**Table of Contents**

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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

**FORM 10-Q**

** **

 

| x                                                      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|--------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
|                                                   | ** **                                                                                             |
| **For the quarterly period ended March 31, 2009** |

 

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

 

**Commission File Number:  333-122770**

 

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

(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**

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

(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 by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.     Yes o     No x

 

We are a voluntary filerof reports required of companies with public securities under Sections 13or 15(d) of the Securities Exchange Act of 1934, and we have filed allreports which would have been required of us during the past 12 months hadwe been subject to such provisions.

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).   Yes o   No o

 

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

 

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

 

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

 

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

 

 

 

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Table of Contents

 

**Table of Contents**

 
| **PART  I—FINANCIAL INFORMATION**   |
|------------------------------------------|
|                                     |   |   |   |   |
| Item 1.                                  |   | Financial Statements |   | 1 |
|                                     |   | Notes to Unaudited Quarterly Consolidated Financial  Statements |   | 6 |
|                                     |   |   | 1. |   | Nature of  Operations and Basis of Presentation |   | 6 |
|                                     |   |   | 2. |   | Sale of Our  Paper and Packaging & Newsprint Assets |   | 7 |
|                                     |   |   | 3. |   | Investment in  Equity Affiliate |   | 7 |
|                                     |   |   | 4. |   | Transactions  With Related Parties |   | 8 |
|                                     |   |   | 5. |   | Vendor and  Customer Rebates and Allowances |   | 9 |
|                                     |   |   | 6. |   | Other (Income) Expense,  Net |   | 10 |
|                                     |   |   | 7. |   | Leases |   | 10 |
|                                     |   |   | 8. |   | Income Taxes |   | 10 |
|                                     |   |   | 9. |   | Inventories |   | 11 |
|                                     |   |   | 10. |   | Property and  Equipment, Net |   | 11 |
|                                     |   |   | 11. |   | Goodwill and  Intangible Assets |   | 12 |
|                                     |   |   | 12. |   | Debt |   | 13 |
|                                     |   |   | 13. |   | Financial Instrument  Risk |   | 14 |
|                                     |   |   | 14. |   | New and  Recently Adopted Accounting Standards |   | 15 |
|                                     |   |   | 15. |   | Retirement and  Benefit Plans |   | 16 |
|                                     |   |   | 16. |   | Redeemable Equity  Units |   | 17 |
|                                     |   |   | 17. |   | Segment Information |   | 17 |
|                                     |   |   | 18. |   | Commitments and  Guarantees |   | 19 |
|                                     |   |   | 19. |   | Consolidating  Guarantor and Nonguarantor Financial Information |   | 20 |
|                                     |   |   | 20. |   | Legal  Proceedings and Contingencies |   | 29 |
|                                     |   |   |   |   |
| Item 2.                             |   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   | 30 |
|                                     |   |   | Understanding Our Financial Information |   | 30 |
|                                     |   |   | Background |   | 30 |
|                                     |   |   | Recent Trends and Operational Outlook |   | 31 |
|                                     |   |   | Factors That Affect Our Operating Results |   | 32 |
|                                     |   |   | Our  Operating Results |   | 36 |
|                                     |   |   | Liquidity and Capital Resources |   | 41 |
|                                     |   |   | Contractual  Obligations |   | 44 |
|                                     |   |   | Off-Balance-Sheet  Activities |   | 44 |
|                                     |   |   | Guarantees |   | 45 |
|                                     |   |   | Environmental |   | 45 |
|                                     |   |   | Critical Accounting Estimates |   | 45 |
|                                     |   |   | New and Recently Adopted Accounting Standards |   | 46 |
|                                     |   |   |   |   |
| Item 3.                             |   | Quantitative  and Qualitative Disclosures About Market Risk |   | 47 |
|                                     |   |   |   |   |
| Item 4T.                            |   | Controls and  Procedures |   | 48 |
|                                     |   |   |   |   |
| **PART II—OTHER  INFORMATION** |
| ** **                               |
| Item 1.                             |   | Legal Proceedings |   | 50 |
|                                     |   |   |   |   |
| Item 1A.                            |   | Risk Factors |   | 50 |
|                                     |   |   |   |   |
| Item 2.                                  |   | Unregistered  Sales of Equity Securities and Use of Proceeds |   | 50 |
|                                     |   |   |   |   |
| Item 3.                                  |   | Defaults Upon  Senior Securities |   | 50 |
|                                     |   |   |   |   |
| Item 4.                                  |   | Submission of  Matters to a Vote of Securityholders |   | 50 |
|                                     |   |   |   |   |
| Item 5.                                  |   | Other Information |   | 50 |
|                                     |   |   |   |   |
| Item 6.                             |   | Exhibits |   | 50 |
|                                          |  |  |  |  |  |  |  |  |  |  |

 

Allreports we file with the Securities and Exchange Commission (SEC) are availablefree of charge via Electronic Data Gathering Analysis and Retrieval (EDGAR)through the SEC website at www.sec.gov. We also provide copies of our SECfilings at no charge upon request and make electronic copies of our reportsavailable through our website at www.bc.com as soon as reasonably practicableafter filing such material with the SEC.

 

ii

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**PART 1—FINANCIAL INFORMATION**

 

***ITEM 1.******                                          ******FINANCIAL STATEMENTS***

 

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

**(unaudited)**

** **
| ** **                                                           | ** ** | **Three Months Ended  March 31** | ** **  |
|----------------------------------------------------------------------|------------|-------------------------------------------------|-------------|
| ** **                                                           | ** ** | **2009**                                        | ** **  | **2008** | ** ** |
| ** **                                                           | ** ** | **(thousands)**                                 | ** **  |
| **Sales**                                                            |       |                                            |        |   |   |
| Trade                                                                |       | $                                               | 407,724     |   | $ | 880,800 |   |
| Related parties                                                      |       | 5,703                                           |        | 95,782 |   |
|                                                                 |       | 413,427                                         |        | 976,582 |   |
|                                                                 |       |                                            |        |   |   |
| **Costs  and expenses**                                              | ** ** | ** **                                      | ** **  | ** ** | ** ** |
| Materials,  labor, and other operating expenses                      |       | 381,071                                         |        | 880,658 |   |
| Materials, labor,  and other operating expenses from related parties |       | 12,290                                          |        | 6,180 |   |
| Depreciation,  amortization, and depletion                           |       | 11,119                                          |        | 10,035 |   |
| Selling and  distribution expenses                                   |       | 45,241                                          |        | 63,365 |   |
| General and  administrative expenses                                 |       | 6,925                                           |        | 14,653 |   |
| General and  administrative expenses from related party              |       | 2,433                                           |        | 977 |   |
| Gain on sale of  Paper and Packaging & Newsprint Assets     |       | —                                          |        | (8,063 | ) |
| Other (income)  expense, net                                         |       | 2,681                                           |        | (942 | ) |
|                                                                 |       | 461,760                                         |        | 966,863 |   |
| ** **                                                           | ** ** | ** **                                      |        |   |   |
| **Income  (loss) from operations**                                   |       | (48,333                                         | )           | 9,719 |   |
|                                                                 |       |                                            |        |   |   |
| Equity in net  income (loss) of affiliate                            |       | 3,005                                           |        | (8,552 | ) |
| Impairment of  investment in equity affiliate                        |       | (43,039                                         | )           | — |   |
| Foreign exchange  loss                                               |       | (332                                            | )           | (613 | ) |
| Change in fair  value of contingent value rights                     |       | 194                                             |        | (4,773 | ) |
| Change in fair  value of interest rate swaps                         |       | —                                          |        | (6,284 | ) |
| Gain on  repurchase of long-term debt                                |       | 6,026                                           |        | — |   |
| Interest expense                                                     |       | (5,616                                          | )           | (15,381 | ) |
| Interest income                                                      |       | 397                                             |        | 2,601 |   |
|                                                                 |       | (39,365                                         | )           | (33,002 | ) |
|                                                                 |       |                                            |        |   |   |
| **Loss  before income taxes**                                        |       | (87,698                                         | )           | (23,283 | ) |
| Income tax  provision                                                |       | (483                                            | )           | (1,155 | ) |
| **Net  loss**                                                        | ** ** | **$**                                           | **(88,181** | **)** | **$** | **(24,438** | **)** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

1

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

**Consolidated Balance Sheets**

(unaudited)

 
| ** **                                        | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                        | ** ** | **2009**           | ** **  | **2008**              | ** ** |
| ** **                                        | ** ** | **(thousands)**    | ** **  |
| **ASSETS**                                        |       |               |        |                  |       |
|                                              |       |               |        |                  |       |
| **Current**                                       |       |               |        |                  |       |
| Cash and cash  equivalents                        |       | $                  | 189,544     |                  | $          | 275,803 |   |
| Receivables                                       |       |               |        |                  |       |
| Trade, less  allowances of $2,124 and $1,843 |       | 106,750            |        | 78,393                |       |
| Related parties                                   |       | 1,497              |        | 3,112                 |       |
| Other                                             |       | 4,370              |        | 5,907                 |       |
| Inventories                                       |       | 265,249            |        | 279,023               |       |
| Prepaid expenses  and other                       |       | 3,613              |        | 1,296                 |       |
|                                              |       | 571,023            |        | 643,534               |       |
|                                              |       |               |        |                  |       |
| **Property**                                      |       |               |        |                  |       |
| Property and  equipment, net                      |       | 282,985            |        | 291,999               |       |
| Timber deposits                                   |       | 8,510              |        | 8,632                 |       |
|                                              |       | 291,495            |        | 300,631               |       |
|                                              |       |               |        |                  |       |
| **Investment  in equity affiliate**               |       | 22,622             |        | 20,985                |       |
| **Deferred  financing costs**                     |       | 7,318              |        | 7,862                 |       |
| **Goodwill**                                      |       | 12,170             |        | 12,170                |       |
| **Intangible  assets, net**                       |       | 9,143              |        | 9,248                 |       |
| **Other  assets**                                 |       | 6,259              |        | 6,009                 |       |
| **Total  assets**                                 | ** ** | **$**              | **920,030** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

2

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

**Consolidated Balance Sheets (continued)**

(unaudited)

 
| ** **                                                                                                            | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                            | ** ** | **2009**           | ** **  | **2008**              | ** ** |
| ** **                                                                                                            | ** ** | **(thousands)**    | ** **  |
| **LIABILITIES  AND CAPITAL**                                                                                          |       |               |        |                  |       |
|                                                                                                                  |       |               |        |                  |       |
| **Current**                                                                                                           |       |               |        |                  |       |
| Accounts payable                                                                                                      |       |               |        |                  |       |
| Trade                                                                                                                 |       | $                  | 83,100      |                  | $          | 69,478 |   |
| Related parties                                                                                                       |       | 2,931              |        | 2,195                 |       |
| Accrued  liabilities                                                                                                  |       |               |        |                  |       |
| Compensation and  benefits                                                                                            |       | 32,487             |        | 38,228                |       |
| Interest payable                                                                                                      |       | 7,756              |        | 3,930                 |       |
| Other                                                                                                                 |       | 15,028             |        | 30,893                |       |
|                                                                                                                  |       | 141,302            |        | 144,724               | ** ** |
|                                                                                                                  |       |               |        |                  |       |
| **Debt**                                                                                                              |       |               |        |                  |       |
| Long-term debt                                                                                                        |       | 303,146            |        | 315,000               |       |
|                                                                                                                  |       |               |        |                  |       |
| **Other**                                                                                                             |       |               |        |                  |       |
| Compensation and  benefits                                                                                            |       | 120,754            |        | 172,275               |       |
| Other long-term  liabilities                                                                                          |       | 11,304             |        | 12,125                |       |
|                                                                                                                  |       | 132,058            |        | 184,400               |       |
|                                                                                                                  |       |               |        |                  |       |
|                                                                                                                  |       |               |        |                  |       |
| **Redeemable  equity units**                                                                                          |       |               |        |                  |       |
| Series B  equity units – 2,914,840 units and 2,920,574 units outstanding                          |       | 2,915              |        | 2,920                 |       |
| Series C  equity units – 19,945,724 units and 11,016,668 units outstanding                        |       | 3,514              |        | 3,037                 |       |
|                                                                                                                  |       | 6,429              |        | 5,957                 |       |
|                                                                                                                  |       |               |        |                  |       |
| **Commitments  and contingent liabilities**                                                                           |       |               |        |                  |       |
|                                                                                                                  |       |               |        |                  |       |
| **Capital**                                                                                                           |       |               |        |                  |       |
| Series A  equity units – no par value; 66,000,000 units authorized and outstanding                     |       | 83,588             |        | 81,967                |       |
| Series B  equity units – no par value; 550,000,000 units authorized and  532,414,853 units outstanding |       | 253,507            |        | 268,391               |       |
| Series C  equity units – no par value; 44,000,000 units authorized and 11,183,000 units  outstanding        |       | —             |        | —                |       |
| **Total  capital**                                                                                                    |       | 337,095            |        | 350,358               |       |
|                                                                                                                  |       |               |        |                  |       |
| **Total  liabilities and capital**                                                                                    | ** ** | **$**              | **920,030** | ** **            | **$**      | **1,000,439** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

3

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

**Consolidated Statements of Cash Flows**

(unaudited)

** **
| ** **                                                                       | ** ** | **Three Months Ended  March 31** | ** **  |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------|-------------|
| ** **                                                                       | ** ** | **2009**                                        | ** **  | **2008** | ** ** |
| ** **                                                                       | ** ** | **(thousands)**                                 | ** **  |
| **Cash  provided by (used for) operations**                                      |       |                                            |        |   |   |
| Net loss                                                                         |       | $                                               | (88,181     | ) | $ | (24,438 | ) |
| Items in net  loss not using (providing) cash                                    |       |                                            |        |   |   |
| Equity in net  (income) loss of affiliate                                        |       | (3,005                                          | )           | 8,552 |   |
| Impairment of  investment in equity affiliate                                    |       | 43,039                                          |        | — |   |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | 11,462                                          |        | 10,378 |   |
| Related-party  interest income                                                   |       | —                                          |        | (986 | ) |
| Pension and  other postretirement benefit expense                                |       | 4,939                                           |        | 5,007 |   |
| Change in fair  value of contingent value rights                                 |       | (194                                            | )           | 4,773 |   |
| Change in fair  value of interest rate swaps                                     |       | —                                          |        | 6,284 |   |
| Management  equity units expense, net of expense related to the Sale        |       | 778                                             |        | 347 |   |
| Gain on  repurchase of long-term debt                                            |       | (6,026                                          | )           | — |   |
| Gain on sale of  assets, net                                                     |       | (82                                             | )           | (10,972 | ) |
| Facility closure  and curtailment costs                                          |       | 2,754                                           |        | — |   |
| Other                                                                            |       | 332                                             |        | 633 |   |
| Decrease  (increase) in working capital, net of dispositions                     |       |                                            |        |   |   |
| Receivables                                                                      |       | (25,800                                         | )           | (75,192 | ) |
| Inventories                                                                      |       | 13,174                                          |        | 12,765 |   |
| Prepaid expenses  and other                                                      |       | (1,357                                          | )           | (1,646 | ) |
| Accounts payable  and accrued liabilities                                        |       | 7,826                                           |        | 21,143 |   |
| Pension and  other postretirement benefit payments                               |       | (25,045                                         | )           | (20,716 | ) |
| Current and  deferred income taxes                                               |       | 476                                             |        | 1,403 |   |
| Other                                                                            |       | (1,826                                          | )           | (155 | ) |
| Cash used for  operations                                                        |       | (66,736                                         | )           | (62,820 | ) |
|                                                                             |       |                                            |        |   |   |
| **Cash  provided by (used for) investment**                                      |       |                                            |        |   |   |
| Proceeds from  sale of assets, net of cash contributed                           |       | 137                                             |        | 1,227,327 |   |
| Expenditures for  property and equipment                                         |       | (4,229                                          | )           | (18,219 | ) |
| Increase in  restricted cash                                                     |       | —                                          |        | (183,290 | ) |
| Other                                                                            |       | 101                                             |        | (1,019 | ) |
| Cash provided by  (used for) investment                                          |       | (3,991                                          | )           | 1,024,799 |   |
|                                                                             |       |                                            |        |   |   |
| **Cash  provided by (used for) financing**                                       |       |                                            |        |   |   |
| Issuances of  long-term debt                                                     |       | —                                          |        | 229,224 |   |
| Payments of  long-term debt                                                      |       | (5,627                                          | )           | (925,563 | ) |
| Short-term  borrowings                                                           |       | —                                          |        | (10,500 | ) |
| Tax  distributions to members                                                    |       | (9,897                                          | )           | (127,342 | ) |
| Repurchase of  management equity units                                           |       | (8                                              | )           | (18,289 | ) |
| Cash paid for  termination of interest rate swaps                                |       | —                                          |        | (11,918 | ) |
| Other                                                                            |       | —                                          |        | (4,114 | ) |
| Cash used for  financing                                                         |       | (15,532                                         | )           | (868,502 | ) |
|                                                                             |       |                                            |        |   |   |
| **Increase  (decrease) in cash and cash equivalents**                            |       | (86,259                                         | )           | 93,477 |   |
|                                                                             |       |                                            |        |   |   |
| **Balance  at beginning of the period**                                          |       | 275,803                                         |        | 57,623 |   |
|                                                                             |       |                                            |        |   |   |
| **Balance  at end of the period**                                                | ** ** | **$**                                           | **189,544** | ** ** | **$** | **151,100** | ** ** |

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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

**Consolidated Statements of Capital**

(unaudited)

 
| ** **                                                       | ** ** | **Series A  Equity Units** | ** ** | **Series B  Equity Units** | ** ** | **Series C  Equity Units** | ** **  | **Total**  | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|-------------|------------|------------|
| ** **                                                       | ** ** | **Units**                            | ** ** | **Amount**                           | ** ** | **Units**                            | ** **  | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Capital** | ** ** |
| ** **                                                       | ** ** | **(thousands)**                      | ** ** |
|                                                             |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Balance at  December 31, 2007                               |       | 66,000                               |       | $                                    | 78,463     |                                 | 530,357     |       | $          | 876,693 |   | — |   | $ | 10,268 |   | $ | 965,424 |   |
|                                                             |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Net loss (a)                                                     |       | —                               |       | —                               |       | —                               |        | (287,978   | )          | — |   | — |   | (287,978 | ) |
| Other  comprehensive income (loss), net of tax (a) (b) |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Cash flow hedges                                                 |       | —                               |       | —                               |       | —                               |        | (133       | )          | — |   | — |   | (133 | ) |
| Unfunded  accumulated benefit obligation                         |       | —                               |       | —                               |       | —                               |        | (151,773   | )          | — |   | — |   | (151,773 | ) |
| Equity in other  comprehensive loss of equity affiliate     |       | —                               |       | —                               |       | —                               |        | (41,984    | )          | — |   | — |   | (41,984 | ) |
| Paid-in-kind  dividend                                           |       | —                               |       | 6,246                                |       | —                               |        | (6,246     | )          | — |   | — |   | — |   |
| Tax  distributions to members                                    |       | —                               |       | (2,742                               | )          | —                               |        | (128,945   | )          | — |   | — |   | (131,687 | ) |
| Allocation of  profit interest to Series C equity units     |       | —                               |       | —                               |       | —                               |        | 10,268     |       | — |   | (10,268 | ) | — |   |
| Fair market  value adjustment of redeemable equity units         |       | —                               |       | —                               |       | —                               |        | (11,338    | )          | — |   | — |   | (11,338 | ) |
| Allocation of  redeemable equity units to Capital                |       | —                               |       | —                               |       | 2,058                                |        | 6,923      |       | 11,183 |   | — |   | 6,923 |   |
| Other                                                            |       | —                               |       | —                               |       | —                               |        | 2,904      |       | — |   | — |   | 2,904 |   |
| **Balance  at December 31, 2008 (c)**                       |       | 66,000                               |       | 81,967                               |       | 532,415                              |        | 268,391    |       | 11,183 |   | — |   | 350,358 |   |
|                                                             |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Net loss (a)                                                     |       | —                               |       | —                               |       | —                               |        | (88,181    | )          | — |   | — |   | (88,181 | ) |
| Other  comprehensive income (loss), net of tax (a) (b) |       |                                 |       |                                 |       |                                 |        |       |       |   |   |   |   |   |   |
| Unfunded  accumulated benefit obligation                         |       | —                               |       | —                               |       | —                               |        | 32,330     |       | — |   | — |   | 32,330 |   |
| Equity in other  comprehensive income of equity affiliate        |       | —                               |       | —                               |       | —                               |        | 1,160      |       | — |   | — |   | 1,160 |   |
| Impairment of  investment in equity affiliate                    |       | —                               |       | —                               |       | —                               |        | 40,824     |       | — |   | — |   | 40,824 |   |
| Paid-in-kind  dividend                                           |       | —                               |       | 1,621                                |       | —                               |        | (1,621     | )          | — |   | — |   | — |   |
| Tax  distributions to members                                    |       | —                               |       | —                               |       | —                               |        | 308        |       | — |   | — |   | 308 |   |
| Other                                                            |       | —                               |       | —                               |       | —                               |        | 296        |       | — |   | — |   | 296 |   |
| **Balance  at March 31, 2009 (c)**                          | ** ** | **66,000**                           | ** ** | **$**                                | **83,588** | ** **                           | **532,415** | ** ** | **$**      | **253,507** | ** ** | **11,183** | ** ** | **$** | **—** | ** ** | **$** | **337,095** | ** ** |

 

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(a)                                  Totalcomprehensive loss for the three months ended March 31, 2009 and 2008, was$13.9 million and $60.6 million, respectively.

 

(b)                                 Total othercomprehensive income (loss) for the three months ended March 31, 2009 and2008, was $74.3 million and $(36.1) million, respectively.

 

(c)                                  Accumulatedother comprehensive loss at March 31, 2009, and December 31, 2008,was $48.5 million and $122.8 million, respectively.

 

Seeaccompanying notes to unaudited quarterly consolidated financial statements.

 

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***Notes to Unaudited Quarterly ConsolidatedFinancial Statements***

 

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

 

*Nature ofOperations*

 

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

 

On February 22, 2008, Boise Cascade, L.L.C., our wholly owned directsubsidiary, sold its Paper and Packaging & Newsprint assets and mostof its Corporate and Other assets (the Sale) to Boise Inc. (formerlyAldabra 2 Acquisition Corp.) for cash and securities equal to$1.6 billion, plus working capital adjustments. Immediately following theSale, Boise Cascade, L.L.C., distributed the securities received in thetransaction to us. As a result, we became a 49% owner of Boise Inc. andcontinue to have a significant indirect financial interest in the results ofthe sold businesses.Our ownership interest, and consequently our proportionate share ofBoise Inc. net income or loss, changes when we or Boise Inc. engagein transactions of Boise Inc. common stock with third parties. At March 31,2009, we had a 47.6% ownership interest in Boise Inc. The equity interest we own in Boise Inc. represents asignificant continuing involvement as defined in Statement of FinancialAccounting Standards (SFAS) No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets.*As a result, the Paper and Packaging &Newsprint segment results are included in our first quarter 2008 ConsolidatedStatement of Loss through February 21, 2008, and we did not define thesold assets as discontinued operations.

 

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

 

*Basisof Presentation*

 

The quarterly consolidated financial statements havenot been audited by an independent registered public accounting firm but, inthe opinion of management, include all adjustments, consisting only of normal,recurring adjustments, necessary to present fairly the results for the periodspresented. The net loss for the three months ended March 31, 2009 and2008, involved estimates and assumptions about future events. These estimatesand the underlying assumptions affect the amounts of assets and liabilitiesreported, disclosures about contingent assets and liabilities, and reportedamounts of revenues and expenses. Such estimates include the evaluation of our investment in Boise Inc. forother-than-temporary impairment; the valuation of accounts receivable,inventories, goodwill, intangible assets, and other long-lived assets; legalcontingencies; guarantee obligations; indemnifications; assumptions used in retirementand other postemployment benefits; and customer incentives, among others. Theseestimates and assumptions are based on management’s best estimates andjudgment. Management evaluates its estimates and assumptions on an ongoingbasis using historical experience and other factors, including the currenteconomic environment, which management believes to be reasonable under thecircumstances. We adjust such estimates and assumptions when facts andcircumstances dictate. Illiquid credit markets; volatile equity, foreigncurrency, and energy markets; and declines in consumer spending have combinedto increase the uncertainty inherent in such estimates and assumptions. Asfuture events and their effects cannot be determined with precision, actualresults could differ significantly from these estimates. Changes in theseestimates resulting from continuing changes in the economic environment will bereflected in the consolidated financial statements in future periods. Quarterly results are not necessarily indicativeof results that may be expected for the full year.

 

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

 

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

 

On February 22, 2008, Boise Cascade,L.L.C., our wholly owned direct subsidiary, sold its Paper and Packaging &Newsprint assets and most of its Corporate and Other assets to Boise Inc.for $1,277.2 million of cash consideration, $285.2 million of netstock consideration, and a $41.0 million paid-in-kind promissory notereceivable. In first quarter 2008, we recorded a $15.8 million gain, ofwhich we recognized $8.1 million in our Consolidated Statement of Loss forthe three months ended March 31, 2008. In first quarter 2008, we deferred$7.7 million of the gain as a reduction of our investment inBoise Inc. in accordance with Emerging Issues Task Force (EITF) No. 01-02,*Interpretations of Accounting Principles Board(APB) Opinion No. 29*. In subsequent periods, the gain decreasedfrom $15.8 million to $5.7 million primarily due totransaction-related expenses and adjustments. For more information related to the Sale, seeNote 3, Sale of Our Paper and Packaging & Newsprint Assets, ofthe Notes to Consolidated Financial Statements in “Item 8. FinancialStatements and Supplementary Data” in our 2008 Form 10-K.

 

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

 

In connection with the Sale, we received37.9 million, or 49%, of Boise Inc.’s shares. We recorded our investmentin “Investment in equity affiliate” on our Consolidated Balance Sheet. Ourownership interest provides us with the ability to exercise significantinfluence. Accordingly, we account for our investment in Boise Inc. underthe equity method of accounting. We adjust the amount of our investment monthlyfor our proportionate share of Boise Inc.’s net income or loss and our share ofother comprehensive income or loss based on the most recently availablefinancial statements. As a result, our aggregate investment in Boise Inc.is recorded in a combination of the “Investment in equity affiliate” and othercomprehensive income accounts within “Series B equity units” on ourConsolidated Balance Sheets. Our ownership interest, and consequently ourproportionate share of Boise Inc.’s net income or loss, changes when we orBoise Inc. engage in transactions of Boise Inc. common stock with thirdparties. At March 31, 2009, we had a 47.6% ownership interest inBoise Inc. Changes in ownership interest may also result in our recordingan ownership interest dilution gain or loss.

 

During the three monthsended March 31, 2009, we recorded $40.0 million of expense related to ourinvestment in Boise Inc. in our Consolidated Statement of Loss, comparedwith $8.6 million during the three months ended March 31, 2008. Ofthe $40.0 million of expense, we recorded $43.0 million of expense in“Impairment of investment in equity affiliate” and $3.0 million of incomein “Equity in net income (loss) of affiliate” in our Consolidated Statement ofLoss as follows:

 
| ** **                                                 | ** ** | **(thousands)** | ** **  |
|------------------------------------------------------------|------------|-----------------|-------------|
| Impairment of  investment in equity affiliate (a)          |       | $               | (43,039     | ) |
|                                                       |       |            |        |
| Equity in net  loss of Boise Inc. (b)                 |       | (952            | )           |
| Amortization of  basis differential (c)                    |       | 4,982           |        |
| Loss on shares  issued for settlement of CVR liability (d) |       | (1,025          | )           |
| Equity in net  income of affiliate                         |       | 3,005           |        |
|                                                       |       |            |        |
| Total                                                      | ** ** | **$**           | **(40,034** | **)** |

 

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(a)                                  On March 31,2009, we compared the fair value of the Boise Inc. stock price ($0.61 pershare) with the carrying value of our investment ($1.77 per share) andconcluded that our investment in Boise Inc. met the definition of other thantemporarily impaired as defined in APB Opinion No. 18, *The Equity Method of Accounting for Investments inCommon Stock*. The fair value of our investment in Boise Inc. wascalculated based on our 37.1 million of Boise Inc. shares andBoise Inc.’s stock price on March 31, 2009, of $0.61. The carrying valueof our investment is calculated as the sum of (1) the amount recorded in “Investmentin equity affiliate” on our Consolidated Balance Sheet and (2) the amountof accumulated other comprehensive income related to our investment inBoise Inc. recorded within “Series B equity units” on ourConsolidated Balance Sheet.

 

We made the other thantemporary impairment determination based primarily on the length of time andextent to which the fair value of our investment had been trading below itscarrying value. As of March 31, 2009, Boise Inc.’s stock had traded below ourcarrying value since we wrote the investment down in September 2008.Accordingly, in first quarter 2009, we recorded a $43.0 million charge in “Impairmentof investment in equity affiliate” in our Consolidated Statement of Loss andreduced by $40.8 million accumulated other comprehensive loss related to ourinvestment in Boise Inc. (which was accumulated monthly from recording

 

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our proportionate share ofBoise Inc.’s other comprehensive income or loss). In addition, we decreased “Investmentin equity affiliate” $2.2 million, to reduce the aggregate carrying valueof our investment recorded on our Consolidated Balance Sheet to its fair valueon March 31, 2009, of $0.61 per share.

 

(b)                                 Includes a$0.6 million dilution loss due to the vesting of Boise Inc. restrictedstock during the three months ended March 31, 2009.

 

(c)                                  At March 31,2009, the carrying value of our investment in Boise Inc. was approximately$232.1 million less than our share of Boise Inc.’s underlying equityin net assets. The difference is due to the write-down of our investment inBoise Inc. In accordance with APB Opinion No. 18, we are amortizingthe difference to income on a straight-line basis over 9.6 years, whichrepresents the remaining weighted-average useful life of Boise Inc.’sassets. In first quarter 2009, the amortization of the basis differentialresulted in our recognizing $5.0 million of income in “Equity in netincome (loss) of affiliate” in our Consolidated Statement of Loss and willresult in our recognizing approximately $24.2 million of income per year forthe next 9.6 years, which will be increased or decreased by ourproportionate share of Boise Inc.’s net income or loss.

 

(d)                                 During the threemonths ended March 31, 2009, we settled our obligation related to thecontingent value rights (CVRs) we issued to holders of Boise Inc. commonstock. In connection with the settlement in first quarter 2009, we transferredownership of 0.8 million Boise Inc. shares and recorded a$1.0 million loss in “Equity in net income (loss) of affiliate” in ourConsolidated Statement of Loss for the difference between the market price onthe date we settled our obligation with shares and the carrying amount of theshares recorded on our Balance Sheet. For more information, see Note 13,Financial Instrument Risk.

 

We will continue to monitor the value ofBoise Inc.’s stock and our carrying value. Should market conditions and/orBoise Inc.’s financial performance deteriorate or should we decide to sell ourequity method investment before it recovers to its carrying value, it is possiblethat we will be required to record another noncash impairment charge that couldhave a material impact on our Consolidated Statements of Income (Loss). Asadditional information becomes known, we may change our estimates.

 

The following table presents summarizedincome statement information for Boise Inc. for the three months ended March 31,2009, and the period of February 22 through March 31, 2008.Summarized income statement information is not presented for the period of January 1through February 21, 2008, as it is included in our Consolidated Statementof Loss for the three months ended March 31, 2008.

 
| ** **                     | ** ** | **Three Months  Ended  March 31, 2009** | ** ** | **February 22  Through  March 31, 2008** | ** ** |
|--------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **(thousands)**                                        | ** ** |
| ** **                     | ** ** | ** **                                             | ** ** |
| Sales                          |       | $                                                      | 500,285    |                                                    | $          | 227,988 |   |
| Costs and  expenses            |       | 478,856                                                |       | 237,269                                                 |       |
| Income (loss)  from operations |       | 21,429                                                 |       | (9,281                                                  | )          |
| Net loss                       |       | (916                                                   | )          | (16,371                                                 | )          |
|                                |            |                                                        |            |                                                         |            |  |  |

 

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

 

*Sales*

 

During the three months ended March 31,2009 and 2008, we sold $3.2 million and $4.2 million of fiber toBoise Inc. and $2.5 million and $1.5 million to Louisiana TimberProcurement Company L.L.C., an unconsolidated entity that is 50% owned by BoiseCascade, L.L.C., and 50% owned by Boise Inc., at prices designed toapproximate market. Most of these sales relate to chip sales from our WoodProducts segment. These sales are included in “Sales, Related parties” in theConsolidated Statements of Loss.

 

Prior to the Sale,we sold paper and paper products to OfficeMax at sales prices that weredesigned to approximate market prices. For the three months ended March 31,2008, sales to OfficeMax were $90.1 million. These sales are included in “Sales,Related parties” in the Consolidated Statement of Loss.

 

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*Costs and Expenses*

 

During the three months ended March 31,2009 and 2008, we purchased $11.2 million and $5.5 million of fiberfrom Louisiana Timber Procurement Company L.L.C. and $0.6 million and$0.5 million of transportation services from Boise Inc. We purchasedthe fiber and transportation services at prices that approximated marketprices. These costs are recorded in “Materials, labor, and other operatingexpenses from related parties” in our Consolidated Statements of Loss.

 

In connection with the Sale, we entered into an OutsourcingServices Agreement under which Boise Inc. provides a number of corporate staffservices to us at cost. These services include information technology,accounting, and human resource services. The initial term of the agreement isfor three years. It will automatically renew for one-year terms unless eitherparty provides notice of termination to the other party at least 12 monthsin advance of the applicable term. The Outsourcing Services Agreement alsogives us (but not Boise Inc.) the right to terminate all or any portion of theservices provided to us on 30 days’ notice, subject to payment of anabsorption fee. The absorption fee of $5.0 million is allocated among theservices provided under the contract and declines to zero in total and on anallocable basis over the initial three-year term of the agreement. During thethree months ended March 31, 2009 and 2008, we recognized$3.6 million and $1.5 million, respectively, of costs related to thisagreement, of which we recorded $0.5 million and $0.2 million in “Materials,labor, and other operating expenses from related parties,” $0.7 millionand $0.3 million in “Selling and distribution expenses,” and$2.4 million and $1.0 million in “General and administrative expensesfrom related party” in our Consolidated Statements of Loss.

 

*Tax Distributions*

 

We are a limitedliability company, and the majority of our businesses and assets are held andoperated by limited liability companies, which are not subject to entity-levelfederal or state income taxation. We make cash distributions to permit themembers of BC Holdings and affiliates to pay income taxes. During thethree months ended March 31, 2009 and 2008, we made $9.9 million and$127.3 million of cash tax distributions, which primarily related to thenet taxable gain on the Sale. During the three months ended March 31, 2009and 2008, we paid $7.3 million and $104.3 million to Forest ProductsHoldings (FPH), our majority owner. FPH in turn paid $4.9 million and$93.9 million to Madison Dearborn Partners, our equity sponsor,$2.4 million and $10.0 million to management investors, and in firstquarter 2008, $0.4 million to nonmanagement affiliates. For the threemonths ended March 31, 2009 and 2008, we paid $2.6 million and$23.0 million to OfficeMax to fund their tax obligations related to theirinvestments in us.

 

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

 

We receive rebates andallowances from our vendors under a number of different programs, includingvendor marketing programs. At March 31, 2009, and December 31, 2008,we had $2.8 million and $3.0 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 to specificselling and distribution expenses are recognized as a reduction of “Selling anddistribution expenses” in the period the expense is incurred.

 

We also provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates provided to our customers are accounted for inaccordance with EITF 01-09, *Accounting forConsideration Given by a Vendor to a Customer*. The rebates arerecorded as a decrease in sales. At March 31, 2009, and December 31,2008, we had $6.5 million and $11.4 million, respectively, of rebatespayable to our customers recorded in “Accrued liabilities, Other” on ourConsolidated Balance Sheets.

 

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*** ***

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

 

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

 
| ** **                                   | ** ** | **Three Months Ended  March 31** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(thousands)**                                 | ** ** |
| Facility  closures and curtailments (a)      |       | $                                               | 4,676      |   | $ | — |   |
| Changes in  pension plans (see Note 15) |       | (747                                            | )          | — |   |
| Other, net                                   |       | (1,248                                          | )          | (942 | ) |
| ** **                                   | ** ** | **$**                                           | **2,681**  | ** ** | **$** | **(942** | **)** |

 

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(a)                                  In first quarter2009, we committed to indefinitely curtailing the lumber manufacturing facilityin La Grande, Oregon, and we recorded $4.4 million of expense in “Other(income) expense, net.” In addition, we recorded $2.5 million of accelerateddepreciation in “Depreciation, amortization, and depletion” and$0.6 million of expenses in “Materials, labor, and other operatingexpenses” in our Consolidated Statement of Loss. We expect to recognize$2.6 million of additional accelerated depreciation related to adjustingthe useful lives of the facility’s assets in second quarter 2009.

 

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

 

We lease a portionof our distribution centers as well as other property and equipment underoperating leases. For purposes of determining straight-line rent expense, thelease term is calculated from the date we first take possession of thefacility, including any periods of free rent and any option periods we arereasonably assured of exercising. Straight-line rent expense is also adjustedto reflect any allowances or reimbursements provided by the lessor. Rentalexpense for operating leases was $3.3 million and $5.4 million for thethree months ended March 31, 2009 and 2008. Sublease rental income was notmaterial in any of the periods presented.

 

For noncancelableoperating leases with remaining terms of more than one year, the minimum leasepayment requirements are $8.9 million for the remainder of 2009,$11.2 million in 2010, $9.9 million in 2011, $9.1 million in2012, $7.9 million in 2013, and $6.8 million in 2014, with total paymentsthereafter of $31.4 million. These future minimum lease paymentrequirements have not been reduced by sublease rentals due in the future undernoncancelable subleases. Minimum sublease income received in the future is not expectedto be material.

 

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

 

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

 

*TaxDistributions*

 

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

 

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*Income Tax (Provision) Benefit*

 

Ourincome tax provision generally consists of income taxes payable to states that donot allow for the income tax liability to be passed through to our equityholders, as well as income taxes payable by our separate subsidiaries that aretaxed as corporations. For the three months ended March 31,2009 and 2008, income tax expense was $0.5 million and $1.2 million.During the three months ended March 31, 2009 and 2008, our effective taxrate for our separate subsidiaries that are taxed as corporations was 34.0% and35.4%. The primary reason forthe difference in tax rates is the effect of state income taxes and the mix ofdomestic and foreign sources of income.At March 31, 2009, and December 31,2008, we had a $0.2 million deferred tax asset related to our taxablesubsidiaries recorded on our Consolidated Balance Sheets.

 

We paid an insignificant amount of income taxes, netof refunds received, during the three months ended March 31, 2009. Duringthe three months ended March 31, 2008, we received $0.4 million oftax refunds, net of income taxes paid.

 

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

 

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

 

Inventories include the following:

 
| ** **                          | ** ** | **March 31,  2009** | ** **  | **December 31,  2008** | ** ** |
|-------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                          | ** ** | **(thousands)**          | ** **  |
| Finished goods  and work in process |       | $                        | 208,443     |                        | $          | 211,051 |   |
| Logs                                |       | 40,576                   |        | 50,930                      |       |
| Other raw  materials and supplies   |       | 16,230                   |        | 17,042                      |       |
| ** **                          | ** ** | **$**                    | **265,249** | ** **                  | **$**      | **279,023** |   |

 

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

 

Property and equipmentconsisted of the following asset classes:

 
| ** **                     | ** ** | **March 31,  2009** | ** **  | **December 31,  2008** | ** ** |
|--------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                     | ** ** | **(thousands)**          | ** **  |
| Land and land  improvements    |       | $                        | 36,089      |                        | $          | 36,089 |   |
| Buildings and  improvements    |       | 106,579                  |        | 106,966                     |       |
| Machinery and  equipment       |       | 260,608                  |        | 252,952                     |       |
| Construction in  progress      |       | 12,916                   |        | 20,954                      |       |
|                           |       | 416,192                  |        | 416,961                     |       |
| Less accumulated  depreciation |       | (133,207                 | )           | (124,962                    | )          |
| ** **                     | ** ** | **$**                    | **282,985** | ** **                  | **$**      | **291,999** |   |

 

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

 

Goodwill represents theexcess of purchase price and related costs over the value assigned to the nettangible and intangible assets of businesses acquired. At March 31, 2009,and December 31, 2008, we had $12.2 million of goodwill recorded onour Consolidated Balance Sheet, of which $5.6 million was recorded in ourBuilding Materials Distribution segment and $6.6 million was recorded in ourWood Products segment.

 

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

 

Due to the continueddeclines in housing starts and the resulting weak demand for building products,we performed the first step of the goodwill impairment test again in firstquarter 2009. In conducting our impairment analysis, we utilize the discountedcash flow approach that estimates the projected future cash flows to begenerated by our reporting units,**discountedto present value using a discount rate reflecting our estimated cost of funds.We determined that the fair value of each of our reporting units exceeded theircarrying amounts and, therefore, no goodwill impairment existed. However, theanalysis requires significant judgments and estimates to be made by management,including estimates of future cash flows that will result from our estimates offuture demand, pricing, and production costs, assuming certain levels ofcapital expenditures. We believe the assumptions are reasonable and reflectforecasted market conditions as of the valuation date; however, we cannotpredict the occurrence of certain future events that might adversely affect thereported value of goodwill. Should the markets for building productsdeteriorate further, should we make strategic decisions in response tocontinued difficult economic and competitive conditions, should we decide toinvest capital differently, and should other cash flow assumptions change, itis reasonably possible that our determination that goodwill is not impairedcould change in the near term. As additional information becomes known, we may changeour estimates.

 

At March 31, 2009, and December 31, 2008, intangible assetsrepresent the values assigned to trade names and trademarks and customerrelationships. The trade names and trademark assets have an indefinite life andare not amortized. Customer relationships are amortized over five years.

 

Intangible assets consisted of the following:

 
| ** **                  | ** ** | **March 31, 2009**    | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| ** **                  | ** ** | **(thousands)**                 | ** ** |
| Trade names and  trademarks |       | $                               | 8,900      |   | $ | — |   | $ | 8,900 |   |
| Customer  relationships     |       | 2,100                           |       | (1,857 | ) | 243 |   |
| ** **                  | ** ** | **$**                           | **11,000** | ** ** | **$** | **(1,857** | **)** | **$** | **9,143** |   |

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

 

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Intangible assetamortization expense was $0.1 million for each of the three-month periodsended March 31, 2009 and 2008. The estimated amortization expense is$0.2 million for the remainder of 2009. We estimate no amortizationexpense after 2009.

 

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

 

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

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

 

*Asset-Based Revolving CreditFacility*

 

On February 22,2008, Boise Cascade, L.L.C., and its principal operating subsidiaries, BoiseBuilding Solutions Manufacturing, L.L.C., and Boise Building SolutionsDistribution, L.L.C., acting as borrowers, entered into a five-year,$350 million senior secured asset-based revolving credit facility withBank of America (Revolving Credit Facility). As part of the syndicationprocess, the Revolving Credit Facility was amended in April 2008 to revisethe pricing and incorporate additional covenants. At March 31, 2009, and December 31,2008, we had $75.0 million of borrowings outstanding under the RevolvingCredit Facility. Borrowings under the Revolving Credit Facility are based on eitherthe prime rate or the London Interbank Offered Rate (LIBOR). Pricing is subjectto quarterly adjustment based on the average availability under the RevolvingCredit Facility during the prior quarter. The range of borrowing costs underthe pricing grid is:  (i) prime plus1.00% to 1.50% or (ii) LIBOR plus 2.50% to 3.00%. For the threemonths ended March 31, 2009, the average interest rate for our borrowingsunder the Revolving Credit Facility was 3.0%. Letters of credit are subject toa 0.125% fronting fee payable to the issuing bank and a fee payable to thelenders equal to the product of the interest rate spread applicableto LIBOR borrowings under the Revolving Credit Facility and the dailyaverage amount available for drawing under the outstanding letters of credit.The minimum and maximum borrowings under the Revolving Credit Facility were$75.0 million during the three months ended March 31, 2009. TheRevolving Credit Facility provides for a commitment fee of 0.50% per annumpayable to the lenders on the average daily unused portion of the RevolvingCredit Facility.

 

The Revolving CreditFacility is guaranteed by our domestic subsidiaries (other than the threeborrowers noted above) and is secured by a first-priority security interest inthe stock of our foreign subsidiaries and substantially all of our domesticassets, except for property, plant, and equipment. Borrowings under theRevolving Credit Facility are constrained by a borrowing base formula dependentupon levels of eligible inventory and receivables reduced by outstandingletters of credit and, when our fixed-charge coverage ratio is below 1:1, as itwas on March 31, 2009, by a further requirement that we maintain acombination of unrestricted cash and borrowing base, less outstanding loans, ator in excess of the greater of $45 million or 15% of the borrowing basedetermined under the Revolving Credit Facility. Thus, at March 31, 2009,our aggregate liquidity from unrestricted cash and cash equivalents and unusedborrowing capacity under the Revolving Credit Facility totaled$272.9 million calculated as follows:

 
| ** **                                        | ** ** | **(thousands)** | ** **  |
|---------------------------------------------------|------------|-----------------|-------------|
| Net availability  under Revolving Credit Facility |       | $               | 128,345     |   |
| Cash                                              |       | 189,544         |        |
| Availability  threshold                           |       | (45,000         | )           |
| ** **                                        |       | **$**           | **272,889** |   |

 

In addition, the Revolving Credit Facility contains a restriction oncapital investments that is applicable when a minimum availability threshold isnot met. That covenant was not applicable on March 31, 2009. The RevolvingCredit Facility also contains customary nonfinancial covenants, including anegative pledge covenant and restrictions on distributions to equity holders,acquisitions, and divestitures. These covenants will become more restrictive ifa minimum availability threshold is not maintained.

 

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*Letters of Credit*

 

At March 31, 2009, we had $14.2 million ofletters of credit outstanding. These letters of credit reduce our borrowingcapacity under the Revolving Credit Facility.

 

*SeniorSubordinated Notes*

 

In October 2004,Boise Cascade, L.L.C., issued $400.0 million of 7.125% senior subordinatednotes due in 2014. In July 2005, we completed an exchange offer wherebyall of our senior subordinated notes were exchanged for registered securitieswith identical terms (other than terms relating to registration rights) to thenotes issued in October 2004. We may redeem all or part of the notes atany time at redemption prices set forth in the indenture. If we sell specificassets or experience specific kinds of changes in control, we must offer topurchase the notes. In connection withthe Sale, we repurchased $160.0 million of the notes at par on April 15,2008. During the three months ended March 31, 2009, we repurchased$11.9 million of senior subordinated notes and recorded a$6.0 million gain in “Gain on repurchase of long-term debt” in ourConsolidated Statement of Loss.

 

*Other*

 

For the three months ended March 31, 2009 and 2008, cash payments forinterest, net of interest capitalized, were $1.4 million and $8.8 million,respectively. The decrease in cash interest payments in first quarter 2009,relative to the same period a year ago, relates to the significant reduction indebt in February 2008 with the proceeds from the Sale.

 

At March 31, 2009,the estimated current market value of our fixed-rate debt, based onthen-current interest rates for similar obligations with like maturities, wasapproximately $122.9 million less than the amount reported on ourConsolidated Balance Sheet.

 

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

 

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

 

*Interest Rate Risk*

 

We are exposed to interest rate risk arising from fluctuations in interestrates on our cash and cash equivalents and bank credit facility. In 2009, wedid not use any interest rate swap contracts to manage this risk.

 

In first quarter 2008, we significantly decreased our variable-rate debtwith the proceeds from the Sale. As a result, we terminated all of our interestrate swap agreements for approximately $11.9 million. The interest rate swaps were consideredeconomic hedges.During the three months ended March 31,2008, we recorded the fair value of the interest rate swaps, or$6.3 million of expense, in “Change in fair value of interest rate swaps”in our Consolidated Statement of Loss.

 

*Credit Risk*

 

We are exposed to credit risk on the accountsreceivables from our customers. In order to reduce this risk, we considercustomer concentrations and current economic trends and monitor thecreditworthiness of significant customers based on ongoing credit evaluations.At March 31, 2009, and December 31, 2008, the receivables from asingle customer accounted for approximately 17% and 20% of total receivables,respectively. No other customer accounted for 10% or more of total receivables.

 

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* *

*Foreign Currency Risk*

 

We have manufacturing operations in the United Statesand Canada. As a result, we are exposed to movements in the foreign currencyexchange rate in Canada. At March 31, 2009, we had no material foreigncurrency hedges.

 

*Energy Risk*

 

Generally, we purchasenatural gas at the prevailing market price at the time of delivery, and assuch, we are subject to fluctuations in market prices. Occasionally, we enterinto natural gas swaps, options, or a combination of these instruments to hedgethe variable cash flow risk of natural gas purchases at index prices. At March 31,2009, we had no material derivative instruments related to our forecastednatural gas purchases.

 

*Contingent Value Rights*

 

As part of the Sale,Terrapin Partners Venture Partnership and Boise Cascade, L.L.C., issued21.2 million contingent value rights (CVRs) to holders of Boise Inc.stock. During the three months ended March 31, 2009, we settled ourobligation related to the CVRs using 0.8 million Boise Inc. shares andrecorded a $1.0 million loss in “Equity in net income (loss) of affiliate”in our Consolidated Statement of Loss for the difference between theBoise Inc. share price on the date we settled our obligation with sharesand the carrying amount of the shares recorded on our Consolidated BalanceSheet.

 

In 2008, we recorded thefair value of the CVR liability and associated expense based on a simulationanalysis that considered the likelihood of Boise Inc. investors receivingpayment under the Contingent Value Rights Agreement. We updated the simulationmodel each quarter and revalued the liability based on the results. For thethree months ended March 31, 2008, we recognized $4.8 million ofexpense in “Change in fair value of contingent value rights” in ourConsolidated Statement of Loss.

 

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

 

In December 2008,the Financial Accounting Standards Board (FASB) issued FASB Staff Position(FSP) FAS 132(R)-1, *Employer’sDisclosures About Postretirement Benefit Plan Assets.* This FSPamends SFAS No. 132 (Revised 2003), *Employers’Disclosures About Pensions and Other Postretirement Benefits,*toprovide guidance on an employer’s disclosures about plan assets of a definedbenefit pension or other postretirement plan. The FSP is effective for fiscalyears ending after December 15, 2009. The adoption will affect ourdisclosures only and will have no impact on our financial position or resultsof operations.

 

In November 2008,the EITF reached a consensus on EITF 08-6, *Equity Method Investment AccountingConsiderations*. Thisconsensus addresses a number of matters associated with the impact that SFAS No. 141(R) andSFAS No. 160might have on the accounting for equity method investments, includinghow an equity method investment should initially be measured, how it should betested for impairment, and how changes in classification from equity method tocost method should be treated, among others. We adopted EITF 08-6 in January 2009,and it did not have a material impact on our financial position or results ofoperations.

 

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

 

In January 2008, weadopted SFAS No. 157,*Fair ValueMeasurements*. The statement established a framework for measuringfair value, and it enhanced the disclosures for fair value measurements. Thestatement applies when other accounting pronouncements require or permit fair valuemeasurements, but it does not require new fair value measurements. Inaccordance with the provisionsof FSP No. 157-2, *Effective Date of FASBStatement No. 157*, we deferred until January 1,

 

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2009, the adoption ofSFAS No. 157 as it relates to nonfinancial assets and nonfinancialliabilities that were recognized and disclosed at fair value in the financialstatements on a nonrecurring basis. The adoption of these pronouncements didnot have a material impact on our financial position or results of operations;however, it could have an impact in future periods.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations,*and SFAS No. 160,*Accounting and Reporting of NoncontrollingInterests in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin No. 51.* These new standards willsignificantly change the accounting for and reporting of business combinationtransactions and noncontrolling (minority) interests in consolidated financialstatements. SFAS No. 141(R) couldalso impact the assessment of goodwill for impairment. We adopted SFASNos. 141(R) and 160 on January 1, 2009, and they did nothave a material impact on our financial position or results of operations.However, the accounting for future business combinations will be significantlychanged by the adoption of the standard.

 

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

 

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

 

The freeze had the following impact on ourconsolidated financial statements:

 

*Consolidated Statement of Loss*

 

We accounted for the amendment as a plan curtailment,and we recognized a net $0.7 million noncash curtailment gain, primarilyrelated to our nonqualified plans. We recorded the gain in “Other (income)expense, net” in our Consolidated Statement of Loss for the three months ended March 31,2009. Because the Salaried Plan has unrecognized losses, the curtailment gainassociated with the amendment to the Salaried Plan was applied to partiallyoffset the losses in the plan, resulting in no immediate gain recognitionrelated to the Salaried Plan freeze.

 

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

 

*Consolidated Balance Sheet*

 

Relative to December 31, 2008, the pensionliability reported on our March 31, 2009, Consolidated Balance Sheetdecreased approximately $52.4 million due to the following:

 

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

 

·                  A $25.0 million first quarter 2009 contributionto the pension plans, partially offset by;

 

·                  $4.9 million of first-quarter pension expense.

 

In accordance with SFAS No. 158,*Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans*, we did not remeasure thebenefit obligations and pension expense related to our other plans (that werenot frozen). As such, the liability and expense related to these plans continueto be valued based on the December 31, 2008, actuarial assumptions disclosedin Note 13, Retirement and Benefit Plans, of the Notes to ConsolidatedFinancial Statements in “Item 8. Financial Statements and SupplementaryData” in our 2008 Form 10-K.

 

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The following tablepresents the pension and postretirement benefit costs:

 
| ** **                                     | ** ** | **Pension Benefits**                       | ** ** | **Other Benefits**                         | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  March 31** | ** ** | **Three Months Ended  March 31** | ** ** |
| ** **                                     | ** ** | **2009**                                        | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(thousands)**                                 | ** ** |
| Service cost                                   |       | $                                               | 2,953      |                                            | $          | 4,316 |   | $ | — |   | $ | 1 |   |
| Interest cost                                  |       | 5,024                                           |       | 8,069                                           |       | 2 |   | 20 |   |
| Expected return  on plan assets                |       | (4,560                                          | )          | (7,994                                          | )          | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | 23                                              |       | (112                                            | )          | — |   | — |   |
| Amortization of  prior service costs and other |       | 46                                              |       | 226                                             |       | (1 | ) | (13 | ) |
| Curtailment  (gain) loss                       |       | 1,452                                           |       | 404                                             |       | — |   | — |   |
| Company-sponsored  plans                       |       | 4,938                                           |       | 4,909                                           |       | 1 |   | 8 |   |
| Multiemployer  pension plans                   |       | —                                          |       | 90                                              |       | — |   | — |   |
| Net periodic  benefit cost                     | ** ** | **$**                                           | **4,938**  | ** **                                      | **$**      | **4,999** | ** ** | **$** | **1** | ** ** | **$** | **8** | ** ** |

 

In 2009, we arerequired to contribute $4.4 million to our pension plans; however, in firstquarter 2009, we made $25.0 million of contributions to improve the fundedstatus of the plans.

 

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

 

In February 2009,FPH granted 9.0 million Series C equity units with a threshold equityvalue of $1.30 per unit. The Series C equity units are accounted foras restricted stock. We recognize compensation expense for the Series Cequity units based on the fair value on the date of grant over the vestingperiod. For more information related to the Management Equity Plan, seeNote 14, Redeemable Equity Units, of the Notes to Consolidated FinancialStatements in “Item 8. Financial Statements and Supplementary Data” in our 2008Form 10-K.

 

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

 

Prior to the Sale, we operated our business using fivereportable segments:  Building MaterialsDistribution, Wood Products, Paper, Packaging & Newsprint, andCorporate and Other. After the Sale, we operate our business using threereportable segments:  Building MaterialsDistribution, Wood Products, and Corporate and Other. There are no differencesin our basis of measurement of segment profit or loss from those disclosed inNote 16, Segment Information, of the Notes to Consolidated FinancialStatements in “Item 8. Financial Statements and Supplementary Data” in our2008 Annual Report on Form 10-K. The equity interest we own inBoise Inc. after the Sale represents a significant continuing involvementas defined in SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets.*As a result, theresults of the Paper and Packaging & Newsprint segments through February 21,2008, are included in our first quarter 2008 results, and we did not define thesold assets as discontinued operations.

 

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An analysis of ouroperations by segment is as follows:

 
| ** **                                        | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------|------------|-------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                        | ** ** | **Sales**      | ** ** | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **     | ** ** | **Related** | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                        | ** ** | **Trade**      | ** ** | **Parties** | ** ** | ** segment** | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                        | ** ** | **(millions)** | ** ** |
| **Three  Months Ended March 31, 2009**       | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building  Materials Distribution                  |       | $              | 334.9      |        | $          | —            |       | $          | 0.1        |       | $          | 335.0             |       | $          | (8.5       | ) | $ | 1.9 |   | $ | (6.6 | ) |
| Wood Products  (a)                                |       | 72.8           |       | 5.7         |       | 38.0              |       | 116.5      |       | (37.6      | )          | 9.1               |       | (28.6      | )          |
| Corporate and  Other                              |       | —         |       | —      |       | —            |       | —     |       | (2.6       | )          | 0.1               |       | (2.3       | )          |
|                                              |       | 407.7          |       | 5.7         |       | 38.1              |       | 451.5      |       | (48.7      | )          | 11.1              |       | (37.5      | )          |
| Intersegment  eliminations                        |       | —         |       | —      |       | (38.1             | )          | (38.1      | )          | —     |       | —            |       | —     |       |
| Equity in net  income of affiliate (b)            |       | —         |       | —      |       | —            |       | —     |       | 3.0        |       | —            |       | 3.0        |       |
| Impairment of  investment in equity affiliate (c) |       | —         |       | —      |       | —            |       | —     |       | (43.0      | )          | —            |       | (43.0      | )          |
| Change in fair  value of contingent value rights  |       | —         |       | —      |       | —            |       | —     |       | 0.2        |       | —            |       | 0.2        |       |
| Gain on  repurchase of long-term debt             |       | —         |       | —      |       | —            |       | —     |       | 6.0        |       | —            |       | 6.0        |       |
| Interest expense                                  |       | —         |       | —      |       | —            |       | —     |       | (5.6       | )          | —            |       | —     |       |
| Interest income                                   |       | —         |       | —      |       | —            |       | —     |       | 0.4        |       | —            |       | —     |       |
| ** **                                        | ** ** | **$**          | **407.7**  | ** **  | **$**      | **5.7**           | ** ** | **$**      | **—** | ** ** | **$**      | **413.4**         | ** ** | **$**      | **(87.7**  | **)** | **$** | **11.1** | ** ** | **$** | **(71.4** | **)** |

 
| ** **                                            | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                            | ** ** | **Sales**      | ** ** | **(Loss) ** | ** ** | **Amortization,** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **     | ** ** | **Related**      | ** ** | **Inter-**        | ** ** | ** ** | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                            | ** ** | **Trade**      | ** ** | **Parties**      | ** ** | **segment**       | ** ** | **Total**  | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(g)**    | ** ** |
| ** **                                            | ** ** | **(millions)** | ** ** |
| **Three  Months Ended March 31, 2008**           | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| Building Materials  Distribution                      |       | $              | 503.7      |             | $          | —            |       | $          | 0.2        |       | $          | 503.9             |       | $          | (1.2       | ) | $ | 1.9 |   | $ | 0.7 |   |
| Wood Products                                         |       | 118.7          |       | 5.7              |       | 74.3              |       | 198.7      |       | (17.1      | )          | 7.5               |       | (9.6       | )          |
| Paper (d)                                             |       | 154.4          |       | 90.1             |       | 9.0               |       | 253.5      |       | 20.7       |       | 0.3               |       | 21.1       |       |
| Packaging &  Newsprint (d)              |       | 102.2          |       | —           |       | 11.3              |       | 113.5      |       | 5.7        |       | 0.1               |       | 5.7        |       |
| Corporate and  Other (e)                         |       | 1.8            |       | —           |       | 6.8               |       | 8.6        |       | 1.0        |       | 0.2               |       | 1.2        |       |
|                                                  |       | 880.8          |       | 95.8             |       | 101.6             |       | 1,078.2    |       | 9.1        |       | 10.0              |       | 19.1       |       |
| Intersegment  eliminations                            |       | —         |       | —           |       | (101.6            | )          | (101.6     | )          | —     |       | —            |       | —     |       |
| Equity in net  loss of affiliate (b)             |       | —         |       | —           |       | —            |       | —     |       | (8.6       | )          | —            |       | (8.6       | )          |
| Change in fair  value of contingent value rights      |       | —         |       | —           |       | —            |       | —     |       | (4.8       | )          | —            |       | (4.8       | )          |
| Change in fair  value of interest rate swaps (f) |       | —         |       | —           |       | —            |       | —     |       | (6.3       | )          | —            |       | —     |       |
| Interest expense                                      |       | —         |       | —           |       | —            |       | —     |       | (15.4      | )          | —            |       | —     |       |
| Interest income                                       |       | —         |       | —           |       | —            |       | —     |       | 2.6        |       | —            |       | —     |       |
| ** **                                            | ** ** | **$**          | **880.8**  | ** **       | **$**      | **95.8**          | ** ** | **$**      | **—** | ** ** | **$**      | **976.6**         | ** ** | **$**      | **(23.3**  | **)** | **$** | **10.0** | ** ** | **$** | **5.8** | ** ** |

 

----

(a)                                  Included$7.5 million and $5.0 million of expenses in income (loss) beforetaxes and EBITDA, respectively, related to the indefinite curtailment of thelumber manufacturing facility in La Grande, Oregon.

 

(b)                                 Included$3.0 million of income and an $8.6 million loss related to our equityinvestment in Boise Inc. for the three months ended March 31, 2009 and2008. See Note 3, Investment in Equity Affiliate, for more informationrelated to our investment in Boise Inc.

 

(c)                                  On March 31,2009, we concluded that our investment in Boise Inc. met the definition ofother than temporarily impaired as defined in APB Opinion No. 18, *The Equity Method of Accounting for Investments inCommon Stock.* Accordingly, we recorded a $43.0 million chargein “Impairment of investment in equity affiliate” in our Consolidated Statementof Loss for the three monthsended March 31, 2009. See Note 3, Investment in Equity Affiliate, formore information.

 

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(d)                                 As a result ofthe Sale, the three months ended March 31, 2008, include the results ofthe Paper and Packaging & Newsprint segments through February 21,2008.

 

(e)                                  Included an$8.1 million gain on the Sale. See Note 2, Sale of Our Paper andPackaging & Newsprint Assets, for more information.

 

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

 

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

 
| ** **                                   | ** ** | **Three Months Ended  March 31** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(millions)**                                  | ** ** |
| Net loss                                     |       | $                                               | (88.2      | ) | $ | (24.4 | ) |
| Change in fair  value of interest rate swaps |       | —                                          |       | 6.3 |   |
| Interest expense                             |       | 5.6                                             |       | 15.4 |   |
| Interest income                              |       | (0.4                                            | )          | (2.6 | ) |
| Income tax  provision                        |       | 0.5                                             |       | 1.2 |   |
| Depreciation,  amortization, and depletion   |       | 11.1                                            |       | 10.0 |   |
| EBITDA                                       | ** ** | **$**                                           | **(71.4**  | **)** | **$** | **5.8** | ** ** |

 

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

 

*Commitments*

 

We have commitments for leases and long-term debt thatare discussed further in Note 7, Leases, and Note 12, Debt. We are aparty to a number of long-term log and fiber supply agreements that arediscussed in Note 17, Commitments and Guarantees, of the Notes to Consolidated Financial Statements in “Item 8.Financial Statements and Supplementary Data” in our 2008 Form 10-K. In addition, we havepurchase obligations for goods and services, capital expenditures, and rawmaterials entered into in the normal course of business. At March 31,2009, there have been no material changes to our commitments outside the normalcourse of business, except as disclosed in Note 12, Debt, andNote 15, Retirement and Benefit Plans, of this Form 10-Q.

 

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# *Guarantees*

# * *

Weprovide guarantees, indemnifications, and assurances to others, whichconstitute guarantees as defined under FASB Interpretation (FIN) No. 45, *Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others*. Note 17, Commitments and Guarantees, of the Notesto Consolidated Financial Statements in “Item 8. Financial Statements andSupplementary Data” in our 2008 Form 10-K describes the nature of ourguarantees, including the approximate terms of the guarantees, how theguarantees arose, the events or circumstances that would require us to performunder the guarantees, and the maximum potential undiscounted amounts of futurepayments we could be required to make. As of March 31, 2009, there havebeen no material changes to the guarantees disclosed in the 2008 Form 10-K.

 

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

 

Thefollowing consolidating financial information presents the Statements of Income(Loss), Balance Sheets, and Cash Flows related to our business. The seniorsubordinated notes are guaranteed on a senior subordinated basis jointly andseverally by BC Holdings and each of its existing and future subsidiaries(other than:  (i) the co-issuers,Boise Cascade and Boise Cascade Finance Corporation; (ii) our foreignsubsidiaries; and (iii) Birch Creek Investments L.L.C., which wasdissolved on March 31, 2008). Other than the consolidated financialstatements and footnotes for BC Holdings, financial statements and otherdisclosures concerning the guarantors have not been presented becausemanagement believes that such information is not material to investors.

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Three MonthsEnded March 31, 2009**

 
| ** **                                                                  | ** ** | **Boise  Cascade  Holdings,  L.L.C.   (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                                                  | ** ** | **(thousands)**                                       | ** **  |
| **Sales**                                                                   |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| Trade                                                                       |       | $                                                     | —      |                        | $          | —                      |       | $                                 | 406,469     |             | $          | 1,255            |       | $ | — |   | $ | 407,724 |   |
| Intercompany                                                                |       | —                                                |        | —                      |       | 3                           |       | 1,697                             |        | (1,700           | )          | —           |       |
| Related parties                                                             |       | —                                                |        | —                      |       | 5,703                       |       | —                            |        | —           |       | 5,703            |       |
|                                                                        |       | —                                                |        | —                      |       | 412,175                     |       | 2,952                             |        | (1,700           | )          | 413,427          |       |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Costs  and expenses**                                                     |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| Materials,  labor, and other operating expenses                             |       | —                                                |        | (64                         | )          | 379,108                     |       | 3,727                             |        | (1,700           | )          | 381,071          |       |
| Materials,  labor, and other operating expenses from related parties        |       | —                                                |        | —                      |       | 12,290                      |       | —                            |        | —           |       | 12,290           |       |
| Depreciation,  amortization, and depletion                                  |       | —                                                |        | 113                         |       | 10,544                      |       | 462                               |        | —           |       | 11,119           |       |
| Selling and  distribution expenses                                          |       | —                                                |        | —                      |       | 44,942                      |       | 299                               |        | —           |       | 45,241           |       |
| General and  administrative expenses                                   |       | —                                                |        | 1,587                       |       | 5,338                       |       | —                            |        | —           |       | 6,925            |       |
| General and  administrative expenses from related party                |       | —                                                |        | 2,433                       |       | —                      |       | —                            |        | —           |       | 2,433            |       |
| Other (income)  expense, net                                                |       | —                                                |        | (1,913                      | )          | 4,736                       |       | (142                              | )           | —           |       | 2,681            |       |
|                                                                        |       | —                                                |        | 2,156                       |       | 456,958                     |       | 4,346                             |        | (1,700           | )          | 461,760          |       |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Income  (loss) from operations**                                          |       | —                                                |        | (2,156                      | )          | (44,783                     | )          | (1,394                            | )           | —           |       | (48,333          | )          |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| Equity in net  income of affiliate (Boise Inc.)                        |       | 3,005                                                 |        | —                      |       | —                      |       | —                            |        | —           |       | 3,005            |       |
| Impairment of  investment in equity affiliate                               |       | (43,039                                               | )           | —                      |       | —                      |       | —                            |        | —           |       | (43,039          | )          |
| Foreign exchange  loss                                                      |       | —                                                |        | (247                        | )          | (16                         | )          | (69                               | )           | —           |       | (332             | )          |
| Change in fair  value of contingent value rights                            |       | —                                                |        | 194                         |       | —                      |       | —                            |        | —           |       | 194              |       |
| Gain on  repurchase of long-term debt                                       |       | —                                                |        | 6,026                       |       | —                      |       | —                            |        | —           |       | 6,026            |       |
| Interest expense                                                            |       | —                                                |        | (5,616                      | )          | —                      |       | —                            |        | —           |       | (5,616           | )          |
| Interest income                                                             |       | —                                                |        | 281                         |       | 116                         |       | —                            |        | —           |       | 397              |       |
|                                                                        |       | (40,034                                               | )           | 638                         |       | 100                         |       | (69                               | )           | —           |       | (39,365          | )          |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Loss  before income taxes and equity in net income (loss) of affiliates** |       | (40,034                                               | )           | (1,518                      | )          | (44,683                     | )          | (1,463                            | )           | —           |       | (87,698          | )          |
| Income tax  (provision) benefit                                             |       | —                                                |        | (509                        | )          | 26                          |       | —                            |        | —           |       | (483             | )          |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Loss  before equity in net income (loss) of affiliates**                  |       | (40,034                                               | )           | (2,027                      | )          | (44,657                     | )          | (1,463                            | )           | —           |       | (88,181          | )          |
|                                                                        |       |                                                  |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                              |       | (48,147                                               | )           | (46,120                     | )          | —                      |       | —                            |        | 94,267           |       | —           |       |
| **Net  income (loss)**                                                      | ** ** | **$**                                                 | **(88,181** | **)**                       | **$**      | **(48,147**                 | **)**      | **$**                             | **(44,657** | **)**            | **$**      | **(1,463**       | **)**      | **$** | **94,267** | ** ** | **$** | **(88,181** | **)** |

 

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

**ConsolidatingStatements of Income (Loss)**

**F****or the Three MonthsEnded March 31, 2008**

** **
| ** **                                                                           | ** ** | **Boise  Cascade  Holdings,  L.L.C.   (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **(thousands)**                                       | ** **  |
| **Sales**                                                                            |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| Trade                                                                                |       | $                                                     | —      |                        | $          | —                      |       | $                                 | 875,552    |             | $          | 5,248            |       | $ | — |   | $ | 880,800 |   |
| Intercompany                                                                         |       | —                                                |        | —                      |       | 2                           |       | 10,868                            |       | (10,870          | )          | —           |       |
| Related parties                                                                      |       | —                                                |        | —                      |       | 95,782                      |       | —                            |       | —           |       | 95,782           |       |
|                                                                                 |       | —                                                |        | —                      |       | 971,336                     |       | 16,116                            |       | (10,870          | )          | 976,582          |       |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| **Costs  and expenses**                                                              |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| Materials,  labor, and other operating expenses                                      |       | —                                                |        | 1,386                       |       | 870,548                     |       | 14,668                            |       | (5,944           | )          | 880,658          |       |
| Materials,  labor, and other operating expenses from related parties                 |       | —                                                |        | —                      |       | 6,180                       |       | —                            |       | —           |       | 6,180            |       |
| Depreciation,  amortization, and depletion                                           |       | —                                                |        | 177                         |       | 9,095                       |       | 763                               |       | —           |       | 10,035           |       |
| Selling and  distribution expenses                                                   |       | —                                                |        | —                      |       | 62,751                      |       | 614                               |       | —           |       | 63,365           |       |
| General and  administrative expenses                                                 |       | 1                                                     |        | 4,193                       |       | 15,179                      |       | 206                               |       | (4,926           | )          | 14,653           |       |
| General and  administrative expenses from related party                              |       | —                                                |        | 977                         |       | —                      |       | —                            |       | —           |       | 977              |       |
| Gain on sale of  Paper and Packaging & Newsprint assets                     |       | —                                                |        | (8,063                      | )          | —                      |       | —                            |       | —           |       | (8,063           | )          |
| Other (income)  expense, net                                                         |       | —                                                |        | 220                         |       | (1,559                      | )          | 397                               |       | —           |       | (942             | )          |
|                                                                                 |       | 1                                                     |        | (1,110                      | )          | 962,194                     |       | 16,648                            |       | (10,870          | )          | 966,863          |       |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) from operations**                                                   |       | (1                                                    | )           | 1,110                       |       | 9,142                       |       | (532                              | )          | —           |       | 9,719            |       |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| Equity in net  loss of affiliate (Boise Inc.)                                        |       | (8,552                                                | )           | —                      |       | —                      |       | —                            |       | —           |       | (8,552           | )          |
| Foreign exchange  loss                                                               |       | —                                                |        | (443                        | )          | (3                          | )          | (167                              | )          | —           |       | (613             | )          |
| Change in fair  value of contingent value rights                                     |       | —                                                |        | (4,773                      | )          | —                      |       | —                            |       | —           |       | (4,773           | )          |
| Change in fair  value of interest rate swaps                                         |       | —                                                |        | (6,284                      | )          | —                      |       | —                            |       | —           |       | (6,284           | )          |
| Interest expense                                                                     |       | —                                                |        | (14,536                     | )          | —                      |       | (845                              | )          | —           |       | (15,381          | )          |
| Interest  expense—intercompany                                                  |       | —                                                |        | (158                        | )          | (2                          | )          | (1,399                            | )          | 1,559            |       | —           |       |
| Interest income                                                                      |       | 986                                                   |        | 1,546                       |       | 62                          |       | 7                                 |       | —           |       | 2,601            |       |
| Interest  income—intercompany                                                   |       | —                                                |        | 32                          |       | 1,527                       |       | —                            |       | (1,559           | )          | —           |       |
|                                                                                 |       | (7,566                                                | )           | (24,616                     | )          | 1,584                       |       | (2,404                            | )          | —           |       | (33,002          | )          |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before income taxes and equity in net income (loss) of affiliates** |       | (7,567                                                | )           | (23,506                     | )          | 10,726                      |       | (2,936                            | )          | —           |       | (23,283          | )          |
| Income tax provision                                                                 |       | —                                                |        | (915                        | )          | (235                        | )          | (5                                | )          | —           |       | (1,155           | )          |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| **Income  (loss) before equity in net income (loss) of affiliates**                  |       | (7,567                                                | )           | (24,421                     | )          | 10,491                      |       | (2,941                            | )          | —           |       | (24,438          | )          |
|                                                                                 |       |                                                  |        |                        |       |                        |       |                              |       |             |       |             |       |
| **Equity  in net income (loss) of affiliates**                                       |       | (16,871                                               | )           | 7,550                       |       | —                      |       | —                            |       | 9,321            |       | —           |       |
| **Net  income (loss)**                                                               | ** ** | **$**                                                 | **(24,438** | **)**                       | **$**      | **(16,871**                 | **)**      | **$**                             | **10,491** | ** **       | **$**      | **(2,941**       | **)**      | **$** | **9,321** | ** ** | **$** | **(24,438** | **)** |

** **

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** **

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

**ConsolidatingBalance Sheets at March 31, 2009**

** **
| ** **                                       | ** ** | **Boise   Cascade   Holdings,  L.L.C.   (Parent)** | ** **  | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **(thousands)**                                                   | ** **  |
| **ASSETS**                                       | ** ** | ** **                                                        | ** **  | ** **                  | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                             |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Current**                                      |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| Cash and cash  equivalents                       |       | $                                                                 | —      |                        | $          | 189,452                     |       | $                                 | 19          |             | $          | 73               |       | $ | — |   | $ | 189,544 |   |
| Receivables                                      |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| Trade, less  allowances                          |       | —                                                            |        | —                      |       | 106,086                     |       | 664                               |        | —           |       | 106,750          |       |
| Related parties                                  |       | —                                                            |        | 6                           |       | 1,491                       |       | —                            |        | —           |       | 1,497            |       |
| Intercompany                                     |       | —                                                            |        | —                      |       | 56                          |       | —                            |        | (56              | )          | —           |       |
| Other                                            |       | —                                                            |        | 11                          |       | 4,035                       |       | 324                               |        | —           |       | 4,370            |       |
| Inventories                                      |       | —                                                            |        | —                      |       | 259,653                     |       | 5,596                             |        | —           |       | 265,249          |       |
| Prepaid expenses  and other                      |       | —                                                            |        | 3,465                       |       | —                      |       | 148                               |        | —           |       | 3,613            |       |
|                                             |       | —                                                            |        | 192,934                     |       | 371,340                     |       | 6,805                             |        | (56              | )          | 571,023          |       |
|                                             |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Property**                                     |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| Property and  equipment, net                     |       | —                                                            |        | 3,152                       |       | 266,633                     |       | 13,200                            |        | —           |       | 282,985          |       |
| Timber deposits                                  |       | —                                                            |        | —                      |       | 8,510                       |       | —                            |        | —           |       | 8,510            |       |
|                                             |       | —                                                            |        | 3,152                       |       | 275,143                     |       | 13,200                            |        | —           |       | 291,495          |       |
|                                             |       |                                                              |        |                        |       |                        |       |                              |        |             |       |             |       |
| **Investment  in equity affiliate (Boise Inc.)** |       | 22,622                                                            |        | —                      |       | —                      |       | —                            |        | —           |       | 22,622           |       |
| **Deferred  financing costs**                    |       | —                                                            |        | 7,318                       |       | —                      |       | —                            |        | —           |       | 7,318            |       |
| **Goodwill**                                     |       | —                                                            |        | —                      |       | 12,170                      |       | —                            |        | —           |       | 12,170           |       |
| **Intangible  assets, net**                      |       | —                                                            |        | —                      |       | 9,143                       |       | —                            |        | —           |       | 9,143            |       |
| **Other  assets**                                |       | —                                                            |        | 105                         |       | 6,150                       |       | 4                                 |        | —           |       | 6,259            |       |
| **Investments  in affiliates**                   |       | 320,902                                                           |        | 872,139                     |       | —                      |       | —                            |        | (1,193,041       | )          | —           |       |
| **Total  assets**                                | ** ** | **$**                                                             | **343,524** | ** **                  | **$**      | **1,075,648**               | ** ** | **$**                             | **673,946** | ** **       | **$**      | **20,009**       | ** ** | **$** | **(1,193,097** | **)** | **$** | **920,030** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Balance Sheets at March 31, 2009 (continued)**

 
| ** **                                  | ** ** | **Boise   Cascade  Holdings,  L.L.C.   (Parent)** | ** **  | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **(thousands)**                                             | ** **  |
| **LIABILITIES  AND CAPITAL**                | ** ** | ** **                                                  | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Current**                                 |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Accounts payable                            |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Trade                                       |       | $                                                           | —      |                              | $          | 5,324                       |       | $                                 | 77,303      |             | $          | 473              |       | $ | — |   | $ | 83,100 |   |
| Related parties                             |       | —                                                      |        | 1,826                             |       | 1,105                       |       | —                            |        | —           |       | 2,931            |       |
| Intercompany                                |       | —                                                      |        | —                            |       | —                      |       | 56                                |        | (56              | )          | —           |       |
| Accrued  liabilities                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Compensation and  benefits                  |       | —                                                      |        | 13,259                            |       | 19,059                      |       | 169                               |        | —           |       | 32,487           |       |
| Interest payable                            |       | —                                                      |        | 7,756                             |       | —                      |       | —                            |        | —           |       | 7,756            |       |
| Other                                       |       | —                                                      |        | 2,841                             |       | 11,807                      |       | 380                               |        | —           |       | 15,028           |       |
|                                        |       | —                                                      |        | 31,006                            |       | 109,274                     |       | 1,078                             |        | (56              | )          | 141,302          |       |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Debt**                                    |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Long-term debt                              |       | —                                                      |        | 303,146                           |       | —                      |       | —                            |        | —           |       | 303,146          |       |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Other**                                   | ** ** | ** **                                                  | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| Compensation and  benefits                  |       | —                                                      |        | 120,754                           |       | —                      |       | —                            |        | —           |       | 120,754          |       |
| Other long-term  liabilities                |       | —                                                      |        | 8,159                             |       | 3,145                       |       | —                            |        | —           |       | 11,304           |       |
|                                        |       | —                                                      |        | 128,913                           |       | 3,145                       |       | —                            |        | —           |       | 132,058          |       |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Due to  (from) affiliates**               |       | —                                                      |        | 291,681                           |       | (237,016                    | )          | (54,665                           | )           | —           |       | —           |       |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Redeemable  equity units**                |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| Series B  equity units                 |       | 2,915                                                       |        | —                            |       | —                      |       | —                            |        | —           |       | 2,915            |       |
| Series C  equity units                 |       | 3,514                                                       |        | —                            |       | —                      |       | —                            |        | —           |       | 3,514            |       |
| Redeemable  equity units                    |       | —                                                      |        | 6,429                             |       | —                      |       | —                            |        | (6,429           | )          | —           |       |
|                                        |       | 6,429                                                       |        | 6,429                             |       | —                      |       | —                            |        | (6,429           | )          | 6,429            |       |
|                                        |       |                                                        |        |                              |       |                        |       |                              |        |             |       |             |       |
| **Commitments  and contingent liabilities** | ** ** | ** **                                                  | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| ** **                                  | ** ** | ** **                                                  | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                 | ** ** | ** **                                                  | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                        | ** **  | ** **       | ** ** | ** **       | ** ** |
| Series A  equity units                 |       | 83,588                                                      |        | —                            |       | —                      |       | —                            |        | —           |       | 83,588           |       |
| Series B  equity units                 |       | 253,507                                                     |        | —                            |       | —                      |       | —                            |        | —           |       | 253,507          |       |
| Series C  equity units                 |       | —                                                      |        | —                            |       | —                      |       | —                            |        | —           |       | —           |       |
| Subsidiary  equity                          |       | —                                                      |        | 314,473                           |       | 798,543                     |       | 73,596                            |        | (1,186,612       | )          | —           |       |
| **Total  capital**                          |       | 337,095                                                     |        | 314,473                           |       | 798,543                     |       | 73,596                            |        | (1,186,612       | )          | 337,095          |       |
| **Total  liabilities and capital**          | ** ** | **$**                                                       | **343,524** | ** **                        | **$**      | **1,075,648**               | ** ** | **$**                             | **673,946** | ** **       | **$**      | **20,009**       | ** ** | **$** | **(1,193,097** | **)** | **$** | **920,030** | ** ** |

 

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

 
| ** **                                       | ** ** | **Boise   Cascade  Holdings,   L.L.C.  (Parent)** | ** **  | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-   guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------|-------------|------------------------------|------------|-----------------------------|------------|-----------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **(thousands)**                                             | ** **  |
| **ASSETS**                                       | ** ** | ** **                                                  | ** **  | ** **                   | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                             |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| **Current**                                      |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| Cash and cash  equivalents                       |       | $                                                           | 1           |                         | $          | 275,726                     |       | $                                       | 20          |             | $          | 56               |       | $ | — |   | $ | 275,803 |   |
| Receivables                                      |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| Trade, less  allowances                          |       | —                                                      |        | —                       |       | 78,211                      |       | 182                                     |        | —           |       | 78,393           |       |
| Related parties                                  |       | —                                                      |        | 126                          |       | 2,986                       |       | —                                  |        | —           |       | 3,112            |       |
| Intercompany                                     |       | —                                                      |        | —                       |       | 56                          |       | 34                                      |        | (90              | )          | —           |       |
| Other                                            |       | —                                                      |        | 1,269                        |       | 4,324                       |       | 314                                     |        | —           |       | 5,907            |       |
| Inventories                                      |       | —                                                      |        | —                       |       | 272,992                     |       | 6,031                                   |        | —           |       | 279,023          |       |
| Prepaid expenses  and other                      |       | —                                                      |        | (295                         | )          | 1,558                       |       | 33                                      |        | —           |       | 1,296            |       |
|                                             |       | 1                                                           |        | 276,826                      |       | 360,147                     |       | 6,650                                   |        | (90              | )          | 643,534          |       |
|                                             |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| **Property**                                     |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| Property and  equipment, net                     |       | —                                                      |        | 3,204                        |       | 275,499                     |       | 13,296                                  |        | —           |       | 291,999          |       |
| Timber deposits                                  |       | —                                                      |        | —                       |       | 8,632                       |       | —                                  |        | —           |       | 8,632            |       |
|                                             |       | —                                                      |        | 3,204                        |       | 284,131                     |       | 13,296                                  |        | —           |       | 300,631          |       |
|                                             |       |                                                        |        |                         |       |                        |       |                                    |        |             |       |             |       |
| **Investment  in equity affiliate (Boise Inc.)** |       | 20,985                                                      |        | —                       |       | —                      |       | —                                  |        | —           |       | 20,985           |       |
| **Deferred  financing costs**                    |       | —                                                      |        | 7,862                        |       | —                      |       | —                                  |        | —           |       | 7,862            |       |
| **Goodwill**                                     |       | —                                                      |        | —                       |       | 12,170                      |       | —                                  |        | —           |       | 12,170           |       |
| **Intangible  assets, net**                      |       | —                                                      |        | —                       |       | 9,248                       |       | —                                  |        | —           |       | 9,248            |       |
| **Other  assets**                                |       | —                                                      |        | 105                          |       | 5,904                       |       | —                                  |        | —           |       | 6,009            |       |
| **Investments  in affiliates**                   |       | 335,329                                                     |        | 918,259                      |       | —                      |       | —                                  |        | (1,253,588       | )          | —           |       |
| **Total  assets**                                | ** ** | **$**                                                       | **356,315** | ** **                   | **$**      | **1,206,256**               | ** ** | **$**                                   | **671,600** | ** **       | **$**      | **19,946**       | ** ** | **$** | **(1,253,678** | **)** | **$** | **1,000,439** | ** ** |

 

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** **

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

 
| ** **                                  | ** ** | **Boise  Cascade  Holdings,  L.L.C.  (Parent)** | ** **  | **Boise  Cascade,   L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-   guarantor  Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------|-------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **(thousands)**                                 | ** **  |
| **LIABILITIES  AND CAPITAL**                | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Current**                                 |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| Accounts payable                            |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| Trade                                       |       | $                                               | —      |                              | $          | 6,928                       |       | $                                       | 62,345      |             | $          | 205              |       | $ | — |   | $ | 69,478 |   |
| Related parties                             |       | —                                          |        | 1,427                             |       | 768                         |       | —                                  |        | —           |       | 2,195            |       |
| Intercompany                                |       | —                                          |        | —                            |       | 34                          |       | 56                                      |        | (90              | )          | —           |       |
| Accrued  liabilities                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| Compensation and  benefits                  |       | —                                          |        | 14,396                            |       | 23,660                      |       | 172                                     |        | —           |       | 38,228           |       |
| Interest payable                            |       | —                                          |        | 3,930                             |       | —                      |       | —                                  |        | —           |       | 3,930            |       |
| Other                                       |       | —                                          |        | 13,736                            |       | 16,455                      |       | 702                                     |        | —           |       | 30,893           |       |
|                                        |       | —                                          |        | 40,417                            |       | 103,262                     |       | 1,135                                   |        | (90              | )          | 144,724          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Debt**                                    |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| Long-term debt                              |       | —                                          |        | 315,000                           |       | —                      |       | —                                  |        | —           |       | 315,000          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Other**                                   | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
| Compensation and  benefits                  |       | —                                          |        | 172,275                           |       | —                      |       | —                                  |        | —           |       | 172,275          |       |
| Other long-term  liabilities                |       | —                                          |        | 8,214                             |       | 3,911                       |       | —                                  |        | —           |       | 12,125           |       |
|                                        |       | —                                          |        | 180,489                           |       | 3,911                       |       | —                                  |        | —           |       | 184,400          |       |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Due to  (from) affiliates**               |       | —                                          |        | 335,021                           |       | (278,773                    | )          | (56,248                                 | )           | —           |       | —           |       |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Redeemable  equity units**                |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| Series B  equity units                 |       | 2,920                                           |        | —                            |       | —                      |       | —                                  |        | —           |       | 2,920            |       |
| Series C  equity units                 |       | 3,037                                           |        | —                            |       | —                      |       | —                                  |        | —           |       | 3,037            |       |
| Redeemable  equity units                    |       | —                                          |        | 5,957                             |       | —                      |       | —                                  |        | (5,957           | )          | —           |       |
|                                        |       | 5,957                                           |        | 5,957                             |       | —                      |       | —                                  |        | (5,957           | )          | 5,957            |       |
|                                        |       |                                            |        |                              |       |                        |       |                                    |        |             |       |             |       |
| **Commitments  and contingent liabilities** | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
| ** **                                  | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
| **Capital**                                 | ** ** | ** **                                      | ** **  | ** **                        | ** ** | ** **                  | ** ** | ** **                              | ** **  | ** **       | ** ** | ** **       | ** ** |
| Series A  equity units                 |       | 81,967                                          |        | —                            |       | —                      |       | —                                  |        | —           |       | 81,967           |       |
| Series B  equity units                 |       | 268,391                                         |        | —                            |       | —                      |       | —                                  |        | —           |       | 268,391          |       |
| Series C  equity units                 |       | —                                          |        | —                            |       | —                      |       | —                                  |        | —           |       | —           |       |
| Subsidiary  equity                          |       | —                                          |        | 329,372                           |       | 843,200                     |       | 75,059                                  |        | (1,247,631       | )          | —           |       |
| **Total  capital**                          |       | 350,358                                         |        | 329,372                           |       | 843,200                     |       | 75,059                                  |        | (1,247,631       | )          | 350,358          |       |
| **Total  liabilities and capital**          | ** ** | **$**                                           | **356,315** | ** **                        | **$**      | **1,206,256**               | ** ** | **$**                                   | **671,600** | ** **       | **$**      | **19,946**       | ** ** | **$** | **(1,253,678** | **)** | **$** | **1,000,439** | ** ** |

 

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** **

**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Three Months ended March 31, 2009**

 
| ** **                                                                                 | ** ** | **Boise  Cascade  Holdings,   L.L.C.   (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-   guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                 | ** ** | **(thousands)**                                             | ** ** |
| **Cash  provided by (used for) operations**                                                |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Net income  (loss)                                                                         |       | $                                                           | (88,181    | )                           | $          | (48,147                     | )          | $                                       | (44,657    | )                | $          | (1,463           | )          | $ | 94,267 |   | $ | (88,181 | ) |
| Items in net  income (loss) not using (providing) cash                                     |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Equity in net  income of affiliate (Boise Inc.)                                            |       | (3,005                                                      | )          | —                      |       | —                      |       | —                                  |       | —           |       | (3,005           | )          |
| Impairment of  investment in Boise Inc.                                               |       | 43,039                                                      |       | —                      |       | —                      |       | —                                  |       | —           |       | 43,039           |       |
| Equity in net  (income) loss of affiliates                                                 |       | 48,147                                                      |       | 46,120                      |       | —                      |       | —                                  |       | (94,267          | )          | —           |       |
| Depreciation, depletion,  and amortization of deferred financing costs and other           |       | —                                                      |       | 456                         |       | 10,544                      |       | 462                                     |       | —           |       | 11,462           |       |
| Pension and  other postretirement benefit expense                                          |       | —                                                      |       | 4,939                       |       | —                      |       | —                                  |       | —           |       | 4,939            |       |
| Change in fair  value of contingent rights                                                 |       | —                                                      |       | (194                        | )          | —                      |       | —                                  |       | —           |       | (194             | )          |
| Management  equity units expense                                                      |       | —                                                      |       | 778                         |       | —                      |       | —                                  |       | —           |       | 778              |       |
| Gain on  repurchase of long-term debt                                                      |       | —                                                      |       | (6,026                      | )          | —                      |       | —                                  |       | —           |       | (6,026           | )          |
| Gain on sale of  assets, net                                                               |       | —                                                      |       | —                      |       | (82                         | )          | —                                  |       | —           |       | (82              | )          |
| Facility closure  costs                                                                    |       | —                                                      |       | —                      |       | 2,754                       |       | —                                  |       | —           |       | 2,754            |       |
| Other                                                                                      |       | —                                                      |       | 247                         |       | 16                          |       | 69                                      |       | —           |       | 332              |       |
| Decrease  (increase) in working capital                                                    |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Receivables                                                                                |       | —                                                      |       | 872                         |       | (26,180                     | )          | (458                                    | )          | (34              | )          | (25,800          | )          |
| Inventories                                                                                |       | —                                                      |       | —                      |       | 12,739                      |       | 435                                     |       | —           |       | 13,174           |       |
| Prepaid expenses  and other                                                                |       | —                                                      |       | (2,800                      | )          | 1,558                       |       | (115                                    | )          | —           |       | (1,357           | )          |
| Accounts payable  and accrued liabilities                                             |       | —                                                      |       | 2,879                       |       | 4,970                       |       | (57                                     | )          | 34               |       | 7,826            |       |
| Pension and other  postretirement benefit payments                                         |       | —                                                      |       | (25,045                     | )          | —                      |       | —                                  |       | —           |       | (25,045          | )          |
| Current and  deferred income taxes                                                         |       | —                                                      |       | 417                         |       | 63                          |       | (4                                      | )          | —           |       | 476              |       |
| Other                                                                                      |       | —                                                      |       | (1,636                      | )          | (190                        | )          | —                                  |       | —           |       | (1,826           | )          |
| Cash provided by  (used for) operations                                                    |       | —                                                      |       | (27,140                     | )          | (38,465                     | )          | (1,131                                  | )          | —           |       | (66,736          | )          |
|                                                                                       |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                                |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Proceeds from  sale of assets, net                                                         |       | —                                                      |       | —                      |       | 137                         |       | —                                  |       | —           |       | 137              |       |
| Expenditures for  property and equipment                                              |       | —                                                      |       | (12                         | )          | (3,854                      | )          | (363                                    | )          | —           |       | (4,229           | )          |
| Investments in  affiliates                                                                 |       | (1                                                          | )          | (46,120                     | )          | —                      |       | —                                  |       | 46,121           |       | —           |       |
| Other                                                                                      |       | —                                                      |       | (249                        | )          | 421                         |       | (71                                     | )          | —           |       | 101              |       |
| Cash provided by  (used for) investment                                               |       | (1                                                          | )          | (46,381                     | )          | (3,296                      | )          | (434                                    | )          | 46,121           |       | (3,991           | )          |
|                                                                                       |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                                 | ** ** | ** **                                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Payments of  long-term debt                                                                |       | —                                                      |       | (5,627                      | )          | —                      |       | —                                  |       | —           |       | (5,627           | )          |
| Tax  distributions to members                                                              |       | (9,897                                                      | )          | —                      |       | —                      |       | —                                  |       | —           |       | (9,897           | )          |
| Tax distributions  to Boise Cascade Holdings, L.L.C.                                       |       | 9,897                                                       |       | (9,897                      | )          | —                      |       | —                                  |       | —           |       | —           |       |
| Repurchase of  management equity units                                                     |       | (8                                                          | )          | —                      |       | —                      |       | —                                  |       | —           |       | (8               | )          |
| Distribution to  Boise Cascade Holdings, L.L.C., for repurchase of management equity units |       | 8                                                           |       | (8                          | )          | —                      |       | —                                  |       | —           |       | —           |       |
| Cash used  for financing                                                              |       | —                                                      |       | (15,532                     | )          | —                      |       | —                                  |       | —           |       | (15,532          | )          |
|                                                                                       |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Due to (from)  affiliates                                                                  |       | —                                                      |       | 2,779                       |       | 41,760                      |       | 1,582                                   |       | (46,121          | )          | —           |       |
|                                                                                       |       |                                                        |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Increase  (decrease) in cash and cash equivalents**                                      |       | (1                                                          | )          | (86,274                     | )          | (1                          | )          | 17                                      |       | —           |       | (86,259          | )          |
| **Balance  at beginning of the period**                                                    |       | 1                                                           |       | 275,726                     |       | 20                          |       | 56                                      |       | —           |       | 275,803          |       |
| **Balance  at end of the period**                                                          | ** ** | **$**                                                       | **—** | ** **                  | **$**      | **189,452**                 | ** ** | **$**                                   | **19**     | ** **       | **$**      | **73**           | ** ** | **$** | **—** | ** ** | **$** | **189,544** | ** ** |

 

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**BoiseCascade Holdings, L.L.C., and SubsidiariesConsolidating Statements of Cash FlowsFor the Three Months ended March 31, 2008**

 
| ** **                                                                                 | ** ** | **Boise  Cascade  Holdings,  L.L.C.   (Parent)** | ** ** | **Boise  Cascade,  L.L.C.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-   guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                 | ** ** | **(thousands)**                                       | ** ** |
| **Cash  provided by (used for) operations**                                                |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Net income  (loss)                                                                         |       | $                                                     | (24,438    | )                           | $          | (16,871                     | )          | $                                       | 10,491     |             | $          | (2,941           | )          | $ | 9,321 |   | $ | (24,438 | ) |
| Items in net  income (loss) not using (providing) cash                                     |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Equity in net  loss of affiliate (Boise Inc.)                                              |       | 8,552                                                 |       | —                      |       | —                      |       | —                                  |       | —           |       | 8,552            |       |
| Equity in net  (income) loss of affiliates                                                 |       | 16,871                                                |       | (7,550                      | )          | —                      |       | —                                  |       | (9,321           | )          | —           |       |
| Depreciation, depletion,  and amortization of deferred financing costs and other           |       | —                                                |       | 506                         |       | 9,095                       |       | 777                                     |       | —           |       | 10,378           |       |
| Related-party  interest expense                                                            |       | —                                                |       | 158                         |       | 2                           |       | 1,399                                   |       | (1,559           | )          | —           |       |
| Related-party  interest income                                                             |       | (986                                                  | )          | (32                         | )          | (1,527                      | )          | —                                  |       | 1,559            |       | (986             | )          |
| Pension and other  postretirement benefit expense                                          |       | —                                                |       | 5,007                       |       | —                      |       | —                                  |       | —           |       | 5,007            |       |
| Change in fair  value of contingent rights                                                 |       | —                                                |       | 4,773                       |       | —                      |       | —                                  |       | —           |       | 4,773            |       |
| Change in fair  value of interest rate swaps                                               |       | —                                                |       | 6,284                       |       | —                      |       | —                                  |       | —           |       | 6,284            |       |
| Management  equity units expense, net of expense related to the Sale                  |       | —                                                |       | 347                         |       | —                      |       | —                                  |       | —           |       | 347              |       |
| Gain on sale of  assets, net                                                               |       | —                                                |       | (8,063                      | )          | (2,909                      | )          | —                                  |       | —           |       | (10,972          | )          |
| Other                                                                                      |       | —                                                |       | 486                         |       | (20                         | )          | 167                                     |       | —           |       | 633              |       |
| Decrease  (increase) in working capital, net of dispositions                               |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Receivables                                                                                |       | —                                                |       | (9,269                      | )          | (382,295                    | )          | 316,372                                 |       | —           |       | (75,192          | )          |
| Inventories                                                                                |       | —                                                |       | 5,611                       |       | 6,726                       |       | 428                                     |       | —           |       | 12,765           |       |
| Prepaid expenses  and other                                                                |       | —                                                |       | (3,790                      | )          | 1,820                       |       | 324                                     |       | —           |       | (1,646           | )          |
| Accounts payable  and accrued liabilities                                             |       | —                                                |       | (208                        | )          | 27,348                      |       | (5,997                                  | )          | —           |       | 21,143           |       |
| Pension and other  postretirement benefit payments                                         |       | —                                                |       | (20,716                     | )          | —                      |       | —                                  |       | —           |       | (20,716          | )          |
| Current and  deferred income taxes                                                         |       | —                                                |       | 348                         |       | (1,919                      | )          | 2,974                                   |       | —           |       | 1,403            |       |
| Other                                                                                      |       | —                                                |       | 3,640                       |       | (3,776                      | )          | (19                                     | )          | —           |       | (155             | )          |
| Cash provided by  (used for) operations                                                    |       | (1                                                    | )          | (39,339                     | )          | (336,964                    | )          | 313,484                                 |       | —           |       | (62,820          | )          |
|                                                                                       |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Cash  provided by (used for) investment**                                                |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Proceeds from  sale of assets, net of cash contributed                                     |       | —                                                |       | 1,205,391                   |       | 21,936                      |       | —                                  |       | —           |       | 1,227,327        |       |
| Expenditures for  property and equipment                                              |       | —                                                |       | (638                        | )          | (16,539                     | )          | (1,042                                  | )          | —           |       | (18,219          | )          |
| Increase in  restricted cash                                                               |       | —                                                |       | (183,290                    | )          | —                      |       | —                                  |       | —           |       | (183,290         | )          |
| Investments in  affiliates                                                                 |       | 329                                                   |       | 7,550                       |       | —                      |       | —                                  |       | (7,879           | )          | —           |       |
| Other                                                                                      |       | —                                                |       | 217                         |       | (812                        | )          | (424                                    | )          | —           |       | (1,019           | )          |
| Cash provided by  (used for) investment                                               |       | 329                                                   |       | 1,029,230                   |       | 4,585                       |       | (1,466                                  | )          | (7,879           | )          | 1,024,799        |       |
|                                                                                       |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Cash  provided by (used for) financing**                                                 | ** ** | ** **                                            | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Issuances of  long-term debt                                                               |       | —                                                |       | 64,224                      |       | —                      |       | 165,000                                 |       | —           |       | 229,224          |       |
| Payments of  long-term debt                                                                |       | —                                                |       | (720,563                    | )          | —                      |       | (205,000                                | )          | —           |       | (925,563         | )          |
| Short-term  borrowings                                                                     |       | —                                                |       | (10,500                     | )          | —                      |       | —                                  |       | —           |       | (10,500          | )          |
| Tax  distributions to members                                                              |       | (127,342                                              | )          | —                      |       | —                      |       | —                                  |       | —           |       | (127,342         | )          |
| Tax distributions  to Boise Cascade Holdings, L.L.C.                                       |       | 127,342                                               |       | (127,342                    | )          | —                      |       | —                                  |       | —           |       | —           |       |
| Repurchase of  management equity units                                                     |       | (18,289                                               | )          | —                      |       | —                      |       | —                                  |       | —           |       | (18,289          | )          |
| Distribution to  Boise Cascade Holdings, L.L.C., for repurchase of management equity units |       | 18,289                                                |       | (18,289                     | )          | —                      |       | —                                  |       | —           |       | —           |       |
| Cash paid for  termination of interest rate swaps                                          |       | —                                                |       | (11,918                     | )          | —                      |       | —                                  |       | —           |       | (11,918          | )          |
| Other                                                                                      |       | (329                                                  | )          | (4,114                      | )          | —                      |       | —                                  |       | 329              |       | (4,114           | )          |
| Cash provided by  (used for) financing                                                |       | (329                                                  | )          | (828,502                    | )          | —                      |       | (40,000                                 | )          | 329              |       | (868,502         | )          |
|                                                                                       |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| Due to (from)  affiliates                                                                  |       | —                                                |       | (68,550                     | )          | 332,379                     |       | (271,379                                | )          | 7,550            |       | —           |       |
|                                                                                       |       |                                                  |       |                        |       |                        |       |                                    |       |             |       |             |       |
| **Increase  (decrease) in cash and cash equivalents**                                      |       | (1                                                    | )          | 92,839                      |       | —                      |       | 639                                     |       | —           |       | 93,477           |       |
| **Balance  at beginning of the period**                                                    |       | 1                                                     |       | 56,588                      |       | 21                          |       | 1,013                                   |       | —           |       | 57,623           |       |
| **Balance  at end of the period**                                                          | ** ** | **$**                                                 | **—** | ** **                  | **$**      | **149,427**                 | ** ** | **$**                                   | **21**     | ** **       | **$**      | **1,652**        | ** ** | **$** | **—** | ** ** | **$** | **151,100** | ** ** |

 

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*** ***

***20.******                        ******Legal Proceedings andContingencies***

*** ***

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.

 

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| ***ITEM 2.*** | *** *** | ***MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*** |
|---------------|--------------|---------------------------------------------------------------------------------------------------|

 

***Understanding Our FinancialInformation***

 

The following discussion and analysisprovides information management believes to be relevant to understanding ourfinancial condition and results of operations. We begin this discussion and analysis with a generalbackground related to our company. “Recent Trends and Operational Outlook” and “FactorsThat Affect Our Operating Results” are intended to give the reader context thatmay be helpful in understanding the opportunities and challenges our businessesface as we compete in the marketplace. The analysis then reviews “Our OperatingResults” for the three months ended March 31, 2009, compared with the sameperiod in 2008.

 

We discuss ourbalance sheet, cash flows, and financial commitments in the section entitled “Liquidityand Capital Resources.” The analysis then refers you to “ContractualObligations” and “Critical Accounting Estimates” that are updated in thissection of our report but are discussed in further detail in “Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K. Critical accounting estimates are thoseestimates that our management believes are important to understanding theassumptions and judgments incorporated in our reported financial results.

 

This discussion and analysis includes statements regarding our expectationswith respect to our future 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 numerous risksand uncertainties, including, but not limited to, the risks and uncertaintiesdescribed in “Part I, Item 1A. Risk Factors” in our 2008 Form 10-K,as well as the factors listed in other documents we file with the Securitiesand Exchange Commission (SEC). There have been no material changes to our riskfactors during the three months ended March 31, 2009, from those listed inour 2008 Form 10-K. We do not assume an obligation to update anyforward-looking statement. Our future actual results may differ materially fromthose contained in or implied by any of the forward-looking statements in this Form 10-Q.

 

***Background***

 

Ouroperations began on October 29, 2004 (inception), when we acquired theforest products and paper assets of OfficeMax (the Forest ProductsAcquisition). Before the Forest Products Acquisition, OfficeMax was known asBoise Cascade Corporation. We acquired the name “Boise Cascade” as part of theForest Products Acquisition.

 

On February 22,2008, Boise Cascade, L.L.C., our wholly owned direct subsidiary, sold its Paperand Packaging & Newsprint assets and most of its Corporate and Otherassets (the Sale) to Boise Inc. (formerly Aldabra 2 AcquisitionCorp.) for cash and securities equal to $1.6 billion, plus working capitaladjustments. Immediatelyfollowing the Sale, Boise Cascade, L.L.C., distributed the securities receivedin the transaction to us. As a result, we became a 49% owner of Boise Inc. andcontinue to have a significant indirect financial interest in the results ofthe sold businesses.Our ownership interest, and consequently our proportionate share ofBoise Inc. net income or loss, changes when we or Boise Inc. engagein transactions of Boise Inc. common stock with third parties. At March 31,2009, we had a 47.6% ownership interest in Boise Inc. The equity interest we own in Boise Inc. represents asignificant continuing involvement as defined in Statement of FinancialAccounting Standards (SFAS) No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets.*As a result, the Paper and Packaging &Newsprint segment results are included in our first quarter 2008 ConsolidatedStatement of Loss through February 21, 2008, and we did not define thesold assets as discontinued operations. For more information related to the Sale,see Note 3, Sale of Our Paper and Packaging & Newsprint Assets,of the Notes to Consolidated Financial Statements in “Item 8. FinancialStatements and Supplementary Data” in our 2008 Form 10-K.

 

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

 

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***Recent Trends and Operational Outlook***

 

A variety of market conditions in both the U.S. andglobal economies influence demand and pricing for our products and affect ouroperating results. The U.S. economy declined dramatically in the last half of2008 and continued to decline in the first quarter of 2009**.**The national unemployment rate increased to 8.5% in first quarter 2009,compared with 5.1% in first quarter 2008.

 

As of April 2009,the Blue Chip Economic Indicators consensus forecast for 2009 housing starts inthe U.S. was approximately 0.56 million units, and the U.S. Census Bureaureported 2008 housing starts in the U.S. at 0.91 million units. Theseamounts are significantly below historical trends of approximately1.7 million units over the prior ten years. The inventory of unsold homesis elevated relative to the number of homes being sold, and foreclosure rateshave increased as home prices have declined in many parts of the United States.Housing markets across the country have been affected negatively by recentevents. As a general rule, those markets that experienced the highest growthand price appreciation are now experiencing the biggest declines in price andresulting declines in housing starts.

 

While our products areused in repair-and-remodel activities, as well as light commercialconstruction, our results are principally driven by new single-family homeconstruction. Tighter lending standards and high inventories of homes availablefor sale led to a continued drop in new-home sales and single-family starts infirst quarter 2009. Demand for building products continues to be weak, andthere is ongoing pricing pressure as suppliers compete for the limited businessavailable.

 

Our input costs havedeclined over the last several quarters with the slowdown in global economicactivity. This has been most dramatic in natural gas and diesel fuel, but wehave benefited also from unit cost declines in glues, resins, and logs. Weexpect to see further declines in our log costs as we work through our existingcontractual obligations and buy additional volume at lower current marketprices.

 

In first quarter 2009, market conditions wereextremely difficult, and we expect market conditions to improve only modestlywith seasonal weather factors. We believe the level of end product demand willremain depressed throughout the remainder of the year. It is unclear when aturnaround may occur, and there remains a high degree of uncertainty around newresidential demand for the balance of 2009 and 2010. We have taken and expectto take a number of actions aimed at improving our operating results andconserving cash including:

 

·                  Using rolling curtailments at a number of our woodproducts operations to maintain appropriate inventory levels, while trying tominimize the negative impact of the curtailments on our employees and ouroperating results. It is likely that we will need to continue our practice ofrolling curtailments at a number of our facilities, doing so in a manner thatallows us to retain our skilled workforce and keep our inventories in balancein light of weak demand and product pricing. In March 2009, we began anindefinite partial curtailment of our Oakdale, Louisiana, plywood operation. Atthis time, we are producing only veneer at the operation, which is consumed atour plywood operation in Florien, Louisiana, and our engineered wood productsoperation in Alexandria, Louisiana. In March 2009, we also committed toindefinitely curtailing the lumber manufacturing facility in La Grande,Oregon.

 

·                  Closing facilities that do not meet ourcriteria for return on investment or cease to warrant retention for otherreasons. In March 2009, we closed our plywood operation in White City,Oregon. We will continue to evaluate the long-term viability and value to ourbusiness strategy of our remaining operating facilities and may conclude thatadditional facilities should be closed or sold in response to marketconditions. As a result, we could recognize significant cash and/or noncashcharges related to any such closures in future periods.

 

·                  Reducing discretionary capital spending.We now expect capital spending for 2009 to total approximately $20 million to$25 million, down from our earlier estimate of $30 million to $35 million,excluding acquisitions.

 

·                  Implemented a pay freeze for salariedemployees until we have evidence of improved business conditions.

 

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·                  Amended our defined benefit pension planfor salaried employees (Salaried Plan) so no future benefits will accrue after December 31,2009. The amendment also freezes the accrued benefits in our nonqualified planson December 31, 2009. As a result of the freeze, the pension liabilityreported on our March 31, 2009, Consolidated Balance Sheet decreasedapproximately $32.3 million (which is net of $9.9 million ofinvestment losses related to the amended plans), and we expect 2009 annualpension expense to decrease approximately $4.5 million. See Note 15,Retirement and Benefit Plans, of the Notes to Unaudited Quarterly ConsolidatedFinancial Statements in “Item 1. Financial Statements” of this Form 10-Qfor more information.

 

·                  Suspended the $0.70 company matchcomponent in our 401(k) plan for all salaried employees effective April 1,2009.

 

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

 

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

 

·                  General economic conditions, including but not limited to housingstarts, repair-and-remodel activity and nonresidential construction,foreclosure rates, and relative currency values;

 

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

 

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

 

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

 

·                  Pricing volatility in our distribution business;

 

·                  Industry cycles and capacity utilization rates;

 

·                  The cost and ability to obtain necessary financing;

 

·                  Continued compliance with government regulations;

 

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

 

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

 

·                  Credit or currency risks affecting our revenue andprofitability;

 

·                  Major equipment failure;

 

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

 

·                  Our ability to implement our strategies;

 

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

 

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

 

·                  Boise Inc.’s performance under theOutsourcing Services Agreement; and

 

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

 

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*Commodity and DifferentiatedProducts and Services*

 

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

 

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

 

Comparing first quarter2009 with the same period in 2008, sales of EWP from our Wood Products segmentdecreased from approximately 34% of segment sales in first quarter 2008 to 31%of sales in 2009. The ongoing weakness in new residential construction hasimpeded our ability to grow our EWP sales. Comparing the three months ended March 31,2009, with the same period in 2008, our laminated veneer lumber (LVL) andI-joist sales volumes decreased 43% and 46%, respectively.

 

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

 

*Demand*

 

Historically, demand forthe products we manufacture, as well as the products we purchase anddistribute, has been closely correlated with new residential construction inthe United States, and to a lesser extent, light commercial construction andresidential repair-and-remodeling activity. Demand for new residentialconstruction is influenced by seasonal weather factors, mortgage availabilityand rates, unemployment levels, household formation rates, immigration rates,homeowner vacancies, demand for second homes, existing home prices, consumerconfidence, and other general economic factors. Industry supply is influencedprimarily by operating rates of existing facilities but is also influenced overtime by the introduction of new product technologies and capacity additions.The balance of supply and demand in the U.S. is also heavily influenced byimported products, principally from Canada.

 

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

 

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*Supply*

 

Industry supply of woodproducts is affected by the number of operational or idled facilities, thebuilding of new capacity, and the shutting down of existing capacity. Capacityalso tends to increase gradually over time without significant capitalexpenditures, as manufacturers improve production efficiencies. Generally, morecapacity is added or employed when supply is tight and margins are relativelyhigh, and capacity is idled or eliminated when capacity significantly exceedsdemand and margins are poor.

 

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

 

Industry supply of woodproducts is also influenced by the level of imports and overseas productioncapacity, which has grown in recent years. The relative weakness of the U.S.dollar has mitigated the level of imports in recent years.

 

Based on company newsreleases and financial analyst reports, we believe all major producers of woodproducts in North America have reduced their production of lumber, OSB,plywood, engineered wood products, and particleboard in response to the weakmarket conditions.

 

*Operating Costs*

 

Our major costs in ourWood Products segment are labor, wood fiber, energy, and chemicals. Given thesignificance of raw material and energy costs to our total operating expensesand our limited ability to control these costs, volatility in these costs canmaterially affect our margins. In addition, the timing and degree of pricecycles of raw materials and energy differ with respect to each type of rawmaterial and energy we use.

 

In our Building MaterialsDistribution segment, the primary cost is for products procured for resale,which represents over 90% of our total costs. Occupancy, labor, and deliverycosts are also important factors that affect our earnings in this segment.

 

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

 

As of March 31, 2009, we had approximately4,400 employees. Approximately 1,700, or 39%, of these employees workpursuant to collective bargaining agreements. Labor contracts coveringapproximately 700 employees with the Carpenters Industrial Council expireon July 15, 2009, at our Florien and Oakdale, Louisiana, plywood plants.We do not anticipate that we will start bargaining these contracts until latein the second quarter of 2009. We do not expect material work interruptions orincreases in our costs during the course of the negotiations with ourcollective bargaining units. Nevertheless, if our expectations are notaccurate, we could experience a material labor disruption or significantlyincreased labor costs at one or more of our facilities, any of which couldprevent us from meeting customer demand or reduce our sales and profitability.

 

*Woodfiber*.  Our primary raw material is wood fiber. Forthe three months ended March 31, 2009 and 2008, wood fiber accounted for38% and 43% of materials, labor, and other operating expenses, including fromrelated parties, in our Wood Products segment.

 

Our primary sources oflogs and wood fiber are timber and byproducts of timber, such as wood shavingsand sawdust. Our wood fiber costs also include purchases of semifinishedmaterials, such as OSB and lumber, for use in EWP production. We acquiresubstantially all of our fiber from outside sources. In our Wood Productssegment, we convert logs into lumber and veneer, and in turn, we convert veneerinto EWP and plywood. Logs are a lower percentage of the total cost ofmaterials, labor, and other operating expenses in producing EWP than commodityproducts, such as lumber and plywood. While log costs are still a significantcomponent of costs, as we produce more EWP relative to commodity products

 

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over time, direct logcosts decline as a percentage of the total cost of materials, labor, and otheroperating expenses. We also convert residual wood fiber from our operations, aswell as from third parties, into particleboard.

 

Curtailments of solid wood manufacturing in theNorthwest led to limited availability and higher prices for residual fiber inthe first half of 2008. Pulp mill curtailments in the Northwest in the secondhalf of 2008, as well as steps taken by pulp producers to manufacture woodchips, resulted in weaker prices for residual fiber as the year progressed.This negatively affected our byproduct sales of wood chips from our lumber,veneer, and plywood operations in the second half of 2008. This oversupplysituation continued into first quarter 2009.

 

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

 

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

 

*Energy. *Prices for energy, particularly electricity, naturalgas, and diesel, have been volatile in recent years, at times substantiallyexceeding historical averages. For the three months ended March 31, 2009and 2008, energy costs represented approximately 5% of materials, labor, andother operating expenses, including from related parties, in our Wood Productssegment. Relative to the same quarter in the prior year, fuel costs decreasedin our Building Materials Distribution segment.

 

*Chemicals. *Important chemicals we use in theproduction of our wood products are resins and glues. For the three monthsended March 31, 2009 and 2008, purchases of chemicals represented 5% and7% of materials, labor, and other operating expenses, including from relatedparties, in our Wood Products segment. Chemical unit costs were lower in firstquarter 2009, compared with first quarter 2008, due primarily tochemical market supply and demand dynamics and lower energy input costs for chemicalsuppliers.

 

*Inflationaryand seasonal influences. *Ourmajor costs of production are labor, wood fiber, energy, and chemicals. Energycosts, particularly for electricity, natural gas, and fuel oil, have beenvolatile in recent years. We also experienced higher volatility in chemicalcosts in 2008, compared with historical trends, due primarily to chemicalmarket supply and demand dynamics and the impact of energy markets on chemicalproducers. Energy andchemical costs are currently lower than in 2008 in response to global economicweakness.

 

Seasonal changes inlevels of building activity affect our building products businesses, which aredependent on housing starts, repair-and-remodel activity, and light commercialand industrial conversion activities. We typically have higher sales in thesecond and third quarters, which reflect an increase in construction due tomore favorable weather conditions. We typically have higher sales and workingcapital in the second and third quarters due to the summer building season.Although we generally expect these trends to continue for the foreseeablefuture, we have reduced our inventory as part of our effort to manage thecurrent weakened demand environment in the housing market. Additionally, ouraccounts receivable balance has declined due to the weakened demand environmentfor the products we manufacture and distribute. Seasonally cold weatherincreases costs, especially energy consumption, at most of our manufacturingfacilities.

 

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***OurOperating Results***

 

The following tables setforth our operating results in dollars and as a percentage of sales for thethree months ended March 31, 2009 and 2008:

 
| ** **                                                           | ** ** | **Three Months Ended  March 31** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                                           | ** ** | **(millions)**                        | ** ** |
| **Sales**                                                            | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Trade                                                                |       | $                                     | 407.7      |   | $ | 880.8 |   |
| Related parties                                                      |       | 5.7                                   |       | 95.8 |   |
|                                                                 |       | 413.4                                 |       | 976.6 |   |
|                                                                 |       |                                  |       |   |   |
| **Costs  and expenses**                                              | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses                      |       | 381.1                                 |       | 880.7 |   |
| Materials,  labor, and other operating expenses from related parties |       | 12.3                                  |       | 6.2 |   |
| Depreciation,  amortization, and depletion                           |       | 11.1                                  |       | 10.0 |   |
| Selling and  distribution expenses                                   |       | 45.2                                  |       | 63.4 |   |
| General and  administrative expenses                                 |       | 6.9                                   |       | 14.6 |   |
| General and  administrative expenses from related party              |       | 2.4                                   |       | 1.0 |   |
| Gain on sale of  Paper and Packaging & Newsprint assets     |       | —                                |       | (8.1 | ) |
| Other (income)  expense, net                                         |       | 2.7                                   |       | (0.9 | ) |
|                                                                 |       | 461.7                                 |       | 966.9 |   |
|                                                                 |       |                                  |       |   |   |
| **Income  (loss) from operations**                                   | ** ** | **$**                                 | **(48.3**  | **)** | **$** | **9.7** | ** ** |

 
| ** **                                                                      | ** ** | **(percentage  of sales)** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------|------------|
| **Sales**                                                                       | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Trade                                                                           |       | 98.6                       | %          | 90.2 | % |
| Related parties                                                                 |       | 1.4                        |       | 9.8 |   |
|                                                                            |       | 100.0                      | %          | 100.0 | % |
|                                                                            |       |                       |       |   |   |
| **Costs  and expenses**                                                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses, including from related parties |       | 95.1.                      | %          | 90.8 | % |
| Depreciation,  amortization, and depletion                                      |       | 2.7                        |       | 1.0 |   |
| Selling and  distribution expenses                                              |       | 10.9                       |       | 6.5 |   |
| General and  administrative expenses, including from related party              |       | 2.3                        |       | 1.6 |   |
| Gain on sale of  Paper and Packaging & Newsprint assets                |       | —                     |       | (0.8 | ) |
| Other (income)  expense, net                                                    |       | 0.7                        |       | (0.1 | ) |
|                                                                            |       | 111.7                      | %          | 99.0 | % |
|                                                                            |       |                       |       |   |   |
| **Income  (loss) from operations**                                              | ** ** | **(11.7**                  | **)%**     | **1.0** | **%** |

 

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***Sales Volumes and Prices***

 

Set forth below are sales mix information for our BuildingMaterials Distribution segment and segment sales volumes and average netselling prices for the principal products sold by our Wood Products segment forthe three months ended March 31, 2009 and 2008.

 
| ** **                       | ** ** | **Three Months  Ended March 31** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(millions)**                        | ** ** |
| **Segment  Sales**               | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Building  Materials Distribution |       | $                                     | 335.0      |   | $ | 503.9 |   |
| Wood Products                    |       | $                                     | 116.5      |   | $ | 198.7 |   |

 
| ** **                           | ** ** | **(percentage of Building Materials  Distribution sales)** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------|------------|
| **Product  Line Sales**              | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| **Building  Materials Distribution** | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Commodity                            |       | 48.1                                                       | %          | 44.5 | % |
| Engineered wood                      |       | 9.8                                                        |       | 12.0 |   |
| General line                         |       | 42.1                                                       |       | 43.5 |   |

 
| ** **                                  | ** ** | **(millions)** | ** ** |
|---------------------------------------------|------------|----------------|------------|
| **Sales  Volumes**                          | ** ** | ** **     | ** ** | ** ** | ** ** |
| **Wood  Products**                          | ** ** | ** **     | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (cubic feet) |       | 1.1            |       | 1.9 |   |
| I-joists  (equivalent lineal feet)          |       | 16             |       | 29 |   |
| Plywood (sq.  ft.) (3/8” basis)        |       | 246            |       | 313 |   |
| Lumber (board  feet)                        |       | 30             |       | 50 |   |
| Particleboard  (sq. ft.) (3/4” basis)  |       | 18             |       | 27 |   |

 
| ** **                                       | ** ** | **(dollars per unit)** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|
| **Average  Net Selling Prices**                  | ** ** | ** **             | ** ** | ** ** | ** ** |
| **Wood  Products**                               | ** ** | ** **             | ** ** | ** ** | ** ** |
| Laminated veneer  lumber (LVL) (100 cubic feet)  |       | $                      | 1,524      |   | $ | 1,619 |   |
| I-joists (1,000  equivalent lineal feet)         |       | 900                    |       | 970 |   |
| Plywood (1,000  sq. ft.) (3/8” basis)       |       | 200                    |       | 242 |   |
| Lumber (1,000  board feet)                       |       | 304                    |       | 387 |   |
| Particleboard  (1,000 sq. ft.) (3/4” basis) |       | 347                    |       | 343 |   |
|                                                  |            |                        |            |  |  |  |  |

 

***Operating Results***

 

# ***Sales***

# * *

For the three months ended March 31, 2009, totalsales decreased $563.2 million, or 58%, to $413.4 million from$976.6 million during the three months ended March 31, 2008. Thedecrease was driven primarily by the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. For the period of January 1through February 21, 2008, the sold businesses had sales of$359.9 million. In addition, sales decreased in our Building MaterialsDistribution and Wood Products segments due to weaker product demand andprices, as U.S. new residential housing demand declined.

 

*Building Materials Distribution.* Sales decreased $168.9 million, or 34%, to $335.0 million for the three months ended March 31,2009, from $503.9 million for the three months ended March 31, 2008. The decrease in sales was principally the result of 33% lowersales volumes stemming from decreased demand in new residential constructionmarkets. Relative to first quarter 2008, EWP sales represented a lowerpercentage of our overall Building Materials Distribution sales, as EWP salesare more dependent on new residential construction than the commodity productswe sell.

 

*WoodProducts.* Sales decreased $82.2 million, or 41%, to $116.5 million for the three months ended March 31,2009, from $198.7 million for the three months ended March 31, 2008.Lower sales were the result of reduced volumes and prices for plywood, EWP, andlumber and reduced volume for particleboard. The average net selling prices forplywood, EWP, and lumber all declined, as we continued to see price pressurecaused by lower demand. Demand for these products is closely tied to new residentialconstruction, repair and remodel, and light commercial construction activity,which declined significantly, compared with the same quarter a year ago.

 

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

##### *** ***

Materials, labor, and other operating expenses,including from related parties, decreased$493.5 million, or 56%, to $393.4 million for the three months ended March 31,2009, compared with $886.8 million during the same period in the prioryear. The decrease was driven primarily by the sale of our Paper and Packaging &Newsprint assets in first quarter 2008. For the period of January 1through February 21, 2008, the sold businesses had materials, labor, andother operating expenses, including from related parties, of$321.6 million. The decrease also resulted from lower purchased materialscosts in our Building Materials Distribution segment due to lower salesvolumes. Materials, labor, and other operating expenses, including from relatedparties, in our Wood Products segment decreased $66.1 million due toreduced manufacturing volumes in response to weaker sales activity. While totalmaterials, labor, and other operating costs, including from related parties,declined in our Wood Products segment, our per-unit manufacturing costsincreased relative to the same period a year ago, as fixed costs were allocatedto a reduced level of production.

 

Depreciation, amortization, and depletion expenses increased$1.1 million, or 11%, to $11.1 million for the three months ended March 31,2009, compared with $10.0 million for the same period in the prior year.The increase is primarily due to accelerating $2.5 million of depreciationon the assets at our La Grande, Oregon, lumber manufacturing facility,related to the decision to indefinitely curtail the operations. We expect torecord a similar amount of accelerated depreciation in second quarter 2009.

 

Selling and distribution expenses decreased $18.2 million, or 29%,to $45.2 million for thethree months ended March 31, 2009, compared with $63.4 million forthe same period in the prior year. Approximately half of the decrease wasdriven by the sale of our Paper and Packaging & Newsprint assets infirst quarter 2008. The decrease also resulted from lower sales activity in ourBuilding Materials Distribution and Wood Products segments.

 

General andadministrative expenses, including from related parties, decreased $6.3 million, or 40%, to$9.3 million for the threemonths ended March 31, 2009, compared with $15.6 million for the sameperiod in the prior year. The decrease was driven primarily by the sale of ourPaper and Packaging & Newsprint assets in first quarter 2008, whichreported $6.6 million of expenses for the period of January 1 throughFebruary 21, 2008.

 

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

 
| ** **                                   | ** ** | **Three Months Ended  March 31** | ** ** |
|----------------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **(millions)**                        | ** ** |
|                                         |       |                                  |       |   |   |
| Facility  closures and curtailments (a)      |       | $                                     | 4.7        |   | $ | — |   |
| Changes in  pension plans (see Note 15) |       | (0.7                                  | )          | — |   |
| Other, net                                   |       | (1.2                                  | )          | (0.9 | ) |
| ** **                                   | ** ** | **$**                                 | **2.7**    | ** ** | **$** | **(0.9** | **)** |

 

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(a)                                  In first quarter2009, we committed to indefinitely curtailing the lumber manufacturing facilityin La Grande, Oregon, and we recorded $4.4 million of expense in “Other(income) expense, net.” In addition, we recorded $2.5 million ofaccelerated depreciation in “Depreciation, amortization, and depletion” and$0.6 million of expenses in “Materials, labor, and other operatingexpenses” in our Consolidated Statement of Loss. We expect to recognize$2.6 million of additional accelerated depreciation related to adjustingthe useful lives of the facility’s assets in second quarter 2009.

 

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

 

Income (loss) from operations decreased $58.0 million to a $48.3 million loss for the three months ended March 31,2009, from $9.7 million of income in the same period a year ago. Thedecrease was driven primarily by the sale of our Paper and Packaging &Newsprint assets in first quarter 2008, which

 

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reported$23.1 million of income from operations during the period from January 1through February 21, 2008. Relative to the three months ended March 31,2008, we also reported lower operating income in the Building MaterialsDistribution and Wood Products segments due to continued decline in housingconstruction and demand for our products, which is discussed in more detailbelow.

 

*BuildingMaterials Distribution.*  Segment loss increased $7.3 million to$8.5 million for the threemonths ended March 31, 2009, from $1.2 million for the three monthsended March 31, 2008. The increasein segment loss was driven primarily by lower gross margin dollars available tocover relatively fixed expenses such as occupancy, payroll, and delivery costs,as sales volumes declined from the same period a year ago.

 

*WoodProducts. *Segment lossincreased $20.5 million to$37.6 million for the threemonths ended March 31, 2009,compared with $17.1 million for the three months ended March 31,2008. The increase in segmentloss was driven primarily by lower prices for most of our products. Relative tofirst quarter 2008, we did see some reductions in wood costs; however, thesereductions were more than offset by an increase in our per-unit manufacturingcosts, as fixed costs were allocated to a reduced level of production. Inaddition, the Wood Products segment first quarter 2009 loss included$7.5 million of expenses related to the indefinite curtailment of ourlumber manufacturing facility in La Grande, Oregon.

 

*Other*

 

*Equityin net income (loss) of affiliate and impairment of investment in equityaffiliate*.  We account for our investment in Boise Inc.under the equity method of accounting. We adjust the amount of our investment monthly for ourproportionate share of Boise Inc.’s net income or loss and our share of othercomprehensive income or loss based on the most recently available financialstatements. As a result, our aggregate investment in Boise Inc. is recorded ina combination of the “Investment in equity affiliate” and other comprehensiveincome accounts within “Series B equity units” on our Consolidated BalanceSheets. Our ownership interest, and consequently our proportionate share ofBoise Inc.’s net income or loss, changes when we or Boise Inc. engage intransactions of Boise Inc. common stock with third parties. At March 31,2009, we had a 47.6% ownership interest in Boise Inc. Changes in ownershipinterest may also result in our recording an ownership interest dilution gainor loss.

 

During the three months ended March 31, 2009, werecorded $40.0 million of expense related to our investment inBoise Inc. in our Consolidated Statement of Loss, compared with$8.6 million during the three months ended March 31, 2008. Of the$40.0 million of expense, we recorded $43.0 million of expense in “Impairmentof investment in equity affiliate” and $3.0 million of income in “Equityin net income (loss) of affiliate” in our Consolidated Statement of Loss asfollows:

 
| ** **                                                 | ** ** | **(millions)** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|
|                                                       |       |           |       |
| Impairment of  investment in equity affiliate (a)          |       | $              | (43.0      | ) |
|                                                       |       |           |       |
| Equity in net  loss of Boise Inc. (b)                 |       | (1.0           | )          |
| Amortization of  basis differential (c)                    |       | 5.0            |       |
| Loss on shares  issued for settlement of CVR liability (d) |       | (1.0           | )          |
| Equity in net  income of affiliate                         |       | 3.0            |       |
|                                                       |       |           |       |
| Total                                                      | ** ** | **$**          | **(40.0**  | **)** |

 

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(a)                                  On March 31,2009, we compared the fair value of the Boise Inc. stock price ($0.61 pershare) with the carrying value of our investment ($1.77 per share) andconcluded that our investment in Boise Inc. met the definition of other thantemporarily impaired as defined in Accounting Principles Board (APB) Opinion No. 18,*The Equity Method of Accounting forInvestments in Common Stock*. The fair value of our investment inBoise Inc. was calculated based on our 37.1 million of Boise Inc.shares and Boise Inc.’s stock price on March 31, 2009, of $0.61. Thecarrying value of our investment is calculated as the sum of (1) theamount recorded in “Investment in equity affiliate” on our Consolidated BalanceSheet and (2) the amount of accumulated other comprehensive income relatedto our investment in Boise Inc. recorded within “Series B equityunits” on our Consolidated Balance Sheet.

 

We made the other thantemporary impairment determination based primarily on the length of time andextent to which the fair value of our investment had been trading below itscarrying value. As of March 31, 2009, Boise Inc.’s stock had traded below ourcarrying value since we wrote the investment down in September 2008.Accordingly, in first quarter 2009, we recorded a $43.0 million charge in “Impairmentof investment in equity affiliate” in our Consolidated Statement of Loss andreduced by $40.8 million accumulated other comprehensive loss related toour investment in Boise Inc. (which was accumulated monthly from recording

 

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our proportionate share ofBoise Inc.’s other comprehensive income or loss). In addition, we decreased “Investmentin equity affiliate” $2.2 million, to reduce the aggregate carrying valueof our investment recorded on our Consolidated Balance Sheet to its fair valueon March 31, 2009, of $0.61 per share.

 

(b)                                 Includes a$0.6 million dilution loss due to the vesting of Boise Inc. restrictedstock during the three months ended March 31, 2009.

 

(c)                                  At March 31,2009, the carrying value of our investment in Boise Inc. was approximately$232.1 million less than our share of Boise Inc.’s underlying equityin net assets. The difference is due to the write-down of our investment inBoise Inc. In accordance with APB Opinion No. 18, we are amortizingthe difference to income on a straight-line basis over 9.6 years, whichrepresents the remaining weighted-average useful life of Boise Inc.’sassets. In first quarter 2009, the amortization of the basis differentialresulted in our recognizing $5.0 million of income in “Equity in netincome (loss) of affiliate” in our Consolidated Statement of Loss and willresult in our recognizing approximately $24.2 million of income per year forthe next 9.6 years, which will be increased or decreased by ourproportionate share of Boise Inc.’s net income or loss.

 

(d)                                 During the threemonths ended March 31, 2009, we settled our obligation related to thecontingent value rights we issued to holders of Boise Inc. common stock. Inconnection with the settlement in first quarter 2009, we transferred ownershipof 0.8 million Boise Inc. shares and recorded a $1.0 million loss in “Equityin net income (loss) of affiliate” in our Consolidated Statement of Loss forthe difference between the market price on the date we settled our obligationwith the shares and the carrying amount of the shares recorded on our BalanceSheet. For more information, see Note 13, Financial Instrument Risk, of the Notesto Unaudited Quarterly Consolidated Financial Statements in “Item 1.Financial Statements” of this Form 10-Q.

 

We will continue to monitor the value ofBoise Inc.’s stock and our carrying value. Should market conditions and/orBoise Inc.’s financial performance deteriorate or should we decide to sell ourequity method investment before it recovers to its carrying value, it ispossible that we will be required to record another noncash impairment chargethat could have a material impact on our Consolidated Statements of Income(Loss). As additional information becomes known, we may change our estimates.

 

*Changein fair value of contingent value rights. *The three months ended March 31, 2009and 2008, included $0.2 million of income and $4.8 million of expenserelated to the fair value of the contingent value rights (CVRs) that we andTerrapin Partners Venture Partnership granted to certain Boise Inc.investors. For more information related to the CVRs, see Note 13,Financial Instrument Risk, of the Notes to Unaudited Quarterly ConsolidatedFinancial Statements” in “Item 1. Financial Statements” of this Form 10-Q.

 

*Changein fair value of interest rate swaps.*The three months ended March 31, 2008, included $6.3 million ofexpense related to changes in the fair value of our interest rate swaps, whichwere terminated in February 2008.

 

*Gain on repurchase of long-termdebt. *During the three months ended March 31, 2009,we repurchased $11.9 million of senior subordinated notes and recorded a$6.0 million gain.

 

*Interest expense. *For the three months ended March 31, 2009,interest expense was $5.6 million, compared with $15.4 million in thesame period a year ago. The decrease in interest expense is primarilyattributable to the significant reduction in our long-term debt. In 2008, werepaid $1,085.6 million of debt primarily with the proceeds from the Sale.For more information,see “Financing Activities” under “Liquidity and Capital Resources” in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K.

 

*Income tax provision.* Our income tax provision generallyconsists of income taxes payable to states that do not allow for the income taxliability to be passed through to our equity holders, as well as income taxespayable by our separate subsidiaries that are taxed as corporations. Income taxexpense was $0.5 million and $1.2 million for the three months ended March 31,2009 and 2008. For the three months ended March 31, 2009, our effectivetax rate for our separate subsidiaries that are taxed as corporations was34.0%, compared with 35.4% for the same period in 2008. The primary reason forthe difference in tax rates is the effect of state income taxes and the mix ofdomestic and foreign sources of income.

 

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***Liquidity and Capital Resources***

 

*Sources and Uses*

 

Our principal sources ofliquidity are existing cash balances, cash generated by our operations, and ourability to borrow under our credit facilities. In recent years, we have alsogenerated cash from the sale of nonstrategic assets, such as the sale of ourPaper and Packaging & Newsprint Assets and our Brazilian subsidiary in2008.

 

Our primary uses of cash are for expenses related tothe manufacture and distribution of building products, including fiber,inventory purchased for resale, labor, energy, and chemicals. In addition topaying for ongoing operating costs, we use cash to invest in our business,repay debt, and meet our contractual obligations and commercial commitments.

 

*Cash and Cash Equivalents*

 

At March 31, 2009, we had $189.5 million ofcash and cash equivalents, compared with $275.8 million at December 31,2008. At March 31, 2009, approximately $68.3 million of cash remainedgoverned by the senior subordinated note asset sale provision, which requiresthat we use $22.8 million and $45.5 million of the proceeds by June 10and July 1, 2009, respectively. We expect to usethe remaining cash from these asset sales primarily to repay indebtedness underour five-year, $350 million senior secured asset-based revolving creditfacility (Revolving Credit Facility), while cancelling a like amount of the Revolving CreditFacility commitment, which is a permitted use under the indenture governingdisposition of the proceeds of asset sales. We do not plan to use any of theseproceeds to repurchase our senior subordinated notes.

 

We invest our cash in high-quality, short-terminvestments, which we record in “Cash and cash equivalents.” The securities inwhich we are investing include money market funds that invest solely in U.S.Treasury securities, commercial paper issued by leading financial institutionsrated at least upper medium grade (A-1) or prime (P-1), commercial paper issuedby asset-backed conduits where the backup liquidity facility is provided by aleading financial institution and the program is rated at least A-1 or P-1, andsimilar instruments where we believe the risk of default or illiquidity isminimal. We diversify our short-term investments to reduce our credit exposureto a single obligor.

 

*Impact of Economy on Cash Flows*

 

In 2008 and first quarter2009, the significant decline in global equity markets and turmoil in thecredit markets caused our pension investment portfolio to suffer significantlosses. While the Worker, Retiree, and Employee Recovery Act of 2008 providessome relief as to the timing of our required future cash contributions, we expectto make material contributions to our pension plans for the next several yearsbarring a dramatic recovery in equity and debt market security valuations or asizable increase in the discount rate used to measure our liabilities. In 2009,we are required to contribute a minimum of $4.4 million to our pensionplans; however, in March 2009, we made $25.0 million of contributionsto improve the funded status of our plans.

 

Against the backdrop of aweak economy and a sharp drop-off in housing construction and demand for ourproducts, there is uncertainty around the amount of cash flow we will generatein 2009. However, we believe that our cash and short-term investments, as wellas our available borrowing capacity, will be adequate to fund debt service requirementsand provide cash, as required, to support our ongoing operations, capitalexpenditures, and working capital needs for the next 12 months.

 

If a contractuallycommitted lender fails to honor its commitment under the Revolving CreditFacility, the other lenders would remain committed for their portion of thetotal facility. A total of 11 lenders participated in the Revolving CreditFacility at March 31, 2009, and the largest single commitment under theRevolving Credit Facility was $112 million. At March 31, 2009, we had$75.0 million of outstanding loans under the Revolving Credit Facility.Borrowings under the Revolving Credit Facility are constrained by a borrowingbase formula dependent upon levels of eligible inventory and receivablesreduced by outstanding letters of credit and, when our fixed-charge coverageratio is below 1:1, as it was on March 31, 2009, by a further requirementthat we maintain a combination of unrestricted cash and borrowing base, lessoutstanding loans, at or in excess of the greater of $45 million or 15% ofthe borrowing base determined under the Revolving Credit Facility. Thus, at March 31,2009, our aggregate

 

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liquidity fromunrestricted cash and cash equivalents and unused borrowing capacity under theRevolving Credit Facility totaled $272.9 million calculated as follows:

 
| ** **                                        | ** ** | **(millions)** | ** ** |
|---------------------------------------------------|------------|----------------|------------|
|                                              |       |           |       |
| Net availability  under Revolving Credit Facility |       | $              | 128.4      |   |
| Cash                                              |       | 189.5          |       |
| Availability  threshold                           |       | (45.0          | )          |
|                                              | ** ** | **$**          | **272.9**  | ** ** |

 

***OperatingActivities***

 

We operate in a cyclical industry, and our operating cash flows varyaccordingly. Ourprincipal operating cash expenditures are for purchased inventories in ourBuilding Materials Distribution segment and expenditures related to themanufacture of building products, including fiber, energy, labor, andchemicals, in our Wood Products segment. For the three months ended March 31, 2009 and 2008, our operatingactivities used $66.7 million and $62.8 million of cash,respectively. Relativeto the three months ended March 31, 2008, the increase in cash used byoperations relates primarily to the following:

 

·                  *Items in net loss used$34.2 million of cash during the three months ended March 31, 2009,compared with $0.4 million during the same period in 2008.* The increase is primarily due to increased losses in our BuildingMaterials Distribution and Wood Products segments. As discussed under “Operating Results” above, the increased losses for thethree months ended March 31, 2009, were the result of lower gross margin dollars available inour Building Materials Distribution segment to cover relatively fixed expenses,such as occupancy, payroll, and delivery costs as sales volumes declined fromthe same period a year ago. Also, in our Wood Products segment, prices werelower for most of our products. Our per-unit manufacturing costs in our WoodProducts segment increased relative to the same period a year ago, as fixedcosts were allocated to a reduced level of production.

 

·                  *Changes in working capital*. Working capital is subject to cyclical operating needs, the timing ofthe collection of receivables, the payment of payables and expenses, and to alesser extent, seasonal fluctuations in our operations. During the three monthsended March 31, 2009, increases in working capital used $6.2 millionof cash from operations, compared with $42.9 million in the same period ayear ago. Relative to the three months ended March 31, 2008, we used lesscash for working capital needs due primarily to the decrease in sales volume.

 

The increases in working capital in first quarter 2009were primarily attributable to higher receivables in our Building MaterialsDistribution and Wood Products segments, which primarily reflects increasedsales of approximately 14% and 7%, comparing sales for the month of March 2009with sales for the month of December 2008. The negative working capitalchange in receivables was partially offset by (1) a decrease in inventoryin our Wood Products segment, which reflects seasonality as well as reducedinventory as part of our effort to manage to the current weakened demandenvironment in the housing market, and (2) seasonally higher accountspayable in our Building Materials Distribution segment.

 

·                  *More cash contributions to ourpension and postretirement benefit plans.*  During the three months ended March 31, 2009, weused $25.0 million of cash to make pension contributions and otherpostretirement benefit payments, compared with $20.7 million during thethree months ended March 31, 2008. The 2008 contribution was included inthe pension assets prior to the Sale.

 

***Investment Activities***

 

During the three months ended March 31, 2009, weused approximately $4.2 million of cash for purchases of property, plant,and equipment. Given the uncertainty around new residential demand for thebalance of 2009 and 2010, we reduced our estimate of total capital spending in2009 to $20 million to $25 million, excluding acquisitions. This level ofcapital expenditures could increase or decrease as a result of a number offactors, including our financial results, future economic conditions, andtiming of equipment purchases. Our capital spending in 2009 will be forbusiness improvement and quality/efficiency projects, replacement projects, andongoing environmental compliance.

 

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During the three months ended March 31, 2008, investingactivities provided $1,024.8 million of cash. The $1,024.8 millionconsists of $1,227.3 million of proceeds from asset sales (most of whichrelated to the sale of our Paper and Packaging & Newsprint assets),partially offset by a $183.3 million increase in restricted cash and$18.2 million of cash used for purchases of property, plant, and equipment($10.2 million of which was invested in the Paper and Packaging &Newsprint businesses we sold in February 2008).

 

***FinancingActivities***

 

Cash used for financing activities was$15.5 million for the three months ended March 31, 2009, comparedwith $868.5 million during the same period in 2008. In both periods, cashused for financing activities included the repayment of long-term debt and taxdistributions to equity holders. During the three months ended March 31,2009, we repurchased $11.9 million of senior subordinated notes for$5.6 million, plus accrued interest. We also made $9.9 million of taxdistributions to equity holders related to the taxable gain on the Sale. Thiswas the final tax distribution to equity holders related to the Sale.

 

With the proceeds from the Sale and borrowings ofapproximately $229.2 million of debt, in first quarter 2008, we repaid allof the borrowings under the previous revolving credit facility, Tranche Eterm loan, delayed-draw term loan, and the borrowings secured by ourreceivables, which totaled $925.6 million, and we terminated those creditfacilities. In addition, we (1) contributed $20.7 million to ourpension plans, (2) repaid $10.5 million of short-term borrowings, (3) terminatedall of our interest rate swap agreements using approximately $11.9 millionof cash, (4) made $127.3 million of tax distributions to our equityholders, (5) paid $18.3 million to repurchase the equity units ofemployees terminated in connection with the Sale, and (6) funded workingcapital and other operating requirements.

 

The followingdiscussion describes our debt structure in more detail.

 

*Debt Structure*

 

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

 
| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                                       | ** ** | **(millions)**     | ** ** |
|                                             |       |               |       |                  |       |
| Asset-based  revolving credit facility, due 2013 |       | $                  | 75.0       |                  | $          | 75.0 |   |
| 7.125% senior  subordinated notes, due 2014      |       | 228.1              |       | 240.0                 |       |
| Total long-term  debt                            | ** ** | **$**              | **303.1**  | ** **            | **$**      | **315.0** | ** ** |

 

*Asset-BasedRevolving Credit Facility*

 

On February 22, 2008, Boise Cascade, L.L.C., andits principal operating subsidiaries, Boise Building Solutions Manufacturing,L.L.C., and Boise Building Solutions Distribution, L.L.C., acting as borrowers,entered into the Revolving Credit Facility with Bank of America. As part of thesyndication process, the Revolving Credit Facility was amended in April 2008to revise the pricing and incorporate additional covenants. At March 31,2009, and December 31, 2008, we had $75.0 million of borrowingsoutstanding under the Revolving Credit Facility. Borrowings under the RevolvingCredit Facility are based on either the prime rate or the London InterbankOffered Rate (LIBOR). Pricing is subject to quarterly adjustment based on theaverage availability under the Revolving Credit Facility during the priorquarter. The range of borrowing costs under the pricing grid is:  (i) prime plus 1.00% to 1.50% or (ii) LIBORplus 2.50% to 3.00%. For the three months ended March 31, 2009, theaverage interest rate for our borrowings under the Revolving Credit Facilitywas 3.0%. Letters of credit are subject to a 0.125% fronting fee payable to theissuing bank and a fee payable to the lenders equal to the product of the interestrate spread applicable to LIBOR borrowings under the Revolving CreditFacility and the daily average amount available for drawing under theoutstanding letters of credit. The minimum and maximum borrowings under theRevolving Credit Facility were $75.0 million during the three months endedMarch 31, 2009. 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.

 

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The Revolving Credit Facility is guaranteed by ourdomestic subsidiaries (other than the three borrowers noted above) and issecured by a first-priority security interest in the stock of our foreign subsidiariesand substantially all of our domestic assets, except for property, plant, andequipment.Borrowings under the Revolving Credit Facility areconstrained by a borrowing base formula dependent upon levels of eligibleinventory and receivables reduced by outstanding letters of credit and, whenour fixed-charge coverage ratio is below 1:1, as it was on March 31, 2009,by a further requirement that we maintain a combination of unrestricted cashand borrowing base, less outstanding loans, at or in excess of the greater of$45 million or 15% of the borrowing base determined under the RevolvingCredit Facility.

 

In addition, the Revolving Credit Facility contains a restriction oncapital investments that is applicable when a minimum availability threshold isnot met. That covenant was not applicable on March 31, 2009. The RevolvingCredit Facility also contains customary nonfinancial covenants, including anegative pledge covenant and restrictions on distributions to equity holders,acquisitions, and divestitures. These covenants will become more restrictive ifa minimum availability threshold is not maintained.

 

*Letters of Credit*

 

At March 31, 2009, we had $14.2 million ofletters of credit outstanding. These letters of credit reduce our borrowingcapacity under the Revolving Credit Facility.

 

*Senior Subordinated Notes*

 

In October 2004, Boise Cascade, L.L.C., issued$400.0 million of 7.125% senior subordinated notes due in 2014. In July 2005,we completed an exchange offer whereby all of our senior subordinated noteswere exchanged for registered securities with identical terms (other than termsrelating to registration rights) to the notes issued in October 2004. Wemay redeem all or part of the notes at any time at redemption prices set forthin the indenture. If we sell specific assets or experience specific kinds ofchanges in control, we must offer to purchase the notes. In connection with the Sale, we repurchased$160.0 million of the notes at par on April 15, 2008. During thethree months ended March 31, 2009, we repurchased $11.9 millionof senior subordinated notes and recorded a $6.0 million gain in “Gain onrepurchase of long-term debt” in our Consolidated Statement of Loss.

 

*Other*

 

For the three months ended March 31, 2009 and 2008, cash payments forinterest, net of interest capitalized, were $1.4 million and$8.8 million, respectively. The decrease in cash interest payments infirst quarter 2009, relative to the same period a year ago, relates to thesignificant reduction in debt in February 2008 with the proceeds from theSale.

 

At March 31, 2009, the estimated current marketvalue of our fixed-rate debt, based on then-current interest rates for similarobligations with like maturities, was approximately $122.9 million lessthan the amount reported on our Consolidated Balance Sheet.

 

***Contractual Obligations***

 

For information on contractual obligations, seeContractual Obligations in “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations” in our 2008 Annual Report on Form 10-K.At March 31, 2009, there have been nomaterial changes to our contractual obligations outside the normal course ofbusiness, except asdisclosed in Note 12, Debt, and Note 15, Retirement and BenefitPlans, of the Notes to Unaudited Quarterly Financial Statements in “Item 1. Financial Statements” of this Form 10-Q. During the three months ended March 31,2009, we repurchased $11.9 million of senior subordinated notes, and wedecreased our pension obligation approximately $52.4 million.

 

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

 

At March 31, 2009,and December 31, 2008, we had no material off-balance-sheet arrangementswith unconsolidated entities.

 

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***Guarantees***

 

Note 17, Commitments and Guarantees, of the Notes to ConsolidatedFinancial Statements in “Item 8. Financial Statements and SupplementaryData” in our 2008 Form 10-K describes the nature of our guarantees,including the approximate terms of the guarantees, how the guarantees arose,the 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 March 31, 2009, there have been nomaterial changes to the guarantees disclosed in our 2008 Form 10-K.

 

***Environmental***

 

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

 

***Critical Accounting Estimates***

 

Critical accounting estimates are those that are most important to theportrayal of our financial condition and results. These estimates requiremanagement’s most difficult, subjective, or complex judgments, often as aresult of the need to estimate matters that are inherently uncertain. We reviewthe development, selection, and disclosure of our critical accounting estimateswith the Audit Committee of our board of directors. For information aboutcritical accounting estimates, see Critical Accounting Estimates in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our 2008 Form 10-K.

 

As of March 31, 2009, there have beenno changes to our critical accounting estimates, except as follows:

 

***Other-Than-TemporaryImpairment of Equity Method Investment***

 

On March 31, 2009, we compared the fair value ofthe Boise Inc. stock price ($0.61 per share) with the carrying value ofour investment ($1.77 per share) and concluded that our investment in BoiseInc. met the definition of other than temporarily impaired as defined in APBOpinion No. 18, The Equity Method of Accounting for Investments in CommonStock. The fair value of our investment in Boise Inc. was calculated basedon our 37.1 million of Boise Inc. shares and Boise Inc.’s stockprice on March 31, 2009, of $0.61. The carrying value of our investment iscalculated as the sum of (1) the amount recorded in “Investment in equityaffiliate” on our Consolidated Balance Sheet and (2) the amount ofaccumulated other comprehensive income related to our investment inBoise Inc. recorded within “Series B equity units” on our ConsolidatedBalance Sheet.

 

We made the other than temporary impairmentdetermination based primarily on the length of time and extent to which thefair value of our investment had been trading below its carrying value. As ofMarch 31, 2009, Boise Inc.’s stock had traded below our carrying valuesince we wrote the investment down in September 2008. Accordingly, infirst quarter 2009, we recorded a $43.0 million charge in “Impairment ofinvestment in equity affiliate” in our Consolidated Statement of Loss andreduced by $40.8 million accumulated other comprehensive loss related toour investment in Boise Inc. (which was accumulated monthly from recording ourproportionate share of Boise Inc.’s other comprehensive income or loss). Inaddition, we decreased “Investment in equity affiliate” $2.2 million, toreduce the aggregate carrying value of our investment recorded on ourConsolidated Balance Sheet to its fair value on March 31, 2009, of $0.61per share.

 

We will continue to monitor the value ofBoise Inc.’s stock and our carrying value. Should market conditions and/orBoise Inc.’s financial performance deteriorate or should we decide to sell ourequity method investment before it recovers to its carrying value, it ispossible that we will be required to record another noncash impairment chargethat could have a material impact on our Consolidated Statements of Income(Loss). As additional information becomes known, we may change our estimates.

 

***Pensions***

 

As a result of our freezing the pensionbenefits in our Salaried Plan and our nonqualified plans so that no futurebenefits accrue after December 31, 2009 (see Note 15, Retirement andBenefit Plans, of the Notes to Unaudited Quarterly Consolidated FinancialStatements in “Item 1. Financial Statements” of

 

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this Form 10-Q), our expected annualpension expense decreased, and a 0.25% change in either direction to thediscount rate, the expected rate of return on plan assets, or the rate ofcompensation increases would have the following effect on 2009 pension expense:

 
| ** **                              | ** ** | ** **        | ** ** | **Increase (Decrease)  in Pension Expense** | ** ** |
|-----------------------------------------|------------|-------------------|------------|------------------------------------------------------------|------------|
| ** **                              | ** ** | **Base  Expense** | ** ** | **0.25 %  Increase**                                  | ** ** | **0.25%   Decrease** | ** ** |
| ** **                              | ** ** | **(millions)**    | ** ** |
| **2009  Expense**                       |       |              |       |                                                       |       |   |   |
| Discount rate  (a)                      |       | $                 | 12.5       |                                                       | $          | (0.7 | ) | $ | 0.7 |   |
| Expected rate of  return on plan assets |       | 12.5              |       | (0.6                                                       | )          | 0.6 |   |
| Rate of  compensation increases (b)     |       | 12.5              |       | 0.1                                                        |       | (0.1 | ) |
|                                         |            |                   |            |                                                            |            |  |  |  |  |  |

 

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(a)                                  The discountrate used to calculate pension expense for the amended plans is 6.9% for theperiod of March 18, 2009, to December 31, 2009, while the discountrate for all other plans and for the amended plans for the period of January 1to March 17, 2009, is 6.1%.

 

(b)                                 There are noexpected compensation increases for the amended plans, as no future benefits willaccrue in these plans after December 31, 2009.

 

***Goodwill andIntangible Asset Impairment***

 

Due to the continued declines in housing starts andthe resulting weak demand for building products, we performed the first step ofthe goodwill impairment test again in first quarter 2009. In conducting ourimpairment analysis, we utilize the discounted cash flow approach thatestimates the projected future cash flows to be generated by our reportingunits,**discounted to presentvalue using a discount rate reflecting our estimated cost of funds. Wedetermined that the fair value of each of our reporting units exceeded theircarrying amounts and, therefore, no goodwill impairment existed. However, theanalysis requires significant judgments and estimates to be made by management,including estimates of future cash flows that will result from our estimates offuture demand, pricing, and production costs, assuming certain levels ofcapital expenditures. We believe the assumptions are reasonable and reflectforecasted market conditions as of the valuation date; however, we cannotpredict the occurrence of certain future events that might adversely affect thereported value of goodwill. Should the markets for building productsdeteriorate further, should we make strategic decisions in response tocontinued difficult economic and competitive conditions, should we decide toinvest capital differently, and should other cash flow assumptions change, itis reasonably possible that our determination that goodwill is not impairedcould change in the near term. As additional information becomes known, we maychange our estimates.

 

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

 

In December 2008,the Financial Accounting Standards Board (FASB) issued FASB Staff Position(FSP) FAS 132(R)-1, *Employer’sDisclosures About Postretirement Benefit Plan Assets.* This FSPamends SFAS No. 132 (Revised 2003), *Employers’Disclosures About Pensions and Other Postretirement Benefits,*toprovide guidance on an employer’s disclosures about plan assets of a definedbenefit pension or other postretirement plan. The FSP is effective for fiscalyears ending after December 15, 2009. The adoption will affect ourdisclosures only and will have no impact on our financial position or resultsof operations.

 

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

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures About Derivative Instruments andHedging Activities*. SFAS No. 161 requires enhanced disclosuresabout derivative instruments and hedging activities to enable investors tobetter understand their effects on financial position, financial 

 

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performance, and cash flows. Theserequirements include the disclosure of the fair values of derivativeinstruments and their gains and losses in a tabular format. We adopted SFAS No. 161in January 2009, and it had no impact on our financial position or resultsof operations.

 

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

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations,*and SFAS No. 160,*Accounting and Reporting of NoncontrollingInterests in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin No. 51.* These new standards willsignificantly change the accounting for and reporting of business combination transactionsand noncontrolling (minority) interests in consolidated financial statements. SFAS No. 141(R) could alsoimpact the assessment of goodwill for impairment. We adopted SFAS Nos. 141(R) and 160on January 1, 2009, and they did not have a material impact on ourfinancial position or results of operations. However, the accounting for futurebusiness combinations will be significantly changed by the adoption of thestandard.

 

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

 

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

 

*Interest Rate Risk*

 

We are exposed to interest rate risk arising from fluctuations in interestrates on our cash and cash equivalents and bank credit facility. In 2009, wedid not use any interest rate swap contracts to manage this risk.

 

In first quarter 2008, we significantly decreased our variable-rate debtwith the proceeds from the sale of our Paper and Packaging & Newsprintassets and most of its Corporate and Other assets (the Sale). As a result, weterminated all of our interest rate swap agreements for approximately$11.9 million. Theinterest rate swaps were considered economic hedges.During the threemonths ended March 31, 2008, we recorded the fair value of the interestrate swaps, or $6.3 million of expense, in “Change in fair value ofinterest rate swaps” in our Consolidated Statement of Loss.

 

*Credit Risk*

 

We are exposed to credit risk on the accountsreceivables from our customers. In order to reduce this risk, we considercustomer concentrations and current economic trends and monitor thecreditworthiness of significant customers based on ongoing credit evaluations.At March 31, 2009, and December 31, 2008, the receivables from asingle customer accounted for approximately 17% and 20% of total receivables,respectively. No other customer accounted for 10% or more of total receivables.

 

*Foreign Currency Risk*

 

We have manufacturing operations in the United Statesand Canada. As a result, we are exposed to movements in the foreign currencyexchange rate in Canada. At March 31, 2009, we had no material foreigncurrency hedges.

 

*Energy Risk*

 

Generally, we purchasenatural gas at the prevailing market price at the time of delivery, and assuch, we are subject to fluctuations in market prices. Occasionally, we enterinto natural gas swaps, options, or a combination of these instruments to hedgethe variable cash flow risk of natural gas purchases at index prices. At March 31,2009, we had no material derivative instruments related to our forecastednatural gas purchases.

 

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*Contingent Value Rights*

 

As part of the Sale,Terrapin Partners Venture Partnership and Boise Cascade, L.L.C., issued21.2 million contingent value rights (CVRs) to holders of Boise Inc.stock. During the three months ended March 31, 2009, we settled ourobligation related to the CVRs using 0.8 million Boise Inc. shares andrecorded a $1.0 million loss in “Equity in net income (loss) of affiliate”in our Consolidated Statement of Loss for the difference between theBoise Inc. share price on the date we settled our obligation with sharesand the carrying amount of the shares recorded on our Consolidated BalanceSheet.

 

In 2008, we recorded thefair value of the CVR liability and associated expense based on a simulationanalysis that considered the likelihood of Boise Inc. investors receivingpayment under the Contingent Value Rights Agreement. We updated the simulationmodel each quarter and revalued the liability based on the results. For thethree months ended March 31, 2008, we recognized $4.8 million ofexpense in “Change in fair value of contingent value rights” in ourConsolidated Statement of Loss.

 

***ITEM4T.******                                  ******CONTROLS AND PROCEDURES***

 

Attached asexhibits to this Form 10-Q are certifications of our chief executiveofficer and chief financial officer. Rule 13a-14 of the Securities Exchange Actof 1934, as amended, requires that we include these certifications with thisreport. This Controls and Procedures section includes information concerningthe disclosure controls and procedures referred to in the certifications. Youshould read this section in conjunction with the certifications.

 

*Evaluation of Disclosure Controls and Procedures*

 

We maintain “disclosure controls andprocedures,” as Rule 13a-15(e) under the Securities Exchange Act of1934, as amended, defines such term. We have designed these controls and proceduresto reasonably 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 alsodesigned our disclosure controls to provide reasonable assurance that suchinformation is accumulated and communicated to our senior management, includingthe chief executive officer (CEO) and chief financial officer (CFO), asappropriate, to allow them to make timely decisions regarding our requireddisclosures.

 

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

 

During the three months ended March 31, 2009, there were nomaterial changes in our internal controls over financial reporting. Inconjunction with the February 22, 2008, sale of our Paper and Packaging &Newsprint assets, we entered into anOutsourcing Agreement under which Boise Inc. provides a number ofcorporate staff services to us at cost. These services include informationtechnology, accounting, and human resource services. Ourmanagement, with the participation of our CEO and CFO, has evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures, including the effectiveness of the services provided to us underthe Outsourcing Agreement, as of the end of the quarter covered by thequarterly report on this Form 10-Q. Based on that evaluation, the CEO andCFO have concluded that, as of such date, our disclosure controls andprocedures were effective in meeting the objectives for which they weredesigned and were operating at a reasonable assurance level.

 

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*Limitations on the Effectiveness of Controls andProcedures*

 

In designing and evaluating our disclosurecontrols and procedures, we recognized that disclosure controls and procedures,no matter how well-conceived and well-operated, can provide only reasonable,not absolute, assurance that the objectives of the disclosure controls andprocedures are met. Additionally, in designing disclosure controls andprocedures, our management necessarily was required to apply its judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures. We have also designed our disclosure controls and procedures basedin part upon assumptions about the likelihood of future events, and there canbe no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions.

 

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**PART II—OTHER INFORMATION**

 

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

 

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

 

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

 

Thisreport on Form 10-Q contains forward-looking statements. Statements thatare not historical or current facts, including statements about ourexpectations, anticipated financial results, projected capital expenditures,and future business prospects, are forward-looking statements. You can identifythese statements by our use of words such as “may,” “will,” “expect,” “believe,”“should,” “plan,” “anticipate,” and other similar expressions. You can findexamples of these statements throughout this report, including “Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” We cannot guarantee that our actual results will be consistentwith the forward-looking statements we make in this report. You should reviewcarefully the risk factors listed in “Item 1A. Risk Factors” of our 2008 Form 10-K,as well as those factors listed in other documents we file with the Securitiesand Exchange Commission (SEC). There have been no material changes to our riskfactors for the three months ended March 31, 2009, from those listed inour 2008 Form 10-K. We do not assume an obligation to update anyforward-looking statement.

 

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

 

None.

 

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

 

None.

 

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

 

Not applicable.

 

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

 

None.

 

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

 

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

 

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**SIGNATURES**

 

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

 

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

 

Date:  May 7, 2009

 

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

**INDEX TO EXHIBITS**

 

Filed With theQuarterly Report on Form 10-Q for the Quarter Ended March 31, 2009

 
| **Number** | ** ** | **Description**                                                                                                                                          |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                               |
| 10.1(a)    |       | Amendment  No. 1 (dated February 20, 2009) to Director Equity Agreement dated  April 3, 2006                                              |
|       |       |                                                                                                                                                     |
| 10.2(a)    |       | Amendment  No. 1 (dated February 20, 2009) to Management Equity Agreement  dated April 3, 2006                                            |
|       |       |                                                                                                                                                     |
| 10.3(a)    |       | First  Amendment (dated February 20, 2009) to Employment Agreement between  Boise Cascade, L.L.C., and Duane McDougall dated November 20, 2008 |
|       |       |                                                                                                                                                     |
| 31.1       |       | CEO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                        |
|       |       |                                                                                                                                                     |
| 31.2       |       | CFO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                        |

 

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(a)          Incorporated by reference toCurrent Report on Form 8-K dated February 26, 2009.

 

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