas, andWashington. We are subject to tax examinations from 2004 (our inception) topresent. There are currently no tax examinations planned or in process.

During the three months endedJune 30, 2007 and 2006, our effective tax rates for our separate subsidiariesthat are taxed as corporations were 34.4% and 40.9%. Our effective tax rateswere 34.7% and 41.8% for the six months ended June 30, 2007 and 2006. 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 the three and six months endedJune 30, 2006, we received $0.3 million and $6.0 million offederal and state income tax refunds as a result of rescinding ourC corporation status in fourth quarter 2005 and paid $2.0 million and$3.3 million of taxes, net of other refunds received. During the three andsix months ended June 30, 2007, we paid $1.1 million and$1.3 million of taxes, net of refunds received. At both June 30,2007, and December 31, 2006, we had $0.4 million of deferred taxliabilities related to our taxable subsidiaries recorded on our ConsolidatedBalance Sheets.

In January 2007, we adopted theprovisions of FASB Interpretation (FIN) No. 48, *Accountingfor Uncertainty in Income Taxes — an Interpretation of FASB StatementNo. 109,*and it did not have a significant impact on ourfinancial position or results of operations. On January 1, 2007, we had aninsignificant amount of unrecognized tax benefits, none of which would affectour effective tax rate if recognized. We do not anticipate that the amount ofunrecognized tax benefits will significantly increase or decrease within thenext 12 months. We recognize interest and penalties on unrecognized taxbenefits in**“Income tax provision” in theConsolidated Statements of Income. For the three and six months endedJune 30, 2007 and 2006, and the year ended December 31, 2006, werecognized an insignificant amount of interest and penalties in ourConsolidated Statements of Income and on our Consolidated Balance Sheets.

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***8.             Receivables***

We have a large, diversified customer base. A large portion of ouroffice papers sales volume is sold to OfficeMax. 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.Sales to OfficeMax and Abitibi-Consolidated represent concentrations in thevolumes of business transacted and concentrations of credit risk. AtJune 30, 2007, we had $46.7 million and $27.7 million ofaccounts receivable due from OfficeMax and Abitibi, respectively, and at December 31,2006, we had $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 13, Debt.

***9.             Inventories***

Inventories include thefollowing:
| ** **                          | ** ** | **June 30, 2007** | ** **  | **December 31, 2006** | ** ** |
|-------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                          | ** ** | ** **                  | ** **  |
| ** **                          | ** ** | **(thousands)**             | ** **  |
| ** **                          | ** ** | ** **                  | ** **  |
| Finished goods  and work in process |       | $                           | 427,605     |                            | $          | 420,620 |   |
| Logs                                |       | 33,281                      |        | 54,326                          |       |
| Other raw  materials and supplies   |       | 177,143                     |        | 165,880                         |       |
| ** **                          | ** ** | **$**                       | **638,029** | ** **                      | **$**      | **640,826** | ** ** |

 

***10.          Property andEquipment***

Propertyand equipment consisted of the following asset classes:
| ** **                     | ** ** | **June 30, 2007** | ** **    | **December 31, 2006** | ** ** |
|--------------------------------|------------|-----------------------------|---------------|---------------------------------|------------|
| ** **                     | ** ** | ** **                  | ** **    |
| ** **                     | ** ** | **(thousands)**             | ** **    |
| ** **                     | ** ** | ** **                  | ** **    |
| Land and land  improvements    |       | $                           | 73,151        |                            | $          | 72,539 |   |
| Buildings and  improvements    |       | 238,580                     |          | 231,423                         |       |
| Machinery and  equipment       |       | 1,378,758                   |          | 1,338,894                       |       |
| Construction in  progress      |       | 131,096                     |          | 100,370                         |       |
|                           |       | 1,821,585                   |          | 1,743,226                       |       |
| Less accumulated  depreciation |       | (348,697                    | )             | (280,911                        | )          |
| ** **                     | ** ** | **$**                       | **1,472,888** | ** **                      | **$**      | **1,462,315** | ** ** |

 

***11.          Goodwill and Intangible Assets***

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.

11

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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.

Changes in thecarrying 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 June 30, 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, noncompeteagreements, and technology. The Central Texas Corrugated trade name isamortized over five years. The trade names and trademark assets acquired in theForest Products Acquisition have an indefinite life and are not amortized.Customer relationships are amortized over five to ten years, noncompeteagreements are amortized over approximately two years, and technology isamortized over three to five years. Intangible assets consisted of thefollowing:

 
| ** **                  | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|-----------------------------|------------|-------------------------------------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount**                             | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying   Amount** | ** ** |
| ** **                  | ** ** | ** **                                                  | ** ** |
| ** **                  | ** ** | **(thousands)**                                             | ** ** |
| ** **                  | ** ** | ** **                                                  | ** ** |
| Trade names and  trademarks |       | $                                                           | 24,700     |   | $ | (536 | ) | $ | 24,164 |   |
| Customer  relationships     |       | 13,400                                                      |       | (5,270 | ) | 8,130 |   |
| Noncompete  agreements      |       | 1,200                                                       |       | (511 | ) | 689 |   |
| Technology                  |       | 5,043                                                       |       | (2,858 | ) | 2,185 |   |
|                        | ** ** | **$**                                                       | **44,343** | ** ** | **$** | **(9,175** | **)** | **$** | **35,168** | ** ** |

 
| ** **                  | ** ** | **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 $1.2 million and $2.3 million for the threeand six months ended June 30, 2007, and $1.1 million and$1.9 million for the same periods in 2006. The estimated amortizationexpense is $2.8 million for the remainder of 2007, $3.8 million,$3.1 million, $1.1 million, $0.5 million, and $0.4 millionin 2008, 2009, 2010, 2011, and 2012, respectively.

 

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***12.          Asset Retirement 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 June 30, 2007, and December 31,2006, we had $12.0 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 six months ended June 30, 2007, and theyear ended December 31, 2006:

 
| ** **                                          | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                          | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| ** **                                          | ** ** | **(thousands)**             | ** ** |
| ** **                                          | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Asset retirement  obligation at beginning of period |       | $                           | 11,544     |                            | $          | 11,484 |   |
| Liabilities incurred                                |       | —                      |       | 1,633                           |       |
| Accretion expense                                   |       | 467                         |       | 1,020                           |       |
| Payments                                            |       | —                      |       | (53                             | )          |
| Revisions in estimated  cash flows                  |       | —                      |       | (2,540                          | )          |
| Asset retirement obligation at end of period        | ** ** | **$**                       | **12,011** | ** **                      | **$**      | **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 estimate the settlement dates of the obligations. These assetretirement obligations include, for example, (i) removal and disposal ofpotentially hazardous materials on equipment and/or an operating facility ifthe equipment and/or facilities were to undergo major maintenance, renovation,or demolition; (ii) wastewater treatment ponds that may be required to bedrained and/or cleaned if the related operating facility is closed; and(iii) storage sites or owned facilities for which removal and/or disposalof chemicals and other related materials are required if the operating facilityis closed. We will recognize a liability in the period in which sufficientinformation becomes available to reasonably estimate the fair value of theseobligations.

***13.          Debt***

At June 30, 2007,and December 31, 2006, our short- and long-term debt and the interestrates on that debt were as follows:

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| ** **                                      | ** ** | **June 30, 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             |       | —                      |          | N/A                                |       | N/A |   | 538,900 |   | 7.1 | % | 6.8 | % |
| Tranche E term  loan, due 2014             |       | 523,688                     |          | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| 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              |       | 70,000                      |          | 5.3                                | %          | N/A |   | 25,000 |   | 5.6 | % | N/A |   |
| Current portion of  long-term debt              |       | (5,250                      | )             | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| Long-term debt, less  current portion           |       | 1,238,438                   |          | 7.1                                | %          | 6.9 | % | 1,213,900 |   | 7.3 | % | 7.1 | % |
| Short-term borrowings                           |       | —                      |          | N/A                                |       | N/A |   | 3,200 |   | 6.0 | % | N/A |   |
| Current portion of  long-term debt              |       | 5,250                       |          | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| Total debt                                      | ** ** | **$**                       | **1,243,688** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,217,100** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

*Amended and Restated Facilities*

On May 3,2007, we amended and restated our senior secured credit facilities (theFacilities), which consisted of a $475.0 million revolving credit facility(due in 2010) and an $840.0 million Tranche D term loan (due in2011). Our amended and restated Facilities consist of a $450.0 millionrevolving credit facility (due in 2010) and a $525.0 millionTranche E term loan (due in 2014). In connection with our amendment andrestatement, we repaid all amounts outstanding under our Tranche D termloan. We also obtained $200 million of commitments for a delayed-draw termloan (due in 2014) that, absent unforeseen market or business conditions, weplan to use to redeem the majority of our existing senior unsecuredfloating-rate notes (due in 2012) when they become callable at par in October2007.

Our amendedrevolving credit facility agreement permits us to borrow up to$450.0 million for general corporate purposes. At June 30, 2007, wehad no borrowings outstanding under our revolving credit facility; however,$35.5 million of letters of credit were considered a draw on the revolver,reducing our borrowing capacity to $414.5 million. Borrowings under ourrevolving credit facility are based on the prime rate, the federal fundseffective rate, or the London Interbank Offered Rate (LIBOR). Pricing issubject to quarterly adjustment based on the ratio of our total indebtedness toour last four quarters of consolidated earnings before interest, taxes,depreciation, and amortization (EBITDA). The range of borrowing costs under thepricing grid is:  (i) the higher ofprime plus 0.50% to 1.25% or the federal funds effective rate plus 1.00% to1.75% or (ii) LIBOR plus 1.50% to 2.25%. For the six months endedJune 30, 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 borrowingsunder the revolver were zero and $10.5 million during the six months endedJune 30, 2007, and zero and $30.0 million during the year endedDecember 31, 2006. The weighted average amounts of borrowings outstandingunder the revolver during the six months ended June 30, 2007 and 2006, were$0.1 million and $1.5 million. The revolving credit facility providesfor a commitment fee of 0.50% per annum payable to the lenders on the averagedaily unused portion of the revolving credit facility. We also have a swinglineoption under the revolver, which allows us to borrow at negotiated rates up toan aggregate of $40.0 million from individual banks that are parties tothe agreement. Swingline borrowings are considered borrowings under therevolving credit facility agreement.

At June 30,2007, $523.7 million was outstanding under the Tranche E term loanamended and restated credit facility (including $5.3 million of currentportion), and our borrowing rate was 6.9%. Borrowings under the Tranche Eterm loan are based on (i) the higher of the prime rate plus 0.50% or thefederal funds effective rate plus 1.00% or (ii) LIBOR plus 1.50%. We arerequired to make scheduled principal payments on the Tranche E term loanin the amount of $2.6 million during the remainder of 2007,$5.3 million in each of 2008 through 2012, $248.7 million in 2013,and $245.9 million in 2014.

Borrowings under the Facilities are subject tofinancial covenants, including a requirement to maintain a minimuminterest coverage ratio and a maximum limit on our leverage ratio, as well ascustomary nonfinancial covenants. Thefinancial maintenance covenants are applicable only to the

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$450 million revolving credit portion ofthe agreement and function as debt incurrence covenants with respect to theremainder of the facility.

*Senior Notes*

In October 2004,Boise Cascade, L.L.C. (Boise LLC) issued $250.0 million of seniorunsecured floating-rate notes due in 2012 and $400.0 million of 7.125%senior subordinated notes due in 2014. Net proceeds from the notes were used tofund a portion of the purchase price for the Forest Products Acquisition. InJuly 2005, we completed an exchange offer whereby all of our seniorunsecured floating-rate notes and senior subordinated notes were exchanged forregistered securities with identical terms (other than terms relating toregistration rights) to the notes issued in October 2004. We may redeem all orpart of the notes at any time at redemption prices set forth in the indenture.If we sell specific assets or experience specific kinds of changes in control,we must offer to purchase the notes. The senior unsecured floating-rate notesbear interest at a floating rate equal to LIBOR plus 2.9%. At bothJune 30, 2007, and December 31, 2006, our borrowing rates for the$250.0 million senior unsecured floating-rate notes were 8.2%. Inconnection with the amendment and restatement of our Facilities, we obtained $200million of commitments for a delayed-draw term loan that, absent unforeseenmarket or business conditions, we plan to use to redeem the majority of oursenior unsecured floating-rate notes when they become callable at par inOctober 2007. The delayed-draw term loan has a commitment fee of 1.5% per annumuntil drawn. Once drawn, the pricing is the same as for the Tranche E termloan. We are required to make scheduled principal payments on the delayed-drawterm loan in the amount of $0.5 million in 2007, $2.0 million in eachof 2008 through 2012, $95.3 million in 2013, and $94.2 million in2014.

*BorrowingsSecured 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 June 30, 2007, andDecember 31, 2006, we had $70.0 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 June 30, 2007, andDecember 31, 2006, the interest rates for borrowings secured byreceivables 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 June 30, 2007, couldnot exceed $250.0 million. Theaccounts receivable securitization program contains financial covenantsrequiring us to maintain a minimum interest coverage ratio and a specifiedmaximum leverage ratio.

*Other*

We also have otheroutstanding letters of credit, which are used for trade purchases. AtJune 30, 2007, and December 31, 2006, we had $4.2 million and$0.1 million, respectively, of outstanding letters of credit. Theseletters of credit do not reduce our borrowing capacity under our amendedrevolving credit facility.

We have enteredinto interest 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 6.8% and7.0% at June 30, 2007, and December 31, 2006, respectively. Foradditional information on our interest rate swaps, see Note 14, FinancialInstruments.

At June 30, 2007, and December 31, 2006, we had $29.2 million and$31.5 million of costs recorded in “Deferred financing costs” on ourConsolidated Balance Sheets. In connection with the May 2007 amendment andrestatement of our Facilities, we capitalized $2.6 million of financingcosts and wrote off approximately $1.8 million of deferred financingcosts. We recorded the $1.8 million charge in 

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“Interest expense” in our Consolidated Statement of Income for the threeand six months ended June 30, 2007.

At June 30, 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%.

Forboth the six months ended June 30, 2007 and 2006, cash payments forinterest, net of interest capitalized, were $45.6 million.

***14.          Financial Instruments***

We are exposed to risks such as changes in interest rates,energy prices, and foreign currency exchange rates. We employ a variety ofpractices to manage these risks, including operating and financing activitiesand, where deemed appropriate, the use of derivative instruments. Derivativeinstruments are used only for risk management purposes and not for speculationor trading. Derivatives are such that a specific debt instrument, contract, oranticipated purchase determines the amount, maturity, and other specifics ofthe hedge. If a derivative contract is entered into, we either determine thatit is an economic hedge or we designate the derivative as a cash flow or fairvalue hedge. We formally document all relationships between hedging instrumentsand the hedged items, as well as our risk management objectives and strategiesfor undertaking various hedged transactions. For those derivatives designatedas cash 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 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 is predominantly variable-rate. We manage interest rate risk onour variable-rate debt by entering into interest rate swaps. At June 30,2007, the estimated current market value of our fixed-rate debt, based on then-currentinterest rates for similar obligations with like maturities, was approximately$20.4 million less than theamount reported on our Consolidated Balance Sheet.

During second quarter 2007, in connectionwith the amendment and restatement of our Facilities, we concluded that theinterest payments on our senior unsecured floating-rate notes were no longerprobable of occurring after October 2007, when the notes become callable atpar. As a result, during second quarter 2007, we recorded the fair value of theinterest rate swaps, or $5.4 million of income, in “Change in fair valueof interest rate swaps” in our Consolidated Statements of Income.

In exchange for the termination of two of our interest rate swap agreementsthat were scheduled to begin in 2009, we received $2.8 million that werecorded in “Accumulated other comprehensive income.” We will reclassify the$2.8 million in “Accumulated other comprehensive income” as a reduction ofinterest expense in 2009 and 2010.

At June 30, 2007, we had fourinterest rate swaps to hedge our exposure to interest rate fluctuationsassociated with a portion of our variable-rate debt. The swaps effectivelyhedge $500 million of our variable-rate debt exposure through 2009.Assuming no changes in interest rates, we expect to reclassify$4.1 million of amounts recorded in “Accumulated other comprehensiveincome” as a 

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decrease in interest expense during the remainderof 2007. At June 30, 2007, we recorded no ineffectiveness related to these hedges.

*EnergyRisk*

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 June 30, 2007, we had enteredinto derivative instruments related to approximately 10% of our forecastednatural gas purchases for July 2007 and 25% of our forecasted natural gaspurchases from August 2007 through October 2007.

*ForeignCurrency Risk*

At June 30, 2007, we had no foreign currencyhedges.

***15.          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 costs in our Paper and Packaging &Newsprint segments to income (loss) ratably over the year. We recast our 2006interim financial information included in this Form 10-Q using thedirect expense method. As a result of adopting this FSP, we increased “Materials,labor, and other operating expenses” $2.2 million and decreased “Netincome” by the same amount for the three months ended June 30, 2006. Ofthe $2.2 million adjustment, we reduced income $1.8 million in ourPaper segment and $0.4 million in our Packaging & Newsprintsegment. During the six months ended June 30, 2006, we increased “Materials,labor, and other operating expenses” $0.3 million and decreased “Netincome” by the same amount. Of the $0.3 million adjustment, we increasedincome $1.6 million in our Paper segment and reduced income$1.9 million 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

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 is material in light of relevantquantitative and qualitative factors. SAB 108 did not have a materialimpact on our financial 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.

***16.          Retirement and Benefit Plans***

The followingtable 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  June 30** | ** ** | **Three Months Ended  June 30** | ** ** |
| ** **                                     | ** ** | **2007**                                       | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | ** **                                     | ** ** |
| ** **                                     | ** ** | **(thousands)**                                | ** ** |
| ** **                                     | ** ** | ** **                                     | ** ** |
| Service cost                                   |       | $                                              | 5,615      |                                           | $          | 6,219 |   | $ | 30 |   | $ | 53 |   |
| Interest cost                                  |       | 9,301                                          |       | 8,446                                          |       | 122 |   | 91 |   |
| Expected return  on plan assets                |       | (9,217                                         | )          | (8,555                                         | )          | — |   | — |   |
| Recognized  actuarial loss                     |       | 130                                            |       | 69                                             |       | — |   | — |   |
| Amortization of  prior service costs and other |       | 371                                            |       | 112                                            |       | — |   | — |   |
| Company-sponsored  plans                       |       | 6,200                                          |       | 6,291                                          |       | 152 |   | 144 |   |
| Multiemployer  pension plans                   |       | 120                                            |       | 125                                            |       | — |   | — |   |
| Net periodic benefit  cost                     | ** ** | **$**                                          | **6,320**  | ** **                                     | **$**      | **6,416** | ** ** | **$** | **152** | ** ** | **$** | **144** | ** ** |

 
| ** **                                     | ** ** | **Pension Benefits**                    | ** ** | **Other Benefits**                      | ** ** |
|------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                     | ** ** | **Six Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
| ** **                                     | ** ** | **2007**                                     | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | ** **                                   | ** ** |
| ** **                                     | ** ** | **(thousands)**                              | ** ** |
| ** **                                     | ** ** | ** **                                   | ** ** |
| Service cost                                   |       | $                                            | 11,362     |                                         | $          | 12,438 |   | $ | 84 |   | $ | 107 |   |
| Interest cost                                  |       | 18,807                                       |       | 16,892                                       |       | 227 |   | 185 |   |
| Expected return  on plan assets                |       | (18,814                                      | )          | (17,111                                      | )          | — |   | — |   |
| Recognized actuarial  loss                     |       | 260                                          |       | 139                                          |       | — |   | — |   |
| Amortization of  prior service costs and other |       | 545                                          |       | 224                                          |       | — |   | — |   |
| Curtailment  (gain) loss                       |       | (181                                         | )          | 821                                          |       | — |   | — |   |
| Company-sponsored  plans                       |       | 11,979                                       |       | 13,403                                       |       | 311 |   | 292 |   |
| Multiemployer  pension plans                   |       | 248                                          |       | 282                                          |       | — |   | — |   |
| Net periodic benefit  cost                     | ** ** | **$**                                        | **12,227** | ** **                                   | **$**      | **13,685** | ** ** | **$** | **311** | ** ** | **$** | **292** | ** ** |

 

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

* *

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***17.        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.

An analysis of our operations by segment is asfollows:
|                                                  | ** ** | **Sales**      | ** **  | **Income**             | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|----------------|-------------|------------------------|------------|-------------------|------------|------------|------------|
| ** **                                       | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **(Loss)** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **Before** | ** ** | **and** | ** ** | **EBITDA** | ** ** |
| ** **                                       | ** ** | **Trade**      | ** **  | **Related Party** | ** ** | **Intersegment**  | ** ** | **Total**  | ** ** | **Taxes** | ** ** | **Depletion** | ** ** | **(d)** | ** ** |
| ** **                                       | ** ** | ** **     | ** **  |
| ** **                                       | ** ** | **(millions)** | ** **  |
| ** **                                       | ** ** | ** **     | ** **  |
| **Three Months Ended June 30,  2007**  |       |           |        |                   |       |              |       |       |       |   |   |   |   |   |   |
| Building Materials  Distribution                 |       | $              | 723.6       |                   | $          | —            |       | $          | 0.1        |   | $ | 723.7 |   | $ | 20.4 |   | $ | 1.9 |   | $ | 22.2 |   |
| Wood Products                                    |       | 161.8          |        | —                 |       | 116.9             |       | 278.7      |       | 15.7 |   | 7.6 |   | 23.3 |   |
| Paper                                            |       | 226.1          |        | 159.5                  |       | 15.5              |       | 401.1      |       | 13.2 |   | 16.1 |   | 29.3 |   |
| Packaging &  Newsprint                  |       | 173.9          |        | —                 |       | 19.0              |       | 192.9      |       | 2.3 |   | 13.9 |   | 16.2 |   |
| Corporate and Other                              |       | 3.5            |        | —                 |       | 10.9              |       | 14.4       |       | (0.9 | ) (a) | 1.2 |   | 0.4 |   |
|                                             |       | 1,288.9        |        | 159.5                  |       | 162.4             |       | 1,610.8    |       | 50.7 |   | 40.7 |   | 91.4 |   |
| Intersegment  eliminations                       |       | —         |        | —                 |       | (162.4            | )          | (162.4     | )          | — |   | — |   | — |   |
| Change in fair value of  interest rate swaps (b) |       | —         |        | —                 |       | —            |       | —     |       | 5.4 |   | — |   | — |   |
| Interest expense (c)                             |       | —         |        | —                 |       | —            |       | —     |       | (24.4 | ) | — |   | — |   |
| Interest income                                  |       | —         |        | —                 |       | —            |       | —     |       | 0.6 |   | — |   | — |   |
| ** **                                       | ** ** | **$**          | **1,288.9** | ** **             | **$**      | **159.5**         | ** ** | **$**      | **—** | ** ** | **$** | **1,448.4** | ** ** | **$** | **32.3** | ** ** | **$** | **40.7** | ** ** | **$** | **91.4** | ** ** |

 
|                                            | ** ** | **Sales**      | ** **  | **Income**             | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------|-------------|------------------------|------------|-------------------|------------|------------|------------|
| ** **                                 | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **(Loss)** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **Before** | ** ** | **and** | ** ** | **EBITDA** | ** ** |
| ** **                                 | ** ** | **Trade**      | ** **  | **Related Party** | ** ** | **Intersegment**  | ** ** | **Total**  | ** ** | **Taxes** | ** ** | **Depletion** | ** ** | **(d)** | ** ** |
| ** **                                 | ** ** | ** **     | ** **  |
| ** **                                 | ** ** | **(millions)** | ** **  |
| ** **                                 | ** ** | ** **     | ** **  |
| **Three Months Ended June 30,  2006** | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Building Materials  Distribution           |       | $              | 832.7       |                   | $          | —            |       | $          | —     |   | $ | 832.7 |   | $ | 25.3 |   | $ | 2.4 |   | $ | 27.7 |   |
| Wood Products                              |       | 182.8          |        | —                 |       | 131.9             |       | 314.7      |       | 17.2 |   | 6.7 |   | 23.9 |   |
| Paper                                      |       | 223.4          |        | 144.0                  |       | 14.3              |       | 381.7      |       | 14.7 |   | 15.5 |   | 30.2 |   |
| Packaging &  Newsprint            |       | 172.1          |        | —                 |       | 18.7              |       | 190.8      |       | 13.4 |   | 12.7 |   | 26.1 |   |
| Corporate and Other                        |       | 4.8            |        | —                 |       | 11.8              |       | 16.6       |       | (11.4 | ) | 1.2 |   | (10.3 | ) |
|                                       |       | 1,415.8        |        | 144.0                  |       | 176.7             |       | 1,736.5    |       | 59.2 |   | 38.5 |   | 97.6 |   |
| Intersegment  eliminations                 |       | —         |        | —                 |       | (176.7            | )          | (176.7     | )          | — |   | — |   | — |   |
| Interest expense                           |       | —         |        | —                 |       | —            |       | —     |       | (28.6 | ) | — |   | — |   |
| Interest income                            |       | —         |        | —                 |       | —            |       | —     |       | 0.9 |   | — |   | — |   |
| ** **                                 | ** ** | **$**          | **1,415.8** | ** **             | **$**      | **144.0**         | ** ** | **$**      | **—** | ** ** | **$** | **1,559.8** | ** ** | **$** | **31.5** | ** ** | **$** | **38.5** | ** ** | **$** | **97.6** | ** ** |

 

19

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|                                                  | ** ** | **Sales**      | ** **  | **Income**             | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|----------------|-------------|------------------------|------------|-------------------|------------|------------|------------|
| ** **                                       | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **(Loss)** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **Before** | ** ** | **and** | ** ** | **EBITDA** | ** ** |
| ** **                                       | ** ** | **Trade**      | ** **  | **Related Party** | ** ** | **Intersegment**  | ** ** | **Total**  | ** ** | **Taxes** | ** ** | **Depletion** | ** ** | **(d)** | ** ** |
| ** **                                       | ** ** | ** **     | ** **  |
| ** **                                       | ** ** | **(millions)** | ** **  |
| ** **                                       | ** ** | ** **     | ** **  |
| **Six  Months Ended June 30, 2007**    | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Building Materials  Distribution                 |       | $              | 1,332.3     |                   | $          | —            |       | $          | 0.1        |   | $ | 1,332.4 |   | $ | 30.8 |   | $ | 3.7 |   | $ | 34.6 |   |
| Wood Products                                    |       | 313.4          |        | —                 |       | 219.2             |       | 532.6      |       | 19.4 |   | 14.9 |   | 34.3 |   |
| Paper                                            |       | 449.0          |        | 317.3                  |       | 29.8              |       | 796.1      |       | 31.2 |   | 32.7 |   | 63.9 |   |
| Packaging &  Newsprint                  |       | 350.7          |        | —                 |       | 36.2              |       | 386.9      |       | 10.4 |   | 27.3 |   | 37.7 |   |
| Corporate and Other                              |       | 6.7            |        | —                 |       | 21.6              |       | 28.3       |       | (7.6 | ) (a) | 2.5 |   | (5.3 | ) |
|                                             |       | 2,452.1        |        | 317.3                  |       | 306.9             |       | 3,076.3    |       | 84.2 |   | 81.1 |   | 165.2 |   |
| Intersegment  eliminations                       |       | —         |        | —                 |       | (306.9            | )          | (306.9     | )          | — |   | — |   | — |   |
| Change in fair value of  interest rate swaps (b) |       | —         |        | —                 |       | —            |       | —     |       | 5.4 |   | — |   | — |   |
| Interest expense (c)                             |       | —         |        | —                 |       | —            |       | —     |       | (46.7 | ) | — |   | — |   |
| Interest income                                  |       | —         |        | —                 |       | —            |       | —     |       | 1.2 |   | — |   | — |   |
| ** **                                       | ** ** | **$**          | **2,452.1** | ** **             | **$**      | **317.3**         | ** ** | **$**      | **—** | ** ** | **$** | **2,769.4** | ** ** | **$** | **44.1** | ** ** | **$** | **81.1** | ** ** | **$** | **165.2** | ** ** |

 
|                                               | ** ** | **Sales**      | ** **  | **Income**             | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|----------------|-------------|------------------------|------------|-------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **(Loss)** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **     | ** **  | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | **Before** | ** ** | **and** | ** ** | **EBITDA** | ** ** |
| ** **                                    | ** ** | **Trade**      | ** **  | **Related Party** | ** ** | **Intersegment**  | ** ** | **Total**  | ** ** | **Taxes** | ** ** | **Depletion** | ** ** | **(d)** | ** ** |
| ** **                                    | ** ** | ** **     | ** **  |
| ** **                                    | ** ** | **(millions)** | ** **  |
| ** **                                    | ** ** | ** **     | ** **  |
| **Six  Months Ended June 30, 2006** |       |           |        |                   |       |              |       |       |       |   |   |   |   |   |   |
| Building  Materials Distribution              |       | $              | 1,594.5     |                   | $          | —            |       | $          | —     |   | $ | 1,594.5 |   | $ | 43.9 |   | $ | 4.8 |   | $ | 48.7 |   |
| Wood Products                                 |       | 368.8          |        | —                 |       | 258.5             |       | 627.3      |       | 36.0 |   | 13.0 |   | 49.0 |   |
| Paper                                         |       | 449.2          |        | 276.8                  |       | 26.1              |       | 752.1      |       | 15.5 |   | 30.1 |   | 45.6 |   |
| Packaging &  Newsprint               |       | 331.2          |        | —                 |       | 38.4              |       | 369.6      |       | 14.3 |   | 24.8 |   | 39.0 |   |
| Corporate and  Other                          |       | 9.6            |        | —                 |       | 22.9              |       | 32.5       |       | (17.7 | ) (a) | 2.4 |   | (15.2 | ) |
|                                          |       | 2,753.3        |        | 276.8                  |       | 345.9             |       | 3,376.0    |       | 92.0 |   | 75.1 |   | 167.1 |   |
| Intersegment  eliminations                    |       | —         |        | —                 |       | (345.9            | )          | (345.9     | )          | — |   | — |   | — |   |
| Interest expense                              |       | —         |        | —                 |       | —            |       | —     |       | (58.8 | ) | — |   | — |   |
| Interest income                               |       | —         |        | —                 |       | —            |       | —     |       | 1.5 |   | — |   | — |   |
| ** **                                    | ** ** | **$**          | **2,753.3** | ** **             | **$**      | **276.8**         | ** ** | **$**      | **—** | ** ** | **$** | **3,030.1** | ** ** | **$** | **34.7** | ** ** | **$** | **75.1** | ** ** | **$** | **167.1** | ** ** |

----

(a)                                  The three and six months ended June 30,2007, include a $4.4 million gain for changes in our retiree healthcareprograms. The six months ended June 30, 2006, includes a $3.7 milliongain for changes in our retiree healthcare programs.

(b)                                 Includes the change in the fair value of interest rate swaps related to theanticipated repayment of our senior unsecured floating-rate notes when theybecome callable at par in October 2007.

(c)                                  Includes the write-off of $1.8 million of deferred financing costsresulting from the repayment of our Tranche D term loan and reduction inborrowing capacity under our revolving credit facility.

(d)                                 EBITDA represents income before interest(interest expense, interest income, and change in fair value of interest rateswaps), income tax provision, and depreciation, amortization, and depletion.EBITDA is the primary measure used by our chief operating decision makers toevaluate segment operating performance and to decide how to allocate resourcesto segments. We believe EBITDA is useful to investors because it provides ameans to evaluate the operating performance of our segments and our company onan ongoing basis using criteria that are used by our internal decision makersand because it is frequently used by investors and other interested parties inthe evaluation of companies with substantial financial leverage. We believeEBITDA is a meaningful measure because it presents a transparent view of ourrecurring operating performance and allows management to readily view operatingtrends, perform analytical comparisons, and identify strategies to improveoperating performance. For example, we believe that the inclusion of items suchas taxes, interest expense, and interest income distorts management’s abilityto assess and view the core operating trends in our segments. EBITDA, however,is not a measure of our liquidity or financial performance under generallyaccepted accounting principles (GAAP) and should not be considered as analternative to net income (loss), income (loss) from operations, or any otherperformance measure derived in accordance with GAAP or as an alternative to cashflow from operating activities as a measure of our

20

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liquidity.The use of EBITDA instead of net income (loss) or segment income (loss) haslimitations as an analytical tool, including the inability to determineprofitability; the exclusion of interest expense, interest income, change infair value of interest rate swaps, 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 othersimilarly titled captions of other companies due to potential inconsistenciesin the methods of calculation.

The following is areconciliation of net income to EBITDA:
|                                              | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | ** **                                     | ** ** |
| ** **                                   | ** ** | **(millions)**                                 | ** ** |
| ** **                                   | ** ** | ** **                                     | ** ** |
| Net income                                   |       | $                                              | 28.9       |                                         | $          | 31.2 |   | $ | 39.4 |   | $ | 33.2 |   |
| Change in fair  value of interest rate swaps |       | (5.4                                           | )          | —                                       |       | (5.4 | ) | — |   |
| Interest expense                             |       | 24.4                                           |       | 28.6                                         |       | 46.7 |   | 58.8 |   |
| Interest income                              |       | (0.6                                           | )          | (0.9                                         | )          | (1.2 | ) | (1.5 | ) |
| Income tax  provision                        |       | 3.5                                            |       | 0.3                                          |       | 4.7 |   | 1.5 |   |
| Depreciation,  amortization, and depletion   |       | 40.7                                           |       | 38.5                                         |       | 81.1 |   | 75.1 |   |
| EBITDA                                       | ** ** | **$**                                          | **91.4**   | ** **                                   | **$**      | **97.6** | ** ** | **$** | **165.2** | ** ** | **$** | **167.1** | ** ** |

 

***18.          Commitments and Guarantees***

*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 Financial Statements” in our2006 Annual Report on Form 10-K. In addition, we have purchaseobligations for goods and services, capital expenditures, and raw materialsentered into in the normal course of business. At June 30, 2007, therehave been no material changes to our commitments, except as disclosed inNote 2, Purchase of OfficeMax’s Forest Products and Paper Assets, relatedto amounts we could pay OfficeMax under the Additional Consideration Agreement,and Note 13, Debt, related to our commitments under our amended andrestated senior secured credit facilities, which we completed in May 2007, and changesto our lease commitments for the incremental lease expense related to the saleand lease-back of our building materials distribution center in Milton,Florida, in second quarter 2007. The updated lease payment stream is disclosedin Note 6, Leases.

# *Guarantees*

We provide guarantees,indemnifications, and assurances to others, which constitute guarantees asdefined under FIN No. 45, *Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others*. Note 19, Commitments and Guarantees,of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in our2006 Annual Report on Form 10-K, describes the nature of our guarantees,including the approximate terms of the guarantees, how the guarantees arose,the events or circumstances that would require us to perform under theguarantees, and the maximum potential undiscounted amounts of future paymentswe could be required to make. As of June 30, 2007, there have been no materialchanges to the guarantees disclosed in our 2006 Annual Report onForm 10-K, except that Boise Cascade Holdings, L.L.C., and its direct andindirect domestic subsidiaries, excluding foreign subsidiaries and Birch Creek,now guarantee the obligations of our amended and restated obligations discussedin Note 13, Debt. See Note 13 for more information related to the amendedand restated Facilities.

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***19.          Consolidating Guarantor and Nonguarantor FinancialInformation***

The followingconsolidating financial information presents the Statements of Income (Loss),Balance Sheets, and Cash Flows related to our business. The senior unsecuredfloating-rate notes are guaranteed on a senior basis, and the seniorsubordinated notes are guaranteed on a senior subordinated basis, in each casejointly and severally by Boise and each of its existing and future subsidiaries(other than the co-issuers, Boise LLC and Boise Cascade FinanceCorporation). The nonguarantors include our foreign subsidiaries and BirchCreek. Other than the consolidated financial statements and footnotes for BoiseCascade Holdings, L.L.C., financial statements and other disclosures concerningthe guarantors have not been presented because management believes that suchinformation is not material to investors.

22

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**Boise CascadeHoldings, L.L.C., and SubsidiariesConsolidating Statements of Income (Loss)For the Three Months Ended June 30, 2007**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.   (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **                                            | ** ** |
| ** **                                                                           | ** ** | **(thousands)**                                       | ** ** |
| ** **                                                                           | ** ** | ** **                                            | ** ** |
| **Sales**                                                                            |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                                     | —     |                        | $          | —                      |       | $                                 | 1,280,960  |             | $          | 7,961            |       | $ | — |   | $ | 1,288,921 |   |
| Intercompany                                                                         |       | —                                                |       | 883                         |       | 1                           |       | 22,589                            |       | (23,473          | )          | —           |       |
| Related parties                                                                      |       | —                                                |       | —                      |       | 159,477                     |       | —                            |       | —           |       | 159,477          |       |
|                                                                                 |       | —                                                |       | 883                         |       | 1,440,438                   |       | 30,550                            |       | (23,473          | )          | 1,448,398        |       |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs and expenses**                                                               |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| Materials, labor, and  other operating expenses                                      |       | —                                                |       | 397                         |       | 1,264,231                   |       | 22,785                            |       | (17,119          | )          | 1,270,294        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                                |       | 992                         |       | 38,697                      |       | 1,033                             |       | —           |       | 40,722           |       |
| Selling and  distribution expenses                                                   |       | —                                                |       | —                      |       | 72,946                      |       | 674                               |       | —           |       | 73,620           |       |
| General and  administrative expenses                                            |       | —                                                |       | 7,190                       |       | 18,632                      |       | 742                               |       | (6,354           | )          | 20,210           |       |
| Other (income) expense,  net                                                         |       | —                                                |       | (4,027                      | )          | (1,904                      | )          | 840                               |       | —           |       | (5,091           | )          |
|                                                                                 |       | —                                                |       | 4,552                       |       | 1,392,602                   |       | 26,074                            |       | (23,473          | )          | 1,399,755        |       |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) from operations**                                                    |       | —                                                |       | (3,669                      | )          | 47,836                      |       | 4,476                             |       | —           |       | 48,643           |       |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| Foreign exchange gain  (loss)                                                        |       | —                                                |       | 13,789                      |       | 911                         |       | (12,680                           | )          | —           |       | 2,020            |       |
| Change in fair value of  interest rate swaps                                         |       | —                                                |       | 5,395                       |       | —                      |       | —                            |       | —           |       | 5,395            |       |
| Interest expense                                                                     |       | —                                                |       | (22,094                     | )          | —                      |       | (2,258                            | )          | —           |       | (24,352          | )          |
| Interest  expense—intercompany                                                  |       | —                                                |       | (155                        | )          | —                      |       | (4,490                            | )          | 4,645            |       | —           |       |
| Interest income                                                                      |       | —                                                |       | 592                         |       | 36                          |       | 14                                |       | —           |       | 642              |       |
| Interest  income—intercompany                                                   |       | —                                                |       | 17                          |       | 4,628                       |       | —                            |       | (4,645           | )          | —           |       |
|                                                                                 |       | —                                                |       | (2,456                      | )          | 5,575                       |       | (19,414                           | )          | —           |       | (16,295          | )          |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before income  taxes and equity in net income (loss) of affiliates** |       | —                                                |       | (6,125                      | )          | 53,411                      |       | (14,938                           | )          | —           |       | 32,348           |       |
| Income tax provision                                                                 |       | —                                                |       | (2,815                      | )          | (635                        | )          | —                            |       | —           |       | (3,450           | )          |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income (loss) before equity in  net income (loss) of affiliates**                  |       | —                                                |       | (8,940                      | )          | 52,776                      |       | (14,938                           | )          | —           |       | 28,898           |       |
|                                                                                 |       |                                                  |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity in net income (loss) of  affiliates**                                       |       | 28,898                                                |       | 37,838                      |       | —                      |       | —                            |       | (66,736          | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                                 | **28,898** | ** **                  | **$**      | **28,898**                  | ** ** | **$**                             | **52,776** | ** **       | **$**      | **(14,938**      | **)**      | **$** | **(66,736** | **)** | **$** | **28,898** | ** ** |

 

23

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**Boise CascadeHoldings, L.L.C., and SubsidiariesConsolidating Statements of Income (Loss)For the Three Months Ended June 30, 2006**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| **Sales**                                                                            |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                                 | 1,393,678  |             | $          | 22,106           |       | $ | — |   | $ | 1,415,784 |   |
| Intercompany                                                                         |       | —                                          |       | 1,711                       |       | 3                           |       | 19,135                            |       | (20,849          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 144,005                     |       | —                            |       | —           |       | 144,005          |       |
|                                                                                 |       | —                                          |       | 1,711                       |       | 1,537,686                   |       | 41,241                            |       | (20,849          | )          | 1,559,789        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs  and expenses**                                                              |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 1,779                       |       | 1,339,270                   |       | 35,572                            |       | (14,104          | )          | 1,362,517        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 901                         |       | 36,499                      |       | 1,059                             |       | —           |       | 38,459           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                      |       | 71,030                      |       | 577                               |       | —           |       | 71,607           |       |
| General and  administrative expenses                                            |       | —                                          |       | 11,408                      |       | 20,811                      |       | 684                               |       | (6,745           | )          | 26,158           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | 2,409                       |       | 52                          |       | 772                               |       | —           |       | 3,233            |       |
|                                                                                 |       | —                                          |       | 16,497                      |       | 1,467,662                   |       | 38,664                            |       | (20,849          | )          | 1,501,974        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (14,786                     | )          | 70,024                      |       | 2,577                             |       | —           |       | 57,815           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | 5,435                       |       | 426                         |       | (4,501                            | )          | —           |       | 1,360            |       |
| Interest expense                                                                     |       | —                                          |       | (25,618                     | )          | —                      |       | (2,992                            | )          | —           |       | (28,610          | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (137                        | )          | —                      |       | (4,103                            | )          | 4,240            |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 853                         |       | 61                          |       | 20                                |       | —           |       | 934              |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 66                          |       | 4,174                       |       | —                            |       | (4,240           | )          | —           |       |
|                                                                                 |       | —                                          |       | (19,401                     | )          | 4,661                       |       | (11,576                           | )          | —           |       | (26,316          | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (34,187                     | )          | 74,685                      |       | (8,999                            | )          | —           |       | 31,499           |       |
| Income tax  provision                                                                |       | —                                          |       | (3                          | )          | (302                        | )          | —                            |       | —           |       | (305             | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (34,190                     | )          | 74,383                      |       | (8,999                            | )          | —           |       | 31,194           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 31,194                                          |       | 65,384                      |       | —                      |       | —                            |       | (96,578          | )          | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                           | **31,194** | ** **                  | **$**      | **31,194**                  | ** ** | **$**                             | **74,383** | ** **       | **$**      | **(8,999**       | **)**      | **$** | **(96,578** | **)** | **$** | **31,194** | ** ** |

 

24

----

 

**BoiseCascade Holdings, L.L.C., and Subsidiaries****Consolidating Statements of Income (Loss)****Forthe Six Months Ended June 30, 2007**
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| **Sales**                                                                            |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                                 | 2,437,317  |             | $          | 14,777           |       | $ | — |   | $ | 2,452,094 |   |
| Intercompany                                                                         |       | —                                          |       | 1,738                       |       | 1                           |       | 45,229                            |       | (46,968          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 317,272                     |       | —                            |       | —           |       | 317,272          |       |
|                                                                                 |       | —                                          |       | 1,738                       |       | 2,754,590                   |       | 60,006                            |       | (46,968          | )          | 2,769,366        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs  and expenses**                                                              |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 815                         |       | 2,415,889                   |       | 42,211                            |       | (31,722          | )          | 2,427,193        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 1,898                       |       | 77,091                      |       | 2,093                             |       | —           |       | 81,082           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                      |       | 140,671                     |       | 1,357                             |       | —           |       | 142,028          |       |
| General and  administrative expenses                                            |       | —                                          |       | 14,048                      |       | 39,544                      |       | 1,359                             |       | (15,246          | )          | 39,705           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | (3,622                      | )          | (571                        | )          | 1,648                             |       | —           |       | (2,545           | )          |
|                                                                                 |       | —                                          |       | 13,139                      |       | 2,672,624                   |       | 48,668                            |       | (46,968          | )          | 2,687,463        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (11,401                     | )          | 81,966                      |       | 11,338                            |       | —           |       | 81,903           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | 15,359                      |       | 994                         |       | (14,091                           | )          | —           |       | 2,262            |       |
| Change in fair  value of interest rate swaps                                         |       | —                                          |       | 5,395                       |       | —                      |       | —                            |       | —           |       | 5,395            |       |
| Interest expense                                                                     |       | —                                          |       | (42,771                     | )          | —                      |       | (3,924                            | )          | —           |       | (46,695          | )          |
| Interest  expense—intercompany                                                  |       | —                                          |       | (282                        | )          | —                      |       | (9,382                            | )          | 9,664            |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 1,132                       |       | 78                          |       | 33                                |       | —           |       | 1,243            |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 32                          |       | 9,632                       |       | —                            |       | (9,664           | )          | —           |       |
|                                                                                 |       | —                                          |       | (21,135                     | )          | 10,704                      |       | (27,364                           | )          | —           |       | (37,795          | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (32,536                     | )          | 92,670                      |       | (16,026                           | )          | —           |       | 44,108           |       |
| Income tax  provision                                                                |       | —                                          |       | (3,311                      | )          | (1,362                      | )          | —                            |       | —           |       | (4,673           | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (35,847                     | )          | 91,308                      |       | (16,026                           | )          | —           |       | 39,435           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 39,435                                          |       | 75,282                      |       | —                      |       | —                            |       | (114,717         | )          | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                           | **39,435** | ** **                  | **$**      | **39,435**                  | ** ** | **$**                             | **91,308** | ** **       | **$**      | **(16,026**      | **)**      | **$** | **(114,717** | **)** | **$** | **39,435** | ** ** |

 

25

----

 

**Boise CascadeHoldings, L.L.C., and SubsidiariesConsolidating Statements of Income (Loss)For the Six Months Ended June 30, 2006**
|                                                                                      | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| ** **                                                                           | ** ** | **(thousands)**                                 | ** ** |
| ** **                                                                           | ** ** | ** **                                      | ** ** |
| **Sales**                                                                            |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| Trade                                                                                |       | $                                               | —     |                        | $          | —                      |       | $                                 | 2,719,977   |             | $          | 33,305           |       | $ | — |   | $ | 2,753,282 |   |
| Intercompany                                                                         |       | —                                          |       | 2,567                       |       | 1,236                       |       | 38,824                            |        | (42,627          | )          | —           |       |
| Related parties                                                                      |       | —                                          |       | —                      |       | 276,770                     |       | —                            |        | —           |       | 276,770          |       |
|                                                                                 |       | —                                          |       | 2,567                       |       | 2,997,983                   |       | 72,129                            |        | (42,627          | )          | 3,030,052        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| **Costs  and expenses**                                                              |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| Materials,  labor, and other operating expenses                                      |       | —                                          |       | 1,394                       |       | 2,639,760                   |       | 62,042                            |        | (29,867          | )          | 2,673,329        |       |
| Depreciation,  amortization, and depletion                                           |       | —                                          |       | 1,867                       |       | 71,185                      |       | 2,064                             |        | —           |       | 75,116           |       |
| Selling and  distribution expenses                                                   |       | —                                          |       | —                      |       | 141,498                     |       | 1,186                             |        | —           |       | 142,684          |       |
| General and  administrative expenses                                            |       | —                                          |       | 20,501                      |       | 38,628                      |       | 1,251                             |        | (12,760          | )          | 47,620           |       |
| Other (income)  expense, net                                                         |       | —                                          |       | 347                         |       | (888                        | )          | 1,649                             |        | —           |       | 1,108            |       |
|                                                                                 |       | —                                          |       | 24,109                      |       | 2,890,183                   |       | 68,192                            |        | (42,627          | )          | 2,939,857        |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | —                                          |       | (21,542                     | )          | 107,800                     |       | 3,937                             |        | —           |       | 90,195           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| Foreign exchange  gain (loss)                                                        |       | —                                          |       | 4,693                       |       | 403                         |       | (3,357                            | )           | —           |       | 1,739            |       |
| Interest expense                                                                     |       | —                                          |       | (53,787                     | )          | —                      |       | (4,999                            | )           | —           |       | (58,786          | )          |
| Interest expense—intercompany                                                   |       | —                                          |       | (246                        | )          | —                      |       | (8,512                            | )           | 8,758            |       | —           |       |
| Interest income                                                                      |       | —                                          |       | 1,386                       |       | 119                         |       | 33                                |        | —           |       | 1,538            |       |
| Interest  income—intercompany                                                   |       | —                                          |       | 113                         |       | 8,645                       |       | —                            |        | (8,758           | )          | —           |       |
|                                                                                 |       | —                                          |       | (47,841                     | )          | 9,167                       |       | (16,835                           | )           | —           |       | (55,509          | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | —                                          |       | (69,383                     | )          | 116,967                     |       | (12,898                           | )           | —           |       | 34,686           |       |
| Income tax  provision                                                                |       | —                                          |       | (5                          | )          | (1,518                      | )          | —                            |        | —           |       | (1,523           | )          |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | —                                          |       | (69,388                     | )          | 115,449                     |       | (12,898                           | )           | —           |       | 33,163           |       |
|                                                                                 |       |                                            |       |                        |       |                        |       |                              |        |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | 33,163                                          |       | 102,551                     |       | —                      |       | —                            |        | (135,714         | )          | —           |       |
| **Net income (loss)**                                                                | ** ** | **$**                                           | **33,163** | ** **                  | **$**      | **33,163**                  | ** ** | **$**                             | **115,449** | ** **       | **$**      | **(12,898**      | **)**      | **$** | **(135,714** | **)** | **$** | **33,163** | ** ** |

 

26

----

 

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

**Consolidating Balance Sheets atJune 30, 2007**
| ** **                    | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------|------------|-------------------------------------------------|-------------|-----------------------------|------------|-----------------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| ** **                    | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| ** **                    | ** ** | **(thousands)**                                 | ** **  |
| ** **                    | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| **ASSETS**                    | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
|                          |       |                                            |        |                        |       |                              |       |                              |          |             |       |             |       |
| **Current**                   | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Cash and cash  equivalents    |       | $                                               | 1           |                        | $          | 74,009                            |       | $                                 | 30            |             | $          | 797              |       | $ | — |   | $ | 74,837 |   |
| Receivables                   |       |                                            |        |                        |       |                              |       |                              |          |             |       |             |       |
| Trade, less  allowances       |       | —                                          |        | —                      |       | 10,708                            |       | 386,488                           |          | —           |       | 397,196          |       |
| Intercompany                  |       | —                                          |        | —                      |       | 56                                |       | 1,512                             |          | (1,568           | )          | —           |       |
| Related parties               |       | —                                          |        | 621                         |       | 4,287                             |       | 42,468                            |          | —           |       | 47,376           |       |
| Other                         |       | —                                          |        | 874                         |       | 10,303                            |       | 1,345                             |          | —           |       | 12,522           |       |
| Inventories                   |       | —                                          |        | 16                          |       | 623,180                           |       | 14,833                            |          | —           |       | 638,029          |       |
| Other                         |       | —                                          |        | 5,021                       |       | 11,690                            |       | 829                               |          | —           |       | 17,540           |       |
|                          |       | 1                                               |        | 80,541                      |       | 660,254                           |       | 448,272                           |          | (1,568           | )          | 1,187,500        |       |
|                          |       |                                            |        |                        |       |                              |       |                              |          |             |       |             |       |
| **Property**                  | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Property and equipment,  net  |       | —                                          |        | 9,275                       |       | 1,433,326                         |       | 30,287                            |          | —           |       | 1,472,888        |       |
| Fiber farms and  deposits     |       | —                                          |        | —                      |       | 28,103                            |       | 14,406                            |          | —           |       | 42,509           |       |
|                          |       | —                                          |        | 9,275                       |       | 1,461,429                         |       | 44,693                            |          | —           |       | 1,515,397        |       |
| ** **                    | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                        | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Deferred financing costs**  |       | —                                          |        | 28,964                      |       | —                            |       | 231                               |          | —           |       | 29,195           |       |
| **Goodwill**                  |       | —                                          |        | —                      |       | 21,846                            |       | —                            |          | —           |       | 21,846           |       |
| **Intangible assets, net**    |       | —                                          |        | —                      |       | 35,168                            |       | —                            |          | —           |       | 35,168           |       |
| **Investments in affiliates** |       | 885,913                                         |        | 760,749                     |       | —                            |       | —                            |          | (1,646,662       | )          | —           |       |
| **Other assets**              |       | —                                          |        | 10,544                      |       | 13,099                            |       | 2,854                             |          | —           |       | 26,497           |       |
| **Total assets**              | ** ** | **$**                                           | **885,914** | ** **                  | **$**      | **890,073**                       | ** ** | **$**                             | **2,191,796** | ** **       | **$**      | **496,050**      | ** ** | **$** | **(1,648,230** | **)** | **$** | **2,815,603** | ** ** |

 

27

----

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at June 30, 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**                                 | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Current portion of  long-term debt          |       | $                                               | —      |                        | $          | 5,250                       |       | $                                 | —        |             | $          | —           |       | $ | — |   | $ | 5,250 |   |
| Accounts payable                            |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Trade                                       |       | —                                          |        | 18,279                      |       | 362,101                     |       | 5,930                             |          | —           |       | 386,310          |       |
| Intercompany                                |       | —                                          |        | —                      |       | 1,512                       |       | 56                                |          | (1,568           | )          | —           |       |
| Accrued liabilities                         |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| Compensation and  benefits                  |       | —                                          |        | 28,927                      |       | 53,032                      |       | 942                               |          | —           |       | 82,901           |       |
| Interest payable                            |       | —                                          |        | 11,080                      |       | —                      |       | 705                               |          | —           |       | 11,785           |       |
| Other                                       |       | —                                          |        | 6,516                       |       | 30,537                      |       | 8,525                             |          | —           |       | 45,578           |       |
|                                        |       | —                                          |        | 70,052                      |       | 447,182                     |       | 16,158                            |          | (1,568           | )          | 531,824          |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Debt**                                    | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Long-term debt, less  current portion       |       | —                                          |        | 1,168,438                   |       | —                      |       | 70,000                            |          | —           |       | 1,238,438        |       |
|                                        |       | —                                          |        | 1,168,438                   |       | —                      |       | 70,000                            |          | —           |       | 1,238,438        |       |
| **Other**                                   | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Compensation and  benefits                  |       | —                                          |        | 126,344                     |       | —                      |       | —                            |          | —           |       | 126,344          |       |
| Other long-term  liabilities                |       | —                                          |        | 23,255                      |       | 15,210                      |       | —                            |          | —           |       | 38,465           |       |
|                                        |       | —                                          |        | 149,599                     |       | 15,210                      |       | —                            |          | —           |       | 164,809          |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Due to (from) affiliates**                |       | —                                          |        | (1,378,547                  | )          | 1,035,829                   |       | 342,718                           |          | —           |       | —           |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Redeemable equity units**                 | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series B equity  units                 |       | 17,365                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 17,365           |       |
| Series C equity  units                 |       | 7,984                                           |        | —                      |       | —                      |       | —                            |          | —           |       | 7,984            |       |
| Redeemable equity units                     |       | —                                          |        | 25,349                      |       | —                      |       | —                            |          | (25,349          | )          | —           |       |
|                                        |       | 25,349                                          |        | 25,349                      |       | —                      |       | —                            |          | (25,349          | )          | 25,349           |       |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |
| **Commitments and contingent  liabilities** | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| ** **                                  | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                 | ** ** | ** **                                      | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **       | ** ** |
| Series A equity units                       |       | 75,421                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 75,421           |       |
| Series B equity units                       |       | 765,681                                         |        | —                      |       | —                      |       | —                            |          | —           |       | 765,681          |       |
| Series C equity units                       |       | 14,081                                          |        | —                      |       | —                      |       | —                            |          | —           |       | 14,081           |       |
| Subsidiary equity                           |       | —                                          |        | 855,182                     |       | 693,575                     |       | 67,174                            |          | (1,615,931       | )          | —           |       |
| **Total capital**                           |       | 855,183                                         |        | 855,182                     |       | 693,575                     |       | 67,174                            |          | (1,615,931       | )          | 855,183          |       |
| **Total liabilities and capital**           | ** ** | **$**                                           | **880,532** | ** **                  | **$**      | **890,073**                 | ** ** | **$**                             | **2,191,796** | ** **       | **$**      | **496,050**      | ** ** | **$** | **(1,642,848** | **)** | **$** | **2,815,603** | ** ** |
|                                        |       |                                            |        |                        |       |                        |       |                              |          |             |       |             |       |

 

28

----

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

 

29

----

 

**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** | ** ** |

* *

30

----

 

**Boise CascadeHoldings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Six Months Ended June 30, 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)                                                                |       | $                                               | 39,435     |                        | $          | 39,435                      |       | $                                 | 91,308     |             | $          | (16,026          | )          | $ | (114,717 | ) | $ | 39,435 |   |
| Items in net income  (loss) not using (providing) cash                           |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Equity in net  income of affiliates                                              |       | (39,435                                         | )          | (75,282                     | )          | —                      |       | —                            |       | 114,717          |       | —           |       |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | —                                          |       | 2,989                       |       | 77,091                      |       | 2,180                             |       | —           |       | 82,260           |       |
| Related-party  interest expense                                                  |       | —                                          |       | 282                         |       | —                      |       | 9,382                             |       | (9,664           | )          | —           |       |
| Related-party  interest income                                                   |       | —                                          |       | (32                         | )          | (9,632                      | )          | —                            |       | 9,664            |       | —           |       |
| Deferred income  taxes                                                           |       | —                                          |       | 1,854                       |       | 59                          |       | —                            |       | —           |       | 1,913            |       |
| Pension and  other postretirement benefit expense                                |       | —                                          |       | 12,538                      |       | —                      |       | —                            |       | —           |       | 12,538           |       |
| Gain on changes  in retiree healthcare programs                                  |       | —                                          |       | (4,367                      | )          | —                      |       | —                            |       | —           |       | (4,367           | )          |
| Change in fair  value of interest rate swaps                                     |       | —                                          |       | (5,395                      | )          | —                      |       | —                            |       | —           |       | (5,395           | )          |
| Management  equity units expense                                            |       | —                                          |       | 1,550                       |       | —                      |       | —                            |       | —           |       | 1,550            |       |
| Other                                                                            |       | —                                          |       | (15,215                     | )          | (1,254                      | )          | 14,150                            |       | —           |       | (2,319           | )          |
| Decrease (increase) in  working capital, net of acquisitions                     |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                      |       | —                                          |       | 595                         |       | (1,789                      | )          | (68,088                           | )          | (4,376           | )          | (73,658          | )          |
| Inventories                                                                      |       | —                                          |       | 1                           |       | (767                        | )          | 401                               |       | —           |       | (365             | )          |
| Prepaid expenses                                                                 |       | —                                          |       | 4,159                       |       | (5,432                      | )          | (183                              | )          | —           |       | (1,456           | )          |
| Accounts payable  and accrued liabilities                                   |       | —                                          |       | (13,109                     | )          | 28,133                      |       | 2,936                             |       | 4,376            |       | 22,336           |       |
| Pension and other  postretirement benefit payments                               |       | —                                          |       | (524                        | )          | —                      |       | —                            |       | —           |       | (524             | )          |
| Current and deferred  income taxes                                               |       | —                                          |       | 1,491                       |       | 305                         |       | (84                               | )          | —           |       | 1,712            |       |
| Other                                                                            |       | —                                          |       | 2,741                       |       | 1,217                       |       | 1                                 |       | —           |       | 3,959            |       |
| Cash provided by  (used for) operations                                          |       | —                                          |       | (46,289                     | )          | 179,239                     |       | (55,331                           | )          | —           |       | 77,619           |       |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used  for) investment**                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Expenditures for  property and equipment                                    |       | —                                          |       | (2,424                      | )          | (85,991                     | )          | (1,498                            | )          | —           |       | (89,913          | )          |
| Sales of assets                                                                  |       | —                                          |       | 6                           |       | 16,897                      |       | —                            |       | —           |       | 16,903           |       |
| Investments in  affiliates                                                       |       | 3,002                                           |       | 75,282                      |       | —                      |       | —                            |       | (78,284          | )          | —           |       |
| Other                                                                            |       | —                                          |       | 15,365                      |       | (50                         | )          | (14,024                           | )          | —           |       | 1,291            |       |
| Cash provided by  (used for) investment                                     |       | 3,002                                           |       | 88,229                      |       | (69,144                     | )          | (15,522                           | )          | (78,284          | )          | (71,719          | )          |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash provided by (used for)  financing**                                       |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Issuances of long-term  debt                                                     |       | —                                          |       | 525,000                     |       | —                      |       | 180,000                           |       | —           |       | 705,000          |       |
| Payments of long-term  debt                                                      |       | —                                          |       | (540,212                    | )          | —                      |       | (135,000                          | )          | —           |       | (675,212         | )          |
| Short-term borrowings                                                            |       | —                                          |       | (3,200                      | )          | —                      |       | —                            |       | —           |       | (3,200           | )          |
| Proceeds from changes  to interest rate swaps                                    |       | —                                          |       | 2,848                       |       | —                      |       | —                            |       | —           |       | 2,848            |       |
| Tax distributions to  members                                                    |       | (2,753                                          | )          | —                      |       | —                      |       | —                            |       | —           |       | (2,753           | )          |
| Tax distribution to  Boise Cascade Holdings, L.L.C.                              |       | —                                          |       | (2,753                      | )          | —                      |       | —                            |       | 2,753            |       | —           |       |
| Other                                                                            |       | (248                                            | )          | (2,916                      | )          | —                      |       | —                            |       | 249              |       | (2,915           | )          |
| Cash provided by  (used for) financing                                      |       | (3,001                                          | )          | (21,233                     | )          | —                      |       | 45,000                            |       | 3,002            |       | 23,768           |       |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Due to (from)  affiliates                                                        |       | —                                          |       | 10,340                      |       | (110,097                    | )          | 24,475                            |       | 75,282           |       | —           |       |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Increase (decrease) in cash and  cash equivalents**                            |       | 1                                               |       | 31,047                      |       | (2                          | )          | (1,378                            | )          | —           |       | 29,668           |       |
| **Balance at beginning of the  year**                                            |       | —                                          |       | 42,962                      |       | 32                          |       | 2,175                             |       | —           |       | 45,169           |       |
| **Balance at end of the year**                                                   | ** ** | **$**                                           | **1**      | ** **                  | **$**      | **74,009**                  | ** ** | **$**                             | **30**     | ** **       | **$**      | **797**          | ** ** | **$** | **—** | ** ** | **$** | **74,837** | ** ** |

 

31

----

 

**Boise CascadeHoldings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Six Months Ended June 30, 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)                                                               |       | $                                               | 33,163     |                        | $          | 33,163                      |       | $                                 | 115,449    |             | $          | (12,898          | )          | $ | (135,714 | ) | $ | 33,163 |   |
| Items in net  income (loss) not using (providing) cash                           |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Equity in net (income) loss of affiliates                                        |       | (33,163                                         | )          | (102,551                    | )          | —                      |       | —                            |       | 135,714          |       | —           |       |
| Depreciation, depletion, and amortization of  deferred financing costs and other |       | —                                          |       | 4,232                       |       | 71,184                      |       | 2,151                             |       | —           |       | 77,567           |       |
| Related-party interest expense                                                   |       | —                                          |       | 9,055                       |       | —                      |       | 8,512                             |       | (8,645           | )          | 8,922            |       |
| Related-party interest income                                                    |       | —                                          |       | —                      |       | (8,645                      | )          | —                            |       | 8,645            |       | —           |       |
| Pension and other postretirement benefit expense                                 |       | —                                          |       | 13,977                      |       | —                      |       | —                            |       | —           |       | 13,977           |       |
| Gain on changes in retiree healthcare programs                                   |       | —                                          |       | (3,741                      | )          | —                      |       | —                            |       | —           |       | (3,741           | )          |
| Management equity units expense                                             |       | —                                          |       | 1,965                       |       | —                      |       | —                            |       | —           |       | 1,965            |       |
| Other                                                                            |       | —                                          |       | (3,044                      | )          | (403                        | )          | 3,357                             |       | —           |       | (90              | )          |
| Decrease  (increase) in working capital, net of acquisitions                     |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Receivables                                                                      |       | —                                          |       | 314                         |       | 5,538                       |       | (75,543                           | )          | 503              |       | (69,188          | )          |
| Inventories                                                                      |       | —                                          |       | 107                         |       | (17,327                     | )          | (1,600                            | )          | —           |       | (18,820          | )          |
| Prepaid expenses                                                                 |       | —                                          |       | 5,251                       |       | (7,431                      | )          | (285                              | )          | —           |       | (2,465           | )          |
| Accounts payable and accrued liabilities                                    |       | —                                          |       | (10,415                     | )          | 42,735                      |       | 4,681                             |       | (503             | )          | 36,498           |       |
| Pension and  other postretirement benefit payments                               |       | —                                          |       | (463                        | )          | —                      |       | —                            |       | —           |       | (463             | )          |
| Current and  deferred income taxes                                               |       | —                                          |       | 6,038                       |       | (1,761                      | )          | (14                               | )          | —           |       | 4,263            |       |
| Other                                                                            |       | —                                          |       | 4,206                       |       | (2,762                      | )          | 40                                |       | —           |       | 1,484            |       |
| Cash provided by (used for) operations                                           |       | —                                          |       | (41,906                     | )          | 196,577                     |       | (71,599                           | )          | —           |       | 83,072           |       |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                 |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Expenditures for  property and equipment                                    |       | —                                          |       | (1,577                      | )          | (68,503                     | )          | (1,264                            | )          | —           |       | (71,344          | )          |
| Acquisitions of  businesses and facilities                                       |       | —                                          |       | —                      |       | (42,549                     | )          | —                            |       | —           |       | (42,549          | )          |
| Sales of assets                                                                  |       | —                                          |       | 27,744                      |       | —                      |       | —                            |       | —           |       | 27,744           |       |
| Investments in  related parties                                                  |       | 10,570                                          |       | 102,551                     |       | —                      |       | —                            |       | (113,121         | )          | —           |       |
| Other                                                                            |       | —                                          |       | 4,576                       |       | 1,360                       |       | (4,199                            | )          | —           |       | 1,737            |       |
| Cash provided by (used for) investment                                      |       | 10,570                                          |       | 133,294                     |       | (109,692                    | )          | (5,463                            | )          | (113,121         | )          | (84,412          | )          |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                       | ** ** | ** **                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of  long-term debt                                                     |       | —                                          |       | 68,300                      |       | —                      |       | 170,000                           |       | —           |       | 238,300          |       |
| Payments of  long-term debt                                                      |       | —                                          |       | (154,100                    | )          | —                      |       | (105,000                          | )          | —           |       | (259,100         | )          |
| Note payable to  related party, net                                              |       | —                                          |       | (1,139                      | )          | —                      |       | —                            |       | —           |       | (1,139           | )          |
| Proceeds from  changes in interest rate swaps                               |       | —                                          |       | 25,620                      |       | —                      |       | —                            |       | —           |       | 25,620           |       |
| Proceeds from  equity units issued, net of repurchases                           |       | 155                                             |       | —                      |       | —                      |       | —                            |       | (155             | )          | —           |       |
| Tax  distributions to members                                                    |       | (10,725                                         | )          | —                      |       | —                      |       | —                            |       | —           |       | (10,725          | )          |
| Tax distributions  to Boise Cascade Holdings, L.L.C.                             |       | —                                          |       | (10,725                     | )          | —                      |       | —                            |       | 10,725           |       | —           |       |
| Other                                                                            |       | —                                          |       | 132                         |       | —                      |       | —                            |       | —           |       | 132              |       |
| Cash provided by (used for) financing                                       |       | (10,570                                         | )          | (71,912                     | )          | —                      |       | 65,000                            |       | 10,570           |       | (6,912           | )          |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| Due to (from)  affiliates                                                        |       | —                                          |       | (28,692                     | )          | (86,887                     | )          | 13,028                            |       | 102,551          |       | —           |       |
|                                                                             |       |                                            |       |                        |       |                        |       |                              |       |             |       |             |       |
| **Increase  (decrease) in cash and cash equivalents**                            |       | —                                          |       | (9,216                      | )          | (2                          | )          | 966                               |       | —           |       | (8,252           | )          |
| **Balance  at beginning of the period**                                          |       | —                                          |       | 85,469                      |       | 34                          |       | 2,668                             |       | —           |       | 88,171           |       |
| **Balance at end of the period**                                                 | ** ** | **$**                                           | **—** | ** **                  | **$**      | **76,253**                  | ** ** | **$**                             | **32**     | ** **       | **$**      | **3,634**        | ** ** | **$** | **—** | ** ** | **$** | **79,919** | ** ** |

 

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***20.        Legal Proceedings and Contingencies***

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

***ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION 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 2006 AnnualReport 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 six months ended June 30, 2007, from those listed inour 2006 Annual Report on Form 10-K. We do not assume an obligation to updateany forward-looking statement. Our actual results may differ materially fromthose contained in or implied by any of these forward-looking statements.

***Our Segments***

We operate our business using five reportablesegments:  Building MaterialsDistribution, Wood Products, Paper, Packaging & Newsprint, andCorporate and Other. These segments represent distinct businesses that aremanaged separately because of differing products and services. Each of thesebusinesses requires distinct operating and marketing strategies. Managementreviews the performance of the company based on these segments.

*Building Materials Distribution. *Our Building MaterialsDistribution segment is a leading national inventory-carrying wholesaledistributor of building materials. We distribute a broad line of buildingmaterials, including engineered wood products (EWP), oriented strand board(OSB), plywood, lumber, and general line items such as framing accessories,composite decking, roofing, siding, and insulation. We purchase most of thesebuilding materials from third-party suppliers and market them primarily tocustomers that resell building materials to professional builders in theresidential, light commercial construction, and repair-and-remodeling markets.

*Wood Products. *Our Wood Products segment manufactures and sells EWP,consisting of laminated veneer lumber (LVL), a high-strength engineered lumberoften used in beams; I-joists, a structural support typically used infloors and roofs; and laminated beams. We also produce plywood, particleboard,dimension lumber, and high-quality ponderosa pine lumber, a premium lumbergrade sold primarily to manufacturers of specialty wood windows, moldings, anddoors. Our wood products are used primarily in new residential and lightcommercial construction and in residential repair and remodeling. Most of theseproducts are sold to wholesalers, major retailers, and industrial converters orthrough our own wholesale building materials distribution outlets. During 2006,approximately 43% of the wood products we manufactured, including approximately60% of our EWP, 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, 

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while others have specialized features that make theseproducts value-added. Our value-added grades include high-bright and coloredcut-size office papers and custom-developed specialty papers for such uses aslabel and release. We sell to customers both directly from our mills andthrough distribution centers. In 2006, approximately 45% of our uncoated freesheet sales volume, including about 80% of our office papers sales volume, wassold 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 as CentralTexas Corrugated, or CTC, produces corrugated sheets that are sold to sheetplants in the region, where they are converted into corrugated containers for avariety of customers. Our containerboard and corrugated products are sold byour 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 our businesses are mixed. While housinghas experienced a significant downturn, printing and converting papers havebeen softer, and newsprint markets have been weak, office paper and packagingmarkets have been strong.

New residential construction activitycontinued at a slow pace in second quarter 2007 relative to recent years. TheU.S. Department of Commerce reported housing starts at a seasonally adjustedannual rate of 1.47 million units in June 2007, compared with1.82 million units in June 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 and volumes forengineered wood products and commodity products such as structural lumber. Inresponse to these price and demand reductions, some producers curtailedoperations or, in some cases, indefinitely closed facilities.

Second quarter 2007 uncoated free sheetprices were generally higher than first quarter 2007 prices. Effective May2007, we announced a price increase for the cut-size grades we produce. Thisprice increase has been fully implemented. Demand for our cut-size gradesexceeded our production during second quarter 2007 resulting in decreasinginventories.

Packaging markets remained relativelystable during second quarter 2007, while newsprint demand continued to soften,resulting in downward pricing pressure. This continued pricing pressureon newsprint has led us to accelerate the review process on our D-2 papermachine at our DeRidder, Louisiana, mill. While no decision has been made, weare considering converting the machine to containerboard or other grades orshutting down the machine.

As a result of solid-wood millcurtailments and some closures, residual chip supply markets in the PacificNorthwest have been very tight in recent quarters. Softwood chip prices beganto moderate in the latter part of the first quarter, as pulp mills had rebuilttheir inventories from the increased flow of chips from pulpwood. During secondquarter 2007, against relatively flat consumption, softwood pulpwood andsoftwood residual chip prices continued to decline from their first quarterpeaks. The outlook for residual fiber supply in the Pacific Northwest continuesto be difficult. These higher wood fiber costs are having a significantnegative impact on our St. Helens, Oregon, pulp and paper mill. Continuedweakness in the housing sector may prompt further closures of wood productsfacilities in the region, driving residual fiber supply down further and costshigher. As a result, we may choose to change our operating configuration atthat facility, including potentially closing some or all of the facility, if wecannot continue to operate on a positive cash-flow basis. We will continue toevaluate its ongoing financial performance.

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During second quarter 2007, we tookmaintenance outages at our International Falls, Minnesota, pulp and paper milland our St. Helens, Oregon, pulp and paper mill. In addition, we took ourWallula, Washington, pulp and paper mill down for maintenance and to completethe modification of the W-3 paper machine to produce label and release gradesin addition to the commodity grades historically produced on that machine. Themill was down for approximately 30 days. The mill restarted in June and isoperating normally. The machine has produced label and release product that iscurrently being tested for qualification by our customers. Initial customerfeedback on quality is positive. Other than this trial work, we continue toproduce the historical product mix on that machine at this time, pendingcustomer confirmation of product performance.

We believe thetotal negative impact on operating income of the maintenance and capitalshutdowns in the second quarter 2007 was approximately $18 million.

***Factors That Affect OurOperating Results***

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

·                  Generaleconomic conditions, including but not limited to housing starts,repair-and-remodel activity, nonresidential construction, white-collaremployment, electronic substitution, durable goods production, and relativecurrency values;

·                  Volatility in raw material and energyprices;

·                  Pricing volatility in ourdistribution business;

·                  The commodity nature of our productsand our ability to maintain margins;

·                  Industry cycles and capacityutilization rates;

·                  Actions of suppliers, customers, andcompetitors; and

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

*Commodityand Value-Added Products and Product Margins*

Many of the products we manufacture and distribute arewidely available and can be readily produced by our competitors. Becausecommodity products have few distinguishing qualities from producer to producer,competition for these products is primarily based on price, which is determinedby supply relative to demand. Generally, market conditions beyond our controldetermine the prices for our commodity products, and the price for any one ormore of these products may fall below our cash production costs. Therefore, ourprofitability with respect to these products is highly dependent on managingour cost structure, particularly raw material and energy costs, which alsoexhibit commodity characteristics.

Not all of our products are commodities. Our EWP andspecialty papers are differentiated from competing products based on qualityand product design as well as related customer service. In the case of thesevalue-added products, we are generally able to influence price based on thestrength of differentiation and levels of customer service and are generallyable to sell these products at higher margins than our commodity products. Inorder to reduce our sensitivity to the cyclicality of our industry, afundamental component of our strategy is to increase production of EWP as ashare of our total Wood Products segment sales and increase specialty andpremium papers as a percent of our total Paper segment sales. We believe theseproducts are less susceptible to commodity dynamics.

Comparing second quarter 2007 with second quarter2006, sales of EWP from our Wood Products segment increased from approximately48% of segment sales in 2006 to 49% of sales in 2007. The increase in EWPproduction capacity that we implemented in 2005 has positioned us to continueto grow this business; however, the recent slowdown in new residentialconstruction has slowed the growth in our EWP sales in the short term. In ourPaper segment, sales of specialty and premium papers decreased fromapproximately 32% of uncoated free sheet tons sold during second quarter 2006to 31% 

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of uncoated free sheet tons sold during the sameperiod in 2007. The project to convert our Wallula, Washington, W-3 papermachine to enable it to produce pressure sensitive grades is a key step inproviding us with the capacity to increase production of specialty and premiumpaper grades. As discussed above, this project came online during secondquarter 2007.

*Demand*

Theoverall level of demand for the products we make and distribute is affected by,among other things, construction activity, manufacturing activity, employment,and consumer spending. Accordingly, we believe that our financial resultsdepend in large part on general macroeconomic conditions in North America, aswell as on regional economic conditions in the geographic markets in which weoperate. 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 price declines for many products. For example, sales prices forLVL, I-joists, and lumber by our Wood Products segment during second quarter2007 were down 10%, 7%, and 12%, respectively, from the same period of 2006.The trend in reduced construction activity continued into second quarter 2007and continued to reduce demand for our products. For example, the sales volumesof lumber and I-joists by our Wood Products segment during second quarter 2007were down 18% and 6%, respectively, from the same period of 2006. Offsettingthe broader trend, sales volumes in second quarter 2007 for our LVL increased2%, relative to the same period in 2006, and sales prices for our plywood weredown only 1% during second quarter 2007, compared with the same period a yearago.

·                  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.

·                  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.

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*Supply*

Industrysupply of commodity wood products and paper is affected by the number ofoperational or idled facilities, the building of new capacity, and the shuttingdown of existing capacity. Capacity also tends to increase gradually over timewithout significant 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 to oversupplysituations by removing shifts or curtailing facilities than pulp and papermanufacturers. For example, during the third and fourth quarters of 2006, asstructural panel prices fell dramatically, a number of our competitors reducedshifts or shut down facilities entirely in response to dramatically reducedmargins. 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 may prompt manufacturers to initiate expansionprojects. Recently, a number of OSB producers started up or are building newcapacity. In some applications, OSB is a competing product for plywood, whichwe produce. These projects were announced during the period of high residentialconstruction activity that was witnessed in recent years. This increase insupply, coupled with dramatically lower demand as construction has slowed, hashad a negative impact on the price of all structural panel products, includingplywood. Some major OSB producers have announced indefinite shutdowns ofexisting facilities in the face of declining prices, and others have announceddelays in previously announced capacity additions. A number of OSB producershave announced the intention to produce a strand lumber product that isintended to be a substitute for EWP in some applications. Their ability toproduce such a product and its impact on the EWP market are uncertain.

In 2005, facedwith declining demand, rising costs (especially energy costs), ongoingdissatisfaction with financial performance, and in the case of some Canadianproducers, a declining U.S. dollar, several North American paper producersannounced 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. The weaknessof the U.S. dollar has mitigated the level of imports in recent years.

*OperatingCosts*

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 June 30,2007, we had approximately 10,500 employees. Approximately 4,900, or 47%,of these employees work pursuant to collective bargaining agreements. Our contractat our St. Jacques, New Brunswick, Canada, I-joist plant that coversapproximately 130 workers expired December 31, 2006. The contractremains in place pending further negotiations. In May 2007, the unions at ourpaper mill in Jackson, Alabama, ratified a new, four-year agreement. Inaddition, in July 2007, we reached a new, four-year agreement at our Nampa,Idaho, container facility covering 110 employees. The agreement at ourWallula, Washington, container plant expires in fourth quarter 2007. We do notexpect material work interruptions or increases in our costs during the courseof the negotiations with our collective bargaining units. Nevertheless, if ourexpectations are not accurate, we could experience a material labor disruptionor significantly increased labor costs at one or more of our facilities, any ofwhich could prevent us from meeting customer demand or reduce our sales andprofitability.

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*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:
|                            | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------|------------|----------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                     | ** ** | **2006** | ** ** |
|                       |       |                                         |       |   |   |
| Wood Products              |       | 42                                           | %          | 41 | % |
| Paper                      |       | 27                                           | %          | 26 | % |
| Packaging &  Newsprint |       | 18                                           | %          | 14 | % |
|                       |       |                                         |       |   |   |

 

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 semifinished 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 planned outages at our International Falls,St. Helens, and Wallula mills contributed to an increased volume of purchasedpulp during second 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.Any sustained undersupply and resulting increase in wood fiber prices coulddecrease our production volumes and/or increase our operating costs. Prices forour products might not reflect increases or decreases in log and wood fiberprices, and as a result, our operating margins could fluctuate. Market pricesfor a variety of fiber sources, including logs and chips for our Northwestoperations and logs for our Minnesota operations, were high relative tohistorical standards in the first half of 2006. While wood costs came down inMinnesota during the second half of 2006 and into the first half of 2007, theyare still high by historical standards. In the Pacific Northwest, residual chipcosts began to come down late in first quarter 2007 but continue to be high byhistorical standards. Because residual fiber in the Pacific Northwest comespredominantly from sawmills and plywood plants, curtailments in these mills asa result of decreased demand for these products related to the housing slowdownwill continue to impact the availability of chips for our Northwest pulp andpaper operations. Relative to historical standards, fiber costs were high inLouisiana in the first half of 2007 due to unusually high and persistentrainfall, which limited access to many harvest areas and limited supplyavailability.

*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.

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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 & Newsprint mills andglues and resins consumed in our Wood Products operations, are heavily influencedby energy costs. A number of our major suppliers have obtained price increasestied to their increased energy costs. For our commodity products, therelationship between industry supply and demand, rather than changes in thecost of raw materials, determines our ability to increase prices. Consequently,we may be unable to pass increases in our operating costs to our customers inthe 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:
|                            | ** ** | **Six Months Ended**

**June 30** | ** ** |
|----------------------------|------------|--------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                       |       |                                             |       |   |   |
| Wood Products              |       | 4                                                | %          | 4 | % |
| Paper                      |       | 15                                               | %          | 15 | % |
| Packaging &  Newsprint |       | 15                                               | %          | 16 | % |

 

As of June 30,2007, we had entered into derivative instruments related to approximately 10%of our forecasted natural gas purchases for July 2007 and 25% of our forecastedpurchases from August 2007 through October 2007.

*Chemicals. *Important chemicals we usein the production of our products include precipitated calcium carbonate,sodium chlorate, sodium hydroxide, dyes, resins, and adhesives. Purchases ofchemicals represented the following percentages of materials, labor, and otheroperating expenses for our Wood Products, Paper, and Packaging &Newsprint segments:
|                            | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------|------------|----------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                     | ** ** | **2006** | ** ** |
|                       |       |                                         |       |   |   |
| Wood Products              |       | 6                                            | %          | 6 | % |
| Paper                      |       | 13                                           | %          | 13 | % |
| Packaging &  Newsprint |       | 5                                            | %          | 5 | % |
|                       |       |                                         |       |   |   |

 

We have experienced higher chemical costs during second 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***

***ForestProducts Acquisition***

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 ofcut-size office paper through June 2007, and if June prices hold for theremaining portion of the anniversary period, we would owe OfficeMaxapproximately $33 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 Annual Report onForm 10-K.

# *Restructuring Activities*

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 June 30,2007, we had approximately $0.2 million of restructuring reserves relatedto severance costs recorded in “Accrued liabilities, Compensation and benefits”on our Consolidated Balance Sheet. The severance costs related to approximately350 terminated employees. The remaining reserve relates to severancepayments that will be paid by the end of 2007. Of the $0.2 millionremaining restructuring reserve, $0.1 million is recorded in our Papersegment, and $0.1 million is in Corporate and Other. Restructuring reserveliability account activity related to these charges is as follows:

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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                          |       | (0.4           | )          | —     |       | (0.4       | )          |
| Restructuring reserve at June 30, 2007      | ** ** | **$**          | **0.2**    | ** ** | **$**      | **—** | ** ** | **$** | **0.2** | ** ** |

 

***CentralTexas Corrugated Acquisition***

On February 1, 2006, we purchased theassets of Central Texas Corrugated (CTC) in Waco, Texas, for an aggregatepurchase price of $43.8 million, including fees and expenses but beforeworking capital adjustments. In 2006, we paid approximately $42.5 millionof cash for the acquisition, which is net of a $2.0 million holdback thatis payable in five years. At June 30, 2007, “Other long-term liabilities”on our Consolidated Balance Sheet included a $1.5 million discountedholdback (including accrued accretion expense). CTC manufactures corrugatedsheets that it sells primarily to regional container plants in Texas,Louisiana, Arkansas, and Mexico. CTC is located close to our mill in DeRidder,Louisiana, which produces linerboard used in CTC’s manufacturing processes.During the six months ended June 30, 2007, we produced approximately279,000 short tons of linerboard in our Packaging & Newsprintsegment, and our Paper segment produced approximately 66,000 tons ofcorrugating medium. Our corrugated container and sheet plants consumed approximately251,000 tons of containerboard, or the equivalent of 73% of ourcontainerboard 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 following tables setforth the results of operations in dollars and as a percentage of sales for thethree and six months ended June 30, 2007 and 2006:
|                                                 | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | ** **                                     | ** ** |
| ** **                                      | ** ** | **(millions)**                                 | ** ** |
| ** **                                      | ** ** | ** **                                     | ** ** |
| **Sales**                                       | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade                                           |       | $                                              | 1,288.9    |                                         | $          | 1,415.8 |   | $ | 2,452.1 |   | $ | 2,753.3 |   |
| Related parties                                 |       | 159.5                                          |       | 144.0                                        |       | 317.3 |   | 276.8 |   |
|                                            |       | 1,448.4                                        |       | 1,559.8                                      |       | 2,769.4 |   | 3,030.1 |   |
|                                            |       |                                           |       |                                         |       |   |   |   |   |
| **Costs  and expenses**                         | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses |       | 1,270.3                                        |       | 1,362.5                                      |       | 2,427.2 |   | 2,673.3 |   |
| Depreciation,  amortization, and depletion      |       | 40.7                                           |       | 38.5                                         |       | 81.1 |   | 75.1 |   |
| Selling and  distribution expenses              |       | 73.7                                           |       | 71.6                                         |       | 142.0 |   | 142.7 |   |
| General and  administrative expenses            |       | 20.2                                           |       | 26.2                                         |       | 39.7 |   | 47.7 |   |
| Other (income)  expense, net                    |       | (5.1                                           | )          | 3.2                                          |       | (2.5 | ) | 1.1 |   |
| * *                                        |       | 1,399.8                                        |       | 1,502.0                                      |       | 2,687.5 |   | 2,939.9 |   |
| * *                                        | * *   | * *                                       | * *   | * *                                     | * *   | * * | * * | * * | * * |
| **Income  from operations**                     | ** ** | **$**                                          | **48.6**   | ** **                                   | **$**      | **57.8** | ** ** | **$** | **81.9** | ** ** | **$** | **90.2** | ** ** |
| ** **                                      | ** ** | ** **                                     | ** ** |
|                                                 | ** ** | **(percentage of sales)**                      | ** ** |
| ** **                                      | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Sales**                                       | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade                                           |       | 89.0                                           | %          | 90.8                                         | %          | 88.5 | % | 90.9 | % |
| Related parties                                 |       | 11.0                                           |       | 9.2                                          |       | 11.5 |   | 9.1 |   |
|                                            |       | 100.0                                          | %          | 100.0                                        | %          | 100.0 | % | 100.0 | % |
|                                            |       |                                           |       |                                         |       |   |   |   |   |
| **Costs  and expenses**                         | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses |       | 87.7                                           | %          | 87.3                                         | %          | 87.7 | % | 88.2 | % |
| Depreciation,  amortization, and depletion      |       | 2.8                                            |       | 2.5                                          |       | 2.9 |   | 2.5 |   |
| Selling and  distribution expenses              |       | 5.1                                            |       | 4.6                                          |       | 5.1 |   | 4.7 |   |
| General and  administrative expenses            |       | 1.4                                            |       | 1.7                                          |       | 1.4 |   | 1.6 |   |
| Other (income)  expense, net                    |       | (0.4                                           | )          | 0.2                                          |       | (0.1 | ) | — |   |
|                                            |       | 96.6                                           | %          | 96.3                                         | %          | 97.0 | % | 97.0 | % |
|                                            |       |                                           |       |                                         |       |   |   |   |   |
| **Income from operations**                      | ** ** | **3.4**                                        | **%**      | **3.7**                                      | **%**      | **3.0** | **%** | **3.0** | **%** |

 

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***Sales Volumes and Prices***

Set forth below areour segment sales volumes and average net selling prices for our principalproducts for the three and six months ended June 30, 2007 and 2006:
| ** **                           | ** ** | **Three Months Ended   June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                           | ** ** | **2007**                                        | ** ** | **2006**                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                           | ** ** | ** **                                      | ** ** |
| ** **                           | ** ** | **(millions)**                                  | ** ** |
| ** **                           | ** ** | ** **                                      | ** ** |
| **Building  Materials Distribution** | ** ** | ** **                                      | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales dollars                        |       | $                                               | 723.7      |                                    | $          | 832.7 |   | $ | 1,332.4 |   | $ | 1,594.5 |   |
|                                      |            |                                                 |            |                                         |            |  |  |  |  |  |  |  |  |

 
| ** **                | ** ** | **(percentage of Building  Materials  Distribution sales)** | ** ** |
|---------------------------|------------|-------------------------------------------------------------|------------|
| ** **                | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Product Line  Sales       |       |                                                        |       |   |   |   |   |   |   |
| Commodity                 |       | 43                                                          | %          | 45 | % | 43 | % | 47 | % |
| Engineered wood  products |       | 15                                                          |       | 16 |   | 15 |   | 15 |   |
| General line  items       |       | 42                                                          |       | 39 |   | 42 |   | 38 |   |

 
| ** **                                  | ** ** | **(millions)** | ** ** |
|---------------------------------------------|------------|----------------|------------|
| ** **                                  | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Sales  Volumes**                          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Wood  Products**                          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (cubic feet) |       | 3              |       | 3 |   | 6 |   | 7 |   |
| I-joists  (equivalent lineal feet)          |       | 60             |       | 63 |   | 107 |   | 123 |   |
| Plywood (sq.  ft.) (3/8” basis)        |       | 300            |       | 332 |   | 610 |   | 647 |   |
| Lumber (board  feet)                        |       | 63             |       | 77 |   | 119 |   | 150 |   |
| Particleboard  (sq. ft.) (3/4” basis)  |       | 37             |       | 44 |   | 74 |   | 81 |   |

 
| ** **                               | ** ** | **(thousands of short tons,  except corrugated containers and sheets)** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                               | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Paper**                                | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Uncoated free  sheet                     |       | 375                                                                     |       | 386 |   | 755 |   | 779 |   |
| Containerboard  (medium)                 |       | 34                                                                      |       | 34 |   | 66 |   | 67 |   |
| Market pulp                              |       | 33                                                                      |       | 32 |   | 57 |   | 67 |   |
| ** **                               | ** ** | **442**                                                                 | ** ** | **452** | ** ** | **878** | ** ** | **913** | ** ** |
| ** **                               | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Packaging &  Newsprint**      | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Containerboard  (linerboard)             |       | 59                                                                      |       | 62 |   | 124 |   | 138 |   |
| Newsprint                                |       | 102                                                                     |       | 97 |   | 209 |   | 198 |   |
| Corrugated  containers and sheets (mmsf) |       | 1,653                                                                   |       | 1,755 |   | 3,287 |   | 3,259 |   |

 
| ** **                                       | ** ** | **(dollars per unit)** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|
| ** **                                       | ** ** | ** **             | ** ** |
| **Average  Net Selling Prices**                  | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Wood  Products**                               | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (100 cubic feet)  |       | $                      | 1,723      |   | $ | 1,916 |   | $ | 1,735 |   | $ | 1,909 |   |
| I-joists  (1,000 equivalent lineal feet)         |       | 1,035                  |       | 1,107 |   | 1,039 |   | 1,102 |   |
| Plywood (1,000  sq. ft.) (3/8” basis)       |       | 262                    |       | 264 |   | 253 |   | 271 |   |
| Lumber (1,000  board feet)                       |       | 436                    |       | 498 |   | 442 |   | 504 |   |
| Particleboard  (1,000 sq. ft.) (3/4” basis) |       | 334                    |       | 322 |   | 327 |   | 299 |   |
|                                                  |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **(dollars per short ton,  except corrugated containers and sheets)** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Paper**                                 | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Uncoated free  sheet                      |       | $                                                                     | 855        |   | $ | 790 |   | $ | 851 |   | $ | 768 |   |
| Containerboard  (medium)                  |       | 422                                                                   |       | 388 |   | 422 |   | 365 |   |
| Market pulp                               |       | 535                                                                   |       | 420 |   | 527 |   | 402 |   |
| ** **                                | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Packaging &  Newsprint**       | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Containerboard  (linerboard)              |       | $                                                                     | 379        |   | $ | 354 |   | $ | 377 |   | $ | 334 |   |
| Newsprint                                 |       | 494                                                                   |       | 546 |   | 510 |   | 537 |   |
| Corrugated  containers and sheets ($/msf) |       | 51                                                                    |       | 49 |   | 51 |   | 48 |   |
|                                      |       |                                                                  |       |   |   |   |   |   |   |

 

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***Operating Results***

# ***Sales***

For the threemonths ended June 30, 2007, total sales decreased $111.4 million, or7%, compared with the same period a year ago. For the six months endedJune 30, 2007, total sales decreased $260.7 million, or 9%. In bothperiods, sales in Paper and Packaging & Newsprint increased, whilesales in Building Materials Distribution and Wood Products declined, comparedwith the same periods a year ago. The increase in both of our paper businessesis driven by improved pricing in the current year relative to the same periodsof 2006 in most of the paper grades we produce. The lower sales in both of ourbuilding materials-related businesses continued to reflect the softer newresidential construction market.

*Building Materials Distribution.*  Sales decreased $109.0 million, or 13%,to $723.7 million for the three months ended June 30, 2007, from$832.7 million in the same period a year ago. During the six months endedJune 30, 2007, sales decreased $262.1 million, or 16%,to $1,332.4 million from $1,594.5 million in the prior year.Relative to the three and six months ended June 30, 2006, the decrease insales was driven by lower end-use demand in new residential constructionmarkets, which resulted in lower volumes as well as lower prices for many ofthe products we sell.

*WoodProducts. *Salesdecreased $36.0 million, or 11%, to $278.7 million for the threemonths ended June 30, 2007, from $314.7 million for the three monthsended June 30, 2006. During the six months ended June 30, 2007, salesdecreased $94.7 million, or 15%, to $532.6 million from$627.3 million in the same period a year ago. The decrease was drivenprimarily by lower volumes and prices driven by lower new residential constructionactivity. During the three months ended June 30, 2007, prices for LVL andI-joists decreased 10% and 7%, relative to the same period in 2006, and lumberprices decreased 12%. While plywood prices were down only 1% in second quarter2007, compared with the same period in 2006, plywood prices during the sixmonths ended June 30, 2007, were down 7%, reflecting significantly lowerplywood prices in first quarter 2007, compared with the same period in 2006.

*Paper.*  Sales increased $19.4 million, or 5%, to$401.1 million for the three months ended June 30, 2007, from$381.7 million for the three months ended June 30, 2006. During thesix months ended June 30, 2007, sales increased $44.0 million, or 6%,to $796.1 million from $752.1 million in the same period a year ago.Comparing second quarter 2007 with second quarter 2006, prices were higher forcommodity papers, specialty and premium papers, market pulp, and corrugatingmedium by 10%, 6%, 27%, and 9%, respectively. Comparing the first six months of2007 with the same period in 2006, prices for commodity papers, specialty andpremium papers, market pulp, and corrugating medium increased 14%, 6%, 31%, and16%, respectively. The increase in sales during both periods was driven byimproved pricing in many of our paper grades as a relatively strong worldwideeconomy coupled with stable industry supply allowed us to fully implement ourannounced price increases. The U.S. market continued to be assisted by arelatively weak U.S. currency, which made other markets more attractive to offshoreproducers.

*Packaging & Newsprint.*Sales**increased $2.1 million, or 1%, to $192.9 millionfor the three months ended June 30, 2007, from $190.8 million for thethree months ended June 30, 2006. During the six months endedJune 30, 2007, sales increased $17.3 million, or 5%, to$386.9 million from $369.6 million in the same period a year ago. Theincrease in sales was driven by linerboard and corrugated container and sheetprices, which were up 7% and 4%, respectively, in second quarter 2007, comparedwith the same period in 2006. These increases were offset, in part, by lowernewsprint prices, which decreased 10% during second quarter 2007, compared withsecond quarter 2006, as demand continued to weaken. Comparing the six monthsended June 30, 2007, with the same period a year ago, sales increased due tohigher linerboard and corrugated container and sheet prices, which increased13% and 6%, respectively. The price increases were aided by a supply-demandbalance that reflected the relatively strong worldwide economy, coupled with arelatively weak U.S. currency.

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

Materials, labor, and other operating expenses decreased$92.2 million, or 7%, to $1.3 billion for the three months endedJune 30, 2007, from $1.4 billion during the same period in the prioryear. Relative to the six months ended June 30, 2007, theseexpenses decreased $246.1 million, or 9%, to $2.4 billion, comparedwith $2.7 billion in the prior year. The decrease in both comparisonperiods was driven by lower 

44

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purchased materials costs and volumes in our BuildingMaterials Distribution segment, as lower residential construction activitydrove industry volumes down, resulting in lower purchase prices for many of thematerials we purchase for resale. In addition, input wood costs in our WoodProducts segment were generally lower. Relative to the three and six months endedJune 30, 2006, as a percent of sales, these costs remained relativelyflat.

Depreciation, amortization, and depletion expensesincreased $2.2 million, or 6%, to $40.7 million for the three monthsended June 30, 2007, from $38.5 million during thesame period in the prior year. Relative to the six months endedJune 30, 2007, these expenses increased $6.0 million, or8%, to $81.1 million, compared with $75.1 million in theprior year. As a percentage of sales, these costs increased to 2.8% and2.9% respectively, for the three and six months ended June 30, 2007, from2.5% in the same periods in the prior year. During both periods, 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 and distribution expenses increased$2.1 million, or 3%, to $73.7 million for the three months endedJune 30, 2007, compared with $71.6 million for the same period in theprior year. During the six months ended June 30, 2007, these costsdecreased $0.7 million to $142.0 million, compared with$142.7 million during the same period a year ago. During the six monthsended June 30, 2006, our Paper segment recorded a $2.3 millionwrite-off of bad debt related to the bankruptcy of a customer. The results forboth periods reflect incremental costs related to the expansion of ourdistribution centers in California, Florida, and Ohio in our Building MaterialsDistribution segment.

General and administrativeexpenses decreased $6.0 million, or 23%, to $20.2 million for thethree months ended June 30, 2007, compared with $26.2 million for thesame period in the prior year. General and administrative expenses as apercentage of sales decreased to 1.4% for the three months ended June 30,2007, from 1.7% for the three months ended June 30, 2006. For the sixmonths ended June 30, 2007, general and administrative expenses decreased$8.0 million, or 17%, to $39.7 million, compared with$47.7 million a year ago. As a percentage of sales these costs decreasedto 1.4% from 1.6% in the prior year. Relative to the three and six months endedJune 30, 2006, general and administrative expenses decreased primarily due tolower payroll and benefit costs and training expenditures, partially offset byhigher lease costs.

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  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                              | ** ** | ** **                                     | ** ** |
| ** **                              | ** ** | **(millions)**                                 | ** ** |
| ** **                              | ** ** | ** **                                     | ** ** |
| Changes in  retiree healthcare programs |       | $                                              | (4.4       | )                                            | $          | — |   | $ | (4.4 | ) | $ | (3.7 | ) |
| Sales of assets,  net                   |       | (1.7                                           | )          | 0.8                                          |       | (0.7 | ) | 2.4 |   |
| Project costs                           |       | —                                         |       | 2.1                                          |       | 0.3 |   | 2.1 |   |
| Other, net (a)                          |       | 1.0                                            |       | 0.3                                          |       | 2.3 |   | 0.3 |   |
| ** **                              | ** ** | **$**                                          | **(5.1**   | **)**                                        | **$**      | **3.2** | ** ** | **$** | **(2.5** | **)** | **$** | **1.1** | ** ** |

----

(a)                                  The three and six months ended June 30,2007, included $0.7 million and $2.0 million of expense related tothe closure of our paper converting facility in Salem, Oregon, which we expectto close by the end of third quarter 2007.

45

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

Forthe three months ended June 30, 2007, income from operations decreased$9.2 million, or 16%, to $48.6 million, compared with$57.8 million for the same period a year ago. Income from operationsdecreased $8.3 million, or 9%, to $81.9 million for the six monthsended June 30, 2007, compared with $90.2 million during the sameperiod in the prior year. Relative to the three months ended June 30,2006, segment income decreased in all our operating segments. Compared with thesame period in the prior year, segment income for the six months endedJune 30, 2007, decreased in all of our operating segments except Paper.

*Building Materials Distribution.*  Segment income decreased $4.9 million, or 19%, to $20.4 millionfrom $25.3 million for the three months ended June 30, 2006. Duringthe six months ended June 30, 2007, segment income decreased$13.1 million, or 30%, to $30.8 million from $43.9 million inthe same period a year ago. The decrease in both periods was due to lower salesvolumes and prices for many of our products, reflecting the broader slowdown innew residential construction. In addition, we experienced additional costsassociated with the opening of our new facility in Milton, Florida.

*Wood Products. *Segmentincome decreased $1.5 million, or 8%, to $15.7 million for the three months endedJune 30, 2007, compared with $17.2 million for the three months endedJune 30, 2006. Relative to thethree months ended June 30, 2006, segment income declined due to lowerprices for many of our products. These were offset in part by lower input woodcosts such as logs and purchased OSB used in I-joists. During the sixmonths ended June 30, 2007, segment income decreased $16.6 million,or 46%, to $19.4 million, compared with $36.0 million in the sameperiod a year ago. Segment income decreased primarily due to lower prices andvolumes for most of our products. These decreases were offset by higherparticleboard prices and by lowerinput wood costs such as logs and purchased OSB used in I-joists.

*Paper.*  Segment income decreased $1.5 million,or 10%, to $13.2 million for the threemonths ended June 30, 2007, compared with $14.7 million for the threemonths ended June 30, 2006. During the six months ended June 30,2007, segment income increased $15.7 million, or 101%, to$31.2 million, compared with $15.5 million in the same period a yearago. Compared with the three months ended June 30, 2006, costs increasedas a result of our planned outages at our mills in Wallula, InternationalFalls, and St. Helens. We estimate that the total negative impact for themaintenance and capital shutdowns was approximately $18 million. Inaddition, the decrease was due to higher fiber costs for chips in the PacificNorthwest as well as higher purchased pulp prices. These cost increases werepartially offset by higher product prices. The increase in income during thesix months ended June 30, 2007, compared with the same period a year ago,was due primarily to higher product prices. These price increases werepartially offset by higher fiber costs for chips in the Pacific Northwest aswell as higher purchased pulp prices. In addition, costs increased as a resultof the extended planned outages at Wallula, International Falls, and St.Helens.

*Packaging & Newsprint. *Segment income decreased $11.1 million, or 83%, to$2.3 million for the threemonths ended June 30, 2007, compared with $13.4 million for the threemonths ended June 30, 2006. Relativeto the three months ended June 30, 2006, the decrease in segmentincome resulted from lower newsprint prices coupled with higher fiber costs atour DeRidder mill due to extended rains making many areas inaccessible forharvest, driving log and chip prices higher. These negative impacts were offsetin part by higher linerboard and corrugated container and sheet prices. For thesix-month period ended June 30, 2007, segment income decreased$3.9 million, or 27%, to $10.4 million, compared with$14.3 million in the same period a year ago. The decrease during thisperiod was primarily due to higher fiber costs, coupled with lower newsprintprices. These decreases were offset in part by higher linerboard and corrugatedcontainer and sheet prices, as well as higher sales volumes of both linerboardand newsprint.

*Other*

*Change in fair value ofinterest rate swaps.* During second quarter 2007, in connection with the amendment andrestatement of our senior secured credit facilities (the Facilities), weconcluded that the interest payments on our senior unsecured floating-ratenotes were no longer probable of occurring after October 2007, subsequent towhen they become callable at par. As a result, during the three and sixmonths ended June 30, 2007, we recorded the fair value of the interestrate swaps, or $5.4 million of income, in “Change in fair value ofinterest rate swaps” in our Consolidated Statements of Income.

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*Interestexpense.*  For the threeand six months ended June 30, 2007, interest expense was$24.4 million and $46.7 million, compared with $28.6 million and$58.8 million in the same periods a year ago. The decrease ininterest expense is primarily attributable to a $385.2 million decrease inlong-term debt, less current portion. At June 30, 2007, our long-termdebt, less current portion, was $1.2 billion, compared with$1.6 billion in the prior year. The decrease in long-term debt isprimarily attributable to repaying the note payable to a related entity, BoiseLand & Timber Corp., and decreased borrowings secured by receivables.

*Incometax provision.* For thethree and six months ended June 30, 2007, income tax expense was$3.5 million and $4.7 million, compared with $0.3 million and$1.5 million for the same periods a year ago. In both periods, theincrease primarily related to income tax expense related to our cash flowhedges and the true-up of miscellaneous state income tax items. During the threeand six months ended June 30, 2007, our effective tax rates for ourseparate subsidiaries that are taxed as a corporation were 34.4% and 34.7%, compared with40.9% and 41.8% for the same periods in the prior year.

***Liquidity and Capital Resources***

Webelieve that funds generated from operations and available borrowing capacitywill be adequate to fund debt service requirements, capital expenditures, andworking capital requirements for the next 12 months. Our ability to continue tofund these items may be affected by general economic, financial, competitive,legislative, and regulatory factors.

We believe that ourcurrent 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 six monthsended June 30, 2007 and 2006, our operating activities provided$77.6 million and $83.1 million of cash. In 2007, items included innet income provided $125.6 million of cash. Unfavorable changes in workingcapital and other items used $48.0 million of cash from operations.Working capital is subject to cyclical operating needs, the timing of thecollection of receivables, the payment of payables and expenses, and to alesser extent, seasonal fluctuations in our operations. In second quarter 2007,the increase in working capital was primarily attributable to higherreceivables in Building Materials Distribution. Higher receivables in BuildingMaterials Distribution reflected increased sales of approximately 46%,comparing June 2007 sales with December 2006 sales. This increase inreceivables was partially offset by higher overall accounts payable and accruedliabilities.

During the six months ended June 30,2006, our operating activities provided $83.1 million of cash. In 2006, itemsincluded in net income provided$131.8 million of cash. Unfavorablechanges in working capital and other items used $48.7 million ofcash from operations. 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 salesof approximately 36%, comparing June sales with December sales.

***Investment Activities***

Cash investing activities used $71.7 million for the six months ended June 30, 2007,compared with $84.4 million during the same period in 2006. In 2007,investing activities were primarily for purchases of property, plant, andequipment, which used $89.9 million of cash. Approximately$33 million of our expenditures for property, plant, and equipment relatedto the reconfiguration of the paper machine at our pulp and paper mill inWallula, to produce both pressure sensitive paper and commodity uncoated freesheet. We estimate spending approximately $80 million in total for theproject. As of June 30, 2007, spending on this project totaled approximately$67 million. We expect to incur the remainder during the balance of 2007. Investingactivities also included $16.9 million of proceeds from the sale ofassets, which

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included $10.1 million of net proceeds from thesale of our newly constructed building materials distribution center in Milton,Florida. In connection with the sale of our Milton facility, we leased it backover a 15-year lease term.

In 2006, investingactivities included approximately $42.5 million of cash paid for thepurchase of CTC’s assets in Waco, Texas, partially offset by $27.2 millionof proceeds from the sale of our headquarters building in Boise, Idaho. Inconnection with the sale, we leased back approximately 65% of the building overa staggered lease term of ten to 12 years. Purchases of property, plant, andequipment also used $71.3 million during the first six months of 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 future economicconditions. Our capital spending in 2007 will be for expansion (such as theWallula project described above), business improvement and quality/efficiencyprojects, replacement projects, and ongoing environmental compliance. During2006, we spent $9 million on environmental compliance. We expectto spend approximately $10 million in 2007 for this purpose.

***Financing Activities***

Cash provided by financing activities was $23.8 million for the sixmonths ended June 30, 2007, compared with $6.9 million of cash usedduring the same period in 2006. During the six months ended June 30, 2007,financing activities included $538.9 million of debt prepayments relatedto our Tranche D term loan, which was paid down primarily with theproceeds from our new $525.0 million Tranche E term loan. Cashprovided by financing activities also included a $45.0 million netincrease in borrowings under our accounts receivable securitization program,$2.8 million of proceeds from unwinding two of our interest rate swapagreements that were scheduled to begin in 2009, $3.2 million of cash forthe repayment of short-term borrowings, and $2.8 million of cash used topay our equity investors amounts to fund its tax obligations related to itsinvestment in us.

In 2006, the $6.9 million of cashused for financing activities included a $65.0 million increase in ourborrowings under our accounts receivable securitization program. Cash used forfinancing activities included $85.8 million of prepayments on ourTranche D term loan, which was paid with $27.2 million of proceedsfrom the sale of our headquarters building, $25.6 million of proceeds fromunwinding and resetting the fixed interest rate we pay on our interest rateswap agreements, $25.0 million of lower-cost receivable securitizationborrowings, and other operating cash flows. Additionally, we used$10.7 million of cash to pay our equity investors amounts to fund theirtax obligation related to their investment in us.

At June 30, 2007,and December 31, 2006, our short- and long-term debt and the interestrates on that debt were as follows:
| ** **                                      | ** ** | **June 30, 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             |       | —                      |        | N/A                                |       | N/A |   | 538.9 |   | 7.1 | % | 6.8 | % |
| Tranche E  term loan, due 2014             |       | 523.7                       |        | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| 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              |       | 70.0                        |        | 5.3                                | %          | N/A |   | 25.0 |   | 5.6 | % | N/A |   |
| Current portion  of long-term debt              |       | (5.3                        | )           | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| Long-term debt,  less current portion           |       | 1,238.4                     |        | 7.1                                | %          | 6.9 | % | 1,213.9 |   | 7.3 | % | 7.1 | % |
| Short-term  borrowings                          |       | —                      |        | N/A                                |       | N/A |   | 3.2 |   | 6.0 | % | N/A |   |
| Current portion  of long-term debt              |       | 5.3                         |        | 6.9                                | %          | 6.6 | % | — |   | N/A |   | N/A |   |
| Total debt                                      | ** ** | **$**                       | **1,243.7** | ** **                         | ** ** | ** ** | ** ** | ** ** | **$** | **1,217.1** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

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*Amended and Restated Facilities*

On May 3, 2007, weamended and restated our senior secured credit facilities (the Facilities),which consisted of a $475.0 million revolving credit facility (due in2010) and an $840.0 million Tranche D term loan (due in 2011). Ouramended and restated Facilities consist of a $450.0 million revolvingcredit facility (due in 2010) and a $525.0 million Tranche E termloan (due in 2014). In connection with our amendment and restatement, we repaidall amounts outstanding under our Tranche D term loan. We also obtained$200 million of commitments for a delayed-draw term loan (due in 2014)that, absent unforeseen market or business conditions, we plan to use to redeemthe majority of our existing senior unsecured floating-rate notes (due in 2012)when they become callable at par in October 2007.

Our amended revolvingcredit facility agreement permits us to borrow up to $450.0 million forgeneral corporate purposes. At June 30, 2007, we had no borrowingsoutstanding under our revolving credit facility; however, $35.5 million ofletters of credit were considered a draw on the revolver, reducing ourborrowing capacity to $414.5 million. Borrowings under our revolvingcredit facility are based on the prime rate, the federal funds effective rate,or the London Interbank Offered Rate (LIBOR). Pricing is subject toquarterly adjustment based on the ratio of our total indebtedness to our lastfour quarters of consolidated earnings before interest, taxes, depreciation,and amortization (EBITDA). The range of borrowing costs under the pricing gridis:  (i) the higher of prime plus0.50% to 1.25% or the federal funds effective rate plus 1.00% to 1.75% or(ii) LIBOR plus 1.50% to 2.25%. For the six months endedJune 30, 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 borrowingsunder the revolver were zero and $10.5 million during the six months endedJune 30, 2007, and zero and $30.0 million during the year endedDecember 31, 2006. The weighted average amounts of borrowings outstandingunder the revolver during the six months ended June 30, 2007 and 2006, were $0.1 millionand $1.5 million. The revolving credit facility provides for a commitmentfee of 0.50% per annum payable to the lenders on the average daily unusedportion of the revolving credit facility. We also have a swingline option underthe revolver, which allows us to borrow at negotiated rates up to an aggregateof $40.0 million from individual banks that are parties to the agreement.Swingline borrowings are considered borrowings under the revolving creditfacility agreement.

At June 30, 2007,$523.7 million was outstanding under the Tranche E term loan amendedand restated credit facility (including $5.3 million of current portion),and our borrowing rate was 6.9%. Borrowings under the Tranche E term loanare based on (i) the higher of the prime rate plus 0.50% or the federal fundseffective rate plus 1.00% or (ii) LIBOR plus 1.50%. We are required tomake scheduled principal payments on the Tranche E term loan in the amountof $2.6 million during the remainder of 2007, $5.3 million in each of2008 through 2012, $248.7 million in 2013, and $245.9 million in2014.

Borrowings under the Facilities are subject tofinancial covenants, including a requirement to maintain a minimuminterest coverage ratio and a maximum limit on our leverage ratio, as well ascustomary nonfinancial covenants. Thefinancial maintenance covenants are applicable only to the $450 millionrevolving credit portion of the agreement and function as debt incurrencecovenants with respect to the remainder of the facility. AtJune 30, 2007 and 2006, we were in compliance with these covenants.

*Senior Notes*

In October 2004, BoiseCascade, L.L.C. (Boise LLC) issued $250.0 million of senior unsecuredfloating-rate notes due in 2012 and $400.0 million of 7.125% seniorsubordinated notes due in 2014. Net proceeds from the notes were used to fund aportion of the purchase price for the Forest Products Acquisition. InJuly 2005, we completed an exchange offer whereby all of our seniorunsecured floating-rate notes and senior subordinated notes were exchanged forregistered securities with identical terms (other than terms relating toregistration rights) to the notes issued in October 2004. We may redeem all orpart of the notes at any time at redemption prices set forth in the indenture.If we sell specific assets or experience specific kinds of changes in control,we must offer to purchase the notes. The senior unsecured floating-rate notesbear interest at a floating rate equal to LIBOR plus 2.9%. At both June 30,2007, and December 31, 2006, our borrowing rates for the$250.0 million senior unsecured floating-rate notes were 8.2%. Inconnection with the amendment and restatement of our Facilities, we obtained$200

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million of commitments for a delayed-draw term loanthat, absent unforeseen market or business conditions, we plan to use to redeemthe majority of our senior unsecured floating-rate notes when they becomecallable at par in October 2007. The delayed-draw term loan has a commitmentfee of 1.5% per annum until drawn. Once drawn, the pricing is the same as forthe Tranche E term loan. We are required to make scheduled principalpayments on the delayed-draw term loan in the amount of $0.5 million in2007, $2.0 million in each of 2008 through 2012, $95.3 million in2013, and $94.2 million in 2014.

*BorrowingsSecured 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 National Associationand Calyon New York Branch (the Investors). Under this three-year program,Boise LLC sells its interest in a defined pool of accounts receivable generatedby its domestic operations on a revolving basis to Birch Creek, a consolidated,wholly owned, special-purpose subsidiary. In turn, Birch Creek sells thereceivables to the affiliates of the Investors. Because Boise LLC has the rightto repurchase the sold receivables, sales of receivables under the program areaccounted for as a secured borrowing. At June 30, 2007, andDecember 31, 2006, we had $70.0 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 June 30, 2007, andDecember 31, 2006, the interest rates for borrowings secured byreceivables 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 June 30, 2007, couldnot exceed $250.0 million. Theaccounts receivable securitization program contains financial covenantsrequiring us to maintain a minimum interest coverage ratio and a specifiedmaximum leverage ratio.

*Other*

We also have otheroutstanding letters of credit, which are used for trade purchases. AtJune 30, 2007, and December 31, 2006, we had $4.2 million and$0.1 million, respectively, of outstanding letters of credit. Theseletters of credit do not reduce our borrowing capacity under our amendedrevolving credit facility.

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 6.8% and 7.0% at June 30, 2007, andDecember 31, 2006, respectively. For additional information on ourinterest rate swaps, see Note 14, Financial Instruments, in “Item 1.  Consolidated Financial Statements” of thisForm 10-Q.

At June 30, 2007, and December 31, 2006, we had $29.2 million and$31.5 million of costs recorded in “Deferred financing costs” on ourConsolidated Balance Sheets. In connection with the May 2007 amendment andrestatement of our Facilities, we capitalized $2.6 million of financingcosts and wrote off approximately $1.8 million of deferred financingcosts. We recorded the $1.8 million charge in “Interest expense” in ourConsolidated Statement of Income for the three and six months endedJune 30, 2007.

At June 30, 2007, andDecember 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%.

Forboth the six months ended June 30, 2007 and 2006, cash payments forinterest, net of interest capitalized, were $45.6 million.

Foradditional information on our interest rate swaps, see Note 14, FinancialInstruments, in “Item 1. Consolidated Financial Statements” of this Form 10-Q.

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***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. As of June 30, 2007,there have been no material changes to our contractual obligations outside thenormal course of business, except as disclosed in “Forest Products Acquisition”under Acquisitions in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations, related to amounts we could pay OfficeMaxunder the Additional Consideration Agreement, and those amounts disclosed in “FinancingActivities” under Liquidity and Capital Resources in this Management’sDiscussion and Analysis of Financial Condition and Results of Operationsrelated to commitments under our amended and restated senior secured creditfacilities, which we completed in May 2007. In addition, our lease obligationshave increased in connection with the sale and lease-back of our buildingmaterials distribution center in Milton, Florida, in second quarter 2007. SeeNote 6, Leases, for our updated lease payment requirements.

***Off-Balance-SheetActivities***

AtJune 30, 2007, and December 31, 2006, we had no off-balance-sheetarrangements with unconsolidated 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. As ofJune 30, 2007, there have been no material changes to the guaranteesdisclosed in our 2006 Annual Report on Form 10-K, except that BoiseCascade Holdings, L.L.C., and its direct and indirect domestic subsidiaries,excluding foreign subsidiaries and Birch Creek, now guarantee the obligationsof our amended and restated obligations discussed in “Financing Activities”under Liquidity and Capital Resources in this Management’s Discussion andAnalysis of Financial Condition and Results of Operations.

***Environmental***

For information on environmental issues, seeEnvironmental in “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in our 2006 Annual Report on Form 10-K.

***Critical AccountingEstimates***

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 thecosts of periodic major overhauls and maintenance of plant and equipment asincurred. Prior to the adoption of this FSP, we charged planned shutdownmaintenance costs in our Paper and Packaging & Newsprint segments toincome (loss) ratably over the year. We recast our 2006 interim financialinformation included in this Form 10-Q using the direct expensemethod. As a result of adopting this FSP, we increased “Materials, labor, andother operating expenses” $2.2 million and decreased “Net income” by thesame amount for the three months ended June 30, 2006. Of the$2.2 million adjustment, we reduced income $1.8 million in our Papersegment and $0.4 million in our Packaging & Newsprint segment.During the six months ended June 30, 2006, we increased “Materials, labor,and other operating expenses” $0.3 million

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and decreased “Net income” by the same amount. Of the $0.3 million adjustment,we increased income $1.6 million in our Paper segment and reduced income$1.9 million 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 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 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 Statement of Financial Accounting Standards(SFAS) No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans — an Amendment of FASBStatements No. 87, 88, 106, and 132(R)*, which required us torecognize the funded status of our pension and other postretirement benefitplans on our 2006 Consolidated Balance Sheet. It also required us to recognizethe actuarial and experience gains and losses and the prior service costs andcredits as a component of other comprehensive income, net of tax, in ourConsolidated Statement of Capital. In connection with adopting SFASNo. 158, we reduced our liabilities $38.1 million and increasedcapital by about the same amount. Retrospective application was not permitted.For more information, see Note 15, Retirement and Benefit Plans, of the Notesto 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.

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***ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS***

We are exposed to risks suchas changes in interest rates, energy prices, and foreign currency exchangerates. We employ a variety of practices to manage these risks, includingoperating and financing activities and, where deemed appropriate, the use ofderivative instruments. Derivative instruments are used only for riskmanagement purposes and not for speculation or trading. Derivatives are suchthat a specific debt instrument, contract, or anticipated purchase determines theamount, maturity, and other specifics of the hedge. If a derivative contract isentered into, we either determine that it is an economic hedge or we designatethe derivative as a cash flow or fair value hedge. We formally document allrelationships between hedging instruments and the hedged items, as well as ourrisk management objectives and strategies for undertaking various hedgedtransactions. For those derivatives designated as cash flow or fair valuehedges, we formally assess, both at the derivatives’ inception and on anongoing basis, whether the derivatives that are used in hedging transactionsare highly effective in offsetting changes in the hedged items. The ineffectiveportion of hedging transactions is recognized in income (loss).

In accordancewith SFAS No. 133, *Accounting forDerivative Instruments and Hedging Activities*, as amended, we recordall derivative instruments as assets or liabilities on our Consolidated BalanceSheets at fair value. The fair value of these instruments is determined bythird parties. Changes in the fair value of derivatives are recorded in either “Netincome (loss)” or “Other comprehensive income,” as appropriate. The gain orloss 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 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 is predominantly variable-rate. We manage interest rate risk onour variable-rate debt by entering into interest rate swaps. At June 30,2007, the estimated current market value of our fixed-rate debt, based onthen-current interest rates for similar obligations with like maturities, wasapproximately $20.4 million lessthan the amount reported on our Consolidated Balance Sheet.

During second quarter 2007, in connectionwith the amendment and restatement of our senior secured credit facilities, weconcluded that the interest payments on our senior unsecured floating-ratenotes were no longer probable of occurring after October 2007, when the notesbecome callable at par. As a result, during second quarter 2007, we recordedthe fair value of the interest rate swaps, or $5.4 million of income, in “Changein fair value of interest rate swaps” in our Consolidated Statements of Income.

In exchange for the termination of two of our interest rate swap agreementsthat were scheduled to begin in 2009, we received $2.8 million that werecorded in “Accumulated other comprehensive income.” We will reclassify the$2.8 million in “Accumulated other comprehensive income” as a reduction ofinterest expense in 2009 and 2010.

At June 30, 2007, we had fourinterest rate swaps to hedge our exposure to interest rate fluctuationsassociated with a portion of our variable-rate debt. The swaps effectivelyhedge $500 million of our variable-rate debt exposure through 2009.Assuming no changes in interest rates, we expect to reclassify$4.1 million of amounts recorded in “Accumulated other comprehensiveincome” as a decrease ininterest expense during the remainder of 2007. At June 30, 2007, werecorded no ineffectivenessrelated to these hedges.

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*EnergyRisk*

We enter into natural gas swaps, options, or acombination of these instruments to hedge the variable cash flow risk of naturalgas purchases at index prices. As of June 30, 2007, we had entered intoderivative instruments related to approximately 10% of our forecasted naturalgas purchases for July 2007 and 25% of our forecasted natural gas purchasesfrom August 2007 through October 2007.

*ForeignCurrency Risk*

At June 30, 2007, we had no foreign currencyhedges.

***ITEM 4.****                CONTROLS ANDPROCEDURES*

Attached as exhibits to this Form 10-Q arecertifications of our chief executive officer and chief financial officer. Rule13a-14 of the Securities Exchange Act of 1934, as amended, requires that weinclude these certifications with this report. This Controls and Proceduressection includes information concerning the disclosure controls and proceduresreferred to in the certifications. You should read this section in conjunctionwith the certifications.

*Evaluation of Disclosure Controls and Procedures*

We maintain “disclosure controls andprocedures,” as Rule 13a-15(e) under the Securities Exchange Act of 1934, asamended, defines such term. We have designed these controls and procedures toreasonably assure that information required to be disclosed in our reportsfiled under the Exchange Act, such as this Form 10-Q, is recorded,processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms. We have also designed ourdisclosure controls to provide reasonable assurance that such information isaccumulated and communicated to our senior management, including the chiefexecutive officer (CEO) and chief financial officer (CFO), as appropriate, toallow them to make timely decisions regarding our required disclosures.

We evaluate the effectiveness of our disclosure controls andprocedures on at least a quarterly basis. A number of key components in ourinternal control system assist us in these evaluations. Since the company’sinception, we have had a disclosure committee. The committee meets regularlyand includes input from our senior management, general counsel, internal audit staff,and independent 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 intent is to maintaindisclosure controls and procedures as dynamic processes that change as ourbusiness 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 secondquarter of 2007 that materially affected, or would be reasonably likely tomaterially affect, the company’s internal control over financial reporting.

*Limitations on the Effectiveness of Controls andProcedures*

In designing and evaluating our disclosurecontrols and procedures, we recognized that disclosure controls and procedures,no matter how well-conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the disclosure controls andprocedures are met. Additionally, in designing disclosure controls andprocedures, our management necessarily was required to apply its judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures. We have also designed our disclosure controls and procedures basedin part upon assumptions about the likelihood of future events, and there canbe no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions.

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**PART II—OTHERINFORMATION**

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

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

***ITEM 1A.****       RISK FACTORS*

This Quarterly Report onForm 10-Q contains forward-looking statements. Statements that arenot 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 of thesestatements 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 six months ended June 30, 2007, fromthose 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 SALESOF EQUITY SECURITIES AND USE OF PROCEEDS*

None.

***ITEM 3.****                DEFAULTS UPONSENIOR SECURITIES*

None.

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

Not applicable.

***ITEM 5.****                OTHER INFORMATION*

None.

***ITEM 6.****                EXHIBITS*

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

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|        |   | 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:  August14, 2007

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**BOISE CASCADEHOLDINGS, L.L.C.**

**INDEX TO EXHIBITS**

Filed With theQuarterly Report on Form 10-Q for the Quarter Ended June 30, 2007
| Number | ** ** | **Description**                                                              |
|--------|------------|------------------------------------------------------------------------------|
|   |       |                                                                         |
| 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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