Building Materials Holding (BLGM) 10-Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

¨ 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 0-19335

www.bmhc.com

BUILDING MATERIALS HOLDING CORPORATION

Delaware	91-1834269
(State of incorporation)	(I.R.S. Employer Identification No.)

Four Embarcadero Center, Suite 3250, San Francisco, CA 94111

(415) 627-9100

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No ¨

The number of shares outstanding of the registrant’s common stock as of July 29, 2005 was 14,237,637.

BUILDING MATERIALS HOLDING CORPORATION

FORM 10-Q

For the Period Ended June 30, 2005

INDEX

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004	2
Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004	3
Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2005 and 2004	4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004	5
Notes to Consolidated Financial Statements	6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	25
Item 4 - Controls and Procedures	26
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings	27
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3 - Defaults Upon Senior Securities	27
Item 4 - Submission of Matters to a Vote of Security Holders	27
Item 5 - Other Information	28
Item 6 - Exhibits	28
SIGNATURES	29

1

Item 1 - Financial Statements

Building Materials Holding Corporation

Consolidated Statements of Income

(thousands, except per share data)

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Sales
Building products	$	344,632		$	319,256		$	637,515		$	566,613
Construction services		356,889			224,137			636,934			393,623
Total sales		701,521			543,393			1,274,449			960,236
Costs and operating expenses
Cost of goods sold
Building products		253,779			244,172			469,427			430,391
Construction services		289,889			193,025			517,373			341,606
Impairment of assets		463			―			463			1,273
Selling, general and administrative expenses		97,349			79,633			187,342			150,259
Other (income) expense, net		(851	)		90			(1,356	)		(417	)
Total costs and operating expenses		640,629			516,920			1,173,249			923,112
Income from operations		60,892			26,473			101,200			37,124
Interest expense		3,350			3,157			6,548			5,911
Income before income taxes and minority interests		57,542			23,316			94,652			31,213
Income taxes		20,420			8,214			33,381			10,948
Minority interests income, net		(3,808	)		(2,522	)		(6,809	)		(3,497	)
Net income	$	33,314		$	12,580		$	54,462		$	16,768
			��
Net income per share:
Basic		$2.38			$0.94			$3.92			$1.25
Diluted		$2.28			$0.92			$3.75			$1.23

The accompanying notes are an integral part of these consolidated financial statements.

2

Building Materials Holding Corporation

Consolidated Balance Sheets

(thousands, except share data)

		June 30			December 31				June 30			December 31
		2005			2004				2005			2004
ASSETS							LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY
Cash and cash equivalents	$	34,955		$	19,496		Accounts payable	$	110,672		$	77,591
Marketable securities		2,832			2,216		Accrued compensation		51,161			34,078
Receivables, net of $4,720 and							Insurance deductible reserves		34,976			26,639
$4,367		302,425			238,071		Other accrued liabilities		36,748			26,177
Inventory		183,400			153,391		Billings in excess of costs and
Unbilled receivables		24,387			17,196		estimated earnings		27,028			11,274
Deferred income taxes		14,143			11,913		Current portion of long-term debt		2,497			3,404
Prepaid expenses and other		4,321			7,317
Total current assets		566,463			449,600		Total current liabilities		263,082			179,163
Property and equipment							Deferred income taxes		126			297
Land		37,019			37,036		Long-term debt		199,917			206,419
Buildings and improvements		104,043			104,667		Other long-term liabilities		25,284			23,162
Equipment		134,855			122,105		Total liabilities		488,409			409,041
Construction in progress		14,574			4,956
Accumulated depreciation		(113,375	)		(104,453	)	Minority interests		13,160			6,325
Marketable securities		20,231			16,760
Deferred loan costs		3,988			2,084		Commitments and contingent liabilities		―			―
Other long-term assets		17,771			16,281
Other intangibles, net		14,755			13,692		Shareholders’ equity
Goodwill		91,584			80,316		Common stock, $0.001 par value:
Total assets	$	891,908		$	743,044		authorized 50,000,000 shares;
							issued and outstanding 14,231,241
							and 13,852,683 shares		14			14
							Additional paid-in capital		136,923			124,594
							Unearned compensation		(3,417	)		(1,383	)
							Retained earnings		257,731			205,812
							Accumulated other comprehensive loss, net		(912	)		(1,359	)
							Total shareholders’ equity		390,339			327,678
							Total liabilities, minority interests and shareholders’ equity	$	891,908		$	743,044

The accompanying notes are an integral part of these consolidated financial statements.

3

Building Materials Holding Corporation

Consolidated Statements of Shareholders’ Equity

(thousands)

													Accumulated Other Comprehensive Income (Loss)
					Additional Paid-in Capital								Net Unrealized Gain (Loss) From
	Common Shares						Unearned  Compensation			Retained  Earnings			Hedging Derivatives			Marketable Securities
	Shares		Amount																Total
Balance at December 31, 2003		13,334	$	13	$	115,282	$	―		$	155,715		$	―		$	―		$	271,010
Net income											16,768									16,768
Unrealized loss from interest rate swap contracts														(862	)					(862	)
Taxes for unrealized gain from interest          rate swap contracts														341						341
Unrealized gain from marketable securities																	21			21
Comprehensive income																				16,268
Share options exercised		85				930														930
Shares issued from Employee Plan		3				47														47
Cash dividends on common shares											(1,607	)								(1,607	)
Balance at June 30, 2004		13,422	$	13	$	116,259	$	―		$	170,876		$	(521	)	$	21		$	286,648
Balance at December 31, 2004		13,853	$	14	$	124,594	$	(1,383	)	$	205,812		$	(1,362	)	$	3		$	327,678
Net income											54,462									54,462
Unrealized gain from interest rate swap contracts														834						834
Taxes for unrealized gain from interest          rate swap contracts														(328	)					(328	)
Unrealized loss from marketable securities																	(96	)		(96	)
Tax benefit for unrealized gain from marketable          securities																	37			37
Comprehensive income																				54,909
Share options exercised		287				3,167														3,167
Tax benefit for share options exercised						4,697														4,697
Shares issued from Director Plan		7				380														380
Shares issued from Employee Plan		9				432														432
Shares issued for acquisition		17				1,000														1,000
Issuance of restricted shares		58				2,653		(2,653	)											―
Earned compensation expense								619												619
Cash dividends on common shares											(2,543	)								(2,543	)
Balance at June 30, 2005		14,231	$	14	$	136,923	$	(3,417	)	$	257,731		$	(856	)	$	(56	)	$	390,339

The accompanying notes are an integral part of these consolidated financial statements.

4

Building Materials Holding Corporation

Consolidated Statements of Cash Flows

(thousands)

	Six Months Ended June 30
	2005			2004
Operating Activities
Net income	$	54,462		$	16,768
Items in net income not using (providing) cash:
Minority interests income, net		6,809			3,497
Impairment of assets		463			1,273
Depreciation and amortization		11,585			11,198
Loss (gain) on sale of assets, net		33			(743	)
Deferred income taxes		(2,401	)		(4,934	)
Changes in assets and liabilities, net of effects of acquisitions:
Receivables, net		(38,945	)		(56,616	)
Inventory		(28,650	)		(56,854	)
Unbilled receivables		(2,942	)		(5,098	)
Prepaid expenses and other current assets		4,436			2,399
Accounts payable		29,763			38,652
Accrued compensation		13,013			11,348
Insurance deductible reserves		8,337			8,960
Other accrued liabilities		5,687			5,888
Billings in excess of costs and estimated earnings		10,329			774
Other long-term assets and liabilities		1,952			3,217
Other, net		6,765			(1,353	)
Cash flows provided (used) by operating activities		80,696			(21,624	)
Investing Activities
Purchases of property and equipment		(17,202	)		(14,314	)
Acquisitions and investments in businesses, net of cash acquired		(27,088	)		(4,810	)
Proceeds from dispositions of property and equipment		300			4,443
Purchases of marketable securities		(4,224	)		(9,000	)
Other, net		760			(833	)
Cash flows used by investing activities		(47,454	)		(24,514	)
Financing Activities
Net (payments) borrowings under revolving credit facility		(81,200	)		61,400
Borrowings under term note		75,000			―
Principal payments on term note		(626	)		(625	)
Net (payments) borrowings on other notes payable		(4,096	)		(937	)
Decrease in book overdrafts		(4,443	)		(2,916	)
Stock options exercised		3,167			930
Dividends paid		(2,230	)		(1,603	)
Deferred financing costs		(2,193	)		―
Other, net		(1,162	)		(5	)
Cash flows (used) provided by financing activities		(17,783	)		56,244
Increase in Cash and Cash Equivalents		15,459			10,106
Cash, beginning of year		19,496			19,506
Cash, end of period	$	34,955		$	29,612
Supplemental Disclosure of Cash Flow Information
Accrued but unpaid dividends	$	1,421		$	805
Cash paid for interest	$	6,480		$	5,137
Cash paid for income taxes	$	26,057		$	11,618

The accompanying notes are an integral part of these consolidated financial statements.

5

Notes to Consolidated Financial Statements

1.Basis of Presentation

The quarterly consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2004.

The quarterly consolidated financial statements have not been audited by independent registered public accountants.  However, in the opinion of management, all adjustments necessary to present fairly the results for the periods have been included.  The preparation of these consolidated financial statements required estimates and assumptions.  Actual results may differ from those estimates.

Certain reclassifications have been made to amounts reported in prior periods, none of which affected financial position, results of operations or cash flows.

Recent Accounting Principles

In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 123, Share-Based Payment, and superseded Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.  This statement requires the measurement and recognition of liabilities incurred to employees in share-based payment transactions at fair value.  Compensation cost and the related tax effects are recognized as the requisite service is rendered.  Compensation cost is based on the fair value of those shares on the grant date.  This statement is effective for the first quarter of 2006.

6

2.Net Income Per Share

Net income per share was determined using the following information (thousands, except per share data):

		Three Months Ended June 30				Six Months Ended June 30
		2005		2004		2005		2004
Net income	$	33,314	$	12,580	$	54,462	$	16,768
Weighted average shares used to determine basic net income per share		13,978		13,408		13,907		13,380
Net effect of dilutive stock options and restricted stock (1)		648		295		623		277
Weighted average shares used to determine diluted net income per share		14,626		13,703		14,530		13,657
Net income per share:
Basic		$2.38		$0.94		$3.92		$1.25
Diluted		$2.28		$0.92		$3.75		$1.23
Cash dividends declared per share		$0.10		$0.06		$0.18		$0.12

⁽¹⁾   There were no options excluded from the computation of net income per diluted share for the second quarter of 2005.  Options to purchase shares of 55,535 for the second quarter of 2004 and options to purchase shares of 4,000 and 69,450 for the six months ended June 30, 2005 and 2004, respectively were not dilutive and therefore excluded in the computations of net income per diluted share.  Options categorized as not dilutive were defined on the basis of the exercise price being greater than the average market value of the common shares in the periods presented.

7

3.Share-Based Compensation

Grants of share-based compensation are made under the 2004 Incentive and Performance Plan.  Previous share-based compensation plans as well as this plan are more fully described in Note 11 of our Annual Report.  These plans are accounted for under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations (ABP 25).  The following table illustrates the effect on net income and earnings per share if the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, were applied to share-based employee compensation (thousands, except per share data):

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Net income, as reported	$	33,314		$	12,580		$	54,462		$	16,768
Add: Share-based employee compensation expense determined under APB 25, net of related tax effects		208			97			346			339
Deduct: Share-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(764	)		(335	)		(1,321	)		(817	)
Pro forma net income	$	32,758		$	12,342		$	53,487		$	16,290
Earnings per share:
Basic - as reported		$2.38			$0.94			$3.92			$1.25
Basic - pro forma		$2.34			$0.92			$3.85			$1.22
Diluted - as reported		$2.28			$0.92			$3.75			$1.23
Diluted - pro forma		$2.24			$0.90			$3.68			$1.19

4.Impairment of Assets

Long-lived assets such as property, equipment and intangibles are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.  An impairment for these assets is recognized if the carrying amount is more than the estimated future operating cash flows on an undiscounted basis.  Similarly, goodwill is evaluated for impairment in the fourth quarter and whenever events and circumstances indicate the carrying amount may not be recoverable.  An impairment is recognized if the carrying amount is more than the estimated future operating cash flows as measured by fair value techniques.

In the second quarter of 2005, an impairment of $0.5 million was recognized for certain customer relationships of BMC Construction.  

8

During 2004, impairments of $1.3 million for the carrying amount of certain properties held for sale and $1.0 million in the carrying amount of goodwill resulting from a change in business strategy were recognized for BMC West.

5.Minority Interests and Acquisitions

Minority Interests

Minority interest reflects the other owners’ proportionate share in the assets, liabilities and equity of business ventures as of the date of purchase, adjusted by the proportionate share of post-acquisition income or loss.  As the operating results of entities with minority interest are consolidated, minority interests income, net represents the income or loss attributable to the other owners.

·Riggs Plumbing

In April 2005, BMC Construction acquired a 60% interest in Riggs Plumbing, LLC (Riggs Plumbing) for $15.8 million in cash.  Assets acquired included receivables of $10.8 million, unbilled receivables of $0.2 million, inventory of $1.3 million, prepaid expenses of $0.3 million, property and equipment of $3.1 million, intangibles of $1.9 million, goodwill of $9.6 million, accounts payable of $2.7 million, billings in excess of costs of $2.4 million, accrued compensation of $2.5 million and other liabilities of $3.8 million.  The remaining 40% is owned by Riggs & Associates, LLC and is recognized as minority interest.  In July 2005, we acquired an additional 13% interest in Riggs Plumbing for $1.4 million in cash.  Riggs Plumbing provides plumbing services to high-volume production builders in the Phoenix and Tucson markets.  

·RCI Construction

In January 2005, BMC Construction acquired a 51% interest in RCI Construction, LLC (RCI Construction) for $4.9 million in cash.  Assets acquired included receivables of $11.1 million, unbilled receivables of $2.5 million, property and equipment of $0.8 million, intangibles of $1.1 million, goodwill of $2.3 million, accounts payable of $3.3 million, billings in excess of costs of $2.7 million, line of credit of $3.3 million, accrued compensation of $1.6 million and other liabilities of $2.0 million.  The remaining 49% is owned by Residential Carpentry, Inc. and is recognized as minority interest.  RCI Construction provides framing services to high-volume production builders in the greater Chicago area.  

·A-1 Truss

In September 2004, our majority-owned subsidiary WBC Construction acquired a 51% interest in A-1 Building Components, LLC (A-1 Truss) for $2.4 million in cash.  Assets acquired included receivables of $2.8 million, inventory of $1.2 million, property and equipment of $1.4 million, other long-term assets of $0.2 million, intangibles of $0.7 million, goodwill of $0.9 million and liabilities of $4.8 million.  The remaining 49% is owned by A-1 Roof Trusses, Ltd., Company and is recognized as minority interest.  A-1 Truss manufactures trusses in Boynton Beach, Florida.  

·WBC Mid-Atlantic

In October 2003, BMC Construction acquired a 67.33% interest in WBC Mid-Atlantic, LLC (WBC Mid-Atlantic) for $5.1 million in cash and the issuance of 15,059 common shares.  The remaining 32.67% interest is owned by ANM Carpentry, Inc. and is recognized as minority interest.  WBC Mid-Atlantic provides framing services to high-volume production homebuilders in Delaware, the District of Columbia, Maryland and Virginia.

9

·WBC Construction

In January 2003, BMC Construction acquired a 60% interest in WBC Construction, LLC (WBC Construction) for $22.9 million in cash and the issuance of 70,053 common shares.  The remaining 40% interest is owned by Willard Brothers Construction, Inc. and is recognized as minority interest.  WBC Construction provides foundation and shell construction services to high-volume production homebuilders in Florida.  

·KBI Norcal

In July 2002, BMC Construction acquired a 51% interest in KBI Norcal for $5.8 million in cash, $0.8 million of assumed debt and the issuance of 34,364 common shares.  The remaining 49% interest was owned by RJ Norcal, LLC and recognized as minority interest.  As a majority-owned subsidiary, the financial information for KBI Norcal was consolidated.  In July 2004, BMC Construction acquired the remaining 49% of KBI Norcal for $14.0 million in cash.  Assets acquired included intangibles of $4.7 million and goodwill of $6.5 million.  KBI Norcal provides framing services to high-volume production homebuilders in northern California.

Subsequent to June 30, 2005

·BBP Companies

In July 2005, BMC Construction acquired a 51% interest in BBP Companies for $9.0 million in cash and 16,836 common shares.  Information required to complete the purchase price allocation for certain tangible property is not yet available.  Final allocation of the purchase price will be completed as soon as this information is available.  The remaining 49% is owned by BBP Concrete and will be recognized as minority interest.  BBP Companies provide concrete foundation services to high-volume production homebuilders in Arizona.  Operating results will be consolidated consistent with the acquisition date of July 2005.  

We have call and put obligations associated with our interests in BBP Companies, Riggs Plumbing, RCI Construction, A-1 Truss, WBC Mid-Atlantic and WBC Construction.  Under the purchase agreements, we have the right to purchase the other owners’ remaining portions during certain periods or if certain conditions are met.  Likewise, the other owners have the option to require us to purchase their remaining portions during certain periods.  The purchase price for the remaining portions will be based generally on a multiple of historical earnings.  The following table summarizes these call and put obligations:

10

	Call Options	Put Options
BBP Companies	July 2008 through June 2015	July 2008 through June 2015
Riggs Plumbing	April 2008 through March 2013	April 2008 through March 2013
RCI Construction	January 2008 through January 2012	January 2008 through January 2012
A-1 Truss	September 2004 through August 2014	September 2009 through August 2014
WBC Mid-Atlantic	October 2003 through September 2010	October 2008 through September 2010
WBC Construction	January 2006 through January 2009	January 2007 through January 2009

Acquisitions

Acquisitions are accounted for under the purchase method of accounting.  The purchase price is allocated to the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition.  Any excess of the purchase price over the estimated fair value of the identifiable assets and liabilities acquired is recorded as goodwill.  Operating results of acquired businesses are included in the consolidated statements of income from the date of acquisition.

· In May 2005, BMC Construction acquired a stucco business in Las Vegas, Nevada for $6.1 million in cash.  Assets acquired included receivables of $3.6 million, unbilled receivables of $1.5 million, inventory of $0.1 million, property and equipment of $1.9 million, billings in excess of costs of $0.3 million and other liabilities of $0.7 million.  

The following acquisitions were completed during 2004:

· In June 2004, BMC West acquired a framing business in Denver, Colorado for $0.8 million in cash.  Assets acquired included prepaid expenses of $0.1 million, property and equipment of $0.1 million, other long-term assets of $0.3 million, intangibles of $0.1 million and goodwill of $0.2 million.  

· In March 2004, BMC Construction acquired a distribution facility in Tucson, Arizona for $4.1 million in cash.  In October 2004, BMC Construction acquired a window installation business in Napa, California for $1.8 million in cash.  Assets acquired in these acquisitions included receivables of $1.8 million, inventory of $0.8 million, property and equipment of $2.3 million, intangibles of $0.3 million, goodwill of $1.0 million and liabilities of $0.3 million.  

Had these acquisitions taken place as of the beginning of 2004, pro forma results of operations would not have been significantly different from reported amounts.

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6.Intangible Assets and Goodwill

Intangible assets represent the values assigned to customer relationships, covenants not to compete and trade names.  Intangible assets are amortized on a straight-line basis over their expected useful lives.  Customer relationships are amortized over three to seventeen years, covenants not to compete over three to five years and trade names over three years.  Intangible amortization expense was $0.8 million in the second quarter of 2005 and $4.2 million in 2004.  Intangible assets consist of the following (thousands): 

	June 30, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	18,908	$	(6,263	)	$	12,645
Covenants not to compete		3,549		(1,699	)		1,850
Trade names		204		(57	)		147
Other		120		(7	)		113
	$	22,781	$	(8,026	)	$	14,755

	December 31, 2004
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	17,134	$	(5,116	)	$	12,018
Covenants not to compete		2,919		(1,426	)		1,493
Trade names		204		(23	)		181
Other		500		(500	)		―
	$	20,757	$	(7,065	)	$	13,692

Estimated amortization expense for intangible assets is $1.6 million for the remainder of 2005, $3.0 million for 2006, $2.4 million for 2007, $1.7 million for 2008, $1.5 million for 2009 and $4.6 million thereafter.

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses.  An annual assessment for impairment is completed in the fourth quarter and whenever events and circumstances indicate the carrying amount may not be recoverable.  An impairment is recognized at the reporting unit if the carrying amount is more than the estimated future operating cash flows as measured by fair value techniques.  

Changes in the carrying amount of goodwill by business segment were as follows (thousands):

	BMC West		BMC Construction		Total
Balance at December 31, 2004	$	20,063	$	60,253	$	80,316
Goodwill acquired		3		11,265		11,268
Balance at June 30, 2005	$	20,066	$	71,518	$	91,584

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7.Debt

Long-term debt consists of the following (thousands):

As of June 30, 2005						Effective Interest Rate
	Balance		Stated Interest Rate	Notional Amount of Interest Rate Swaps		Average for Quarter	As of June 30
Revolving credit facility	$	―	LIBOR plus 0.75% or Prime plus 0.00%	$	―	4.12%	4.24%
Term note		75,000	LIBOR plus 0.75% or Prime plus 0.00%		―	―	4.24%
Term note		122,500	LIBOR plus 1.75%		100,000	6.18%	5.98%
Other		4,914	Various		―	―	―
		202,414		$	100,000
Less:  Current portion		2,497
	$	199,917

As of December 31, 2004						Effective Interest Rate
	Balance		Stated Interest Rate	Notional Amount of Interest Rate Swaps		Average for Year	As of December 31
Revolving credit facility	$	81,200	LIBOR plus 1.75% or Prime plus 0.50%	$	―	4.88%	5.25%
Term note		123,125	LIBOR plus 2.00%		100,000	5.65%	6.80%
Other		5,498	Various		―	―	―
		209,823		$	100,000
Less:  Current portion		3,404
	$	206,419

Revolving Credit Facility

In June 2005, we entered into a $300 million revolving credit facility with a group of lenders.  The revolving credit facility matures in June 2010.  

The revolving credit facility consists of both LIBOR and Prime based borrowings.  Interest rates are subject to quarterly adjustment based on operating performance and range from LIBOR plus 0.75% to 2.00%, or Prime plus 0.0% to 0.75%. As of June 30, 2005, no balance was outstanding under the revolving credit facility.

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Term Notes

In June 2005, we also entered into a $75 million term note with a group of lenders.  The term note matures in June 2010 with 10% of the initial principal payable for each of the two years commencing September 2006, 20% of the initial principal payable for one year commencing September 2008 and the remaining principal balance due June 2010.  Interest rates are subject to quarterly adjustment based on operating performance and range from LIBOR plus 0.75% to 2.00%, or Prime plus 0.0% to 0.75%. As of June 30, 2005, $75 million was outstanding under this term note. 

In August 2003, we entered into a $125 million term note with a group of lenders.  The term note matures in June 2010 and is payable in quarterly installments for the first six years in amounts equal to 1% of the initial principal amount per year and equal quarterly installments for the remaining principal balance during year seven.  The term note was amended in March 2005 to reduce interest rates by 0.75% and in June 2005 to reduce interest rates another 0.25%.  The interest rate for the term note is LIBOR plus 1.75%. As of June 30, 2005, $122.5 million was outstanding under this term note.  

Other

Other long-term debt consists of term notes, equipment notes and capital leases for equipment.  Interest rates are various and dates of maturity are through April 2010.

Expansion of Credit Facility, Covenants and Maturities

The revolving credit facility or term notes may be increased an aggregate amount of up to $150 million. The revolving credit facility and term notes are collateralized by all tangible and intangible property, except assets of the captive insurance subsidiary. The revolving credit facility and term notes contain covenants and conditions requiring the maintenance of certain financial ratios. At June 30, 2005, we were in compliance with these covenants and conditions.

Scheduled maturities of long-term debt are as follows (thousands):

2005	$	1,536
2006		7,891
2007		9,239
2008		12,922
2009		77,061
Thereafter		93,765
	$	202,414

As of June 30, 2005 and December 31, 2004 there were $45.8 million and $41.2 million, respectively of letters of credit outstanding that guaranteed performance or payment to third parties. These letters of credit reduce borrowing availability under the revolving credit facility.

Hedging Activities

Derivative and hedging activities are recorded on the balance sheet at their fair values.  In June 2004, we entered into interest rate swap contracts that effectively convert a portion of the floating rate borrowings of the $122.5 million term note to a fixed interest rate through June 2009, thus reducing the impact of increases in interest rates on future interest expense.  Approximately 82% of the outstanding floating rate borrowings of the term note as of June 30, 2005 have been hedged through the designation of interest rate swap contracts accounted for as cash flow hedges.  As a result, the interest rate on $100 million of the $122.5 million floating rate borrowings outstanding at June 30, 2005 was fixed at an average rate of 6.14%.  After giving effect to the interest rate swap contracts, total borrowings are 52% fixed and 48% floating.

The fair value of derivative instruments is based on pricing models using current market rates.  The fair value of the interest rate swap contracts was a long-term liability of $1.4 million as of June 30, 2005.  The effective portion was recorded in accumulated other comprehensive loss, net, a separate component of shareholders’ equity, and is subsequently reclassified into earnings in the same financial statement line item, interest expense, in the same period during which the hedged transaction is recognized in earnings.  A corresponding deferred tax asset of $0.5 million was also recorded in accumulated other comprehensive loss, net for the income tax related to the estimated fair value of the interest rate swap contracts.  The ineffective portion of the change in the value of the interest rate swap contracts is immediately recognized as a component of interest expense.  Hedge ineffectiveness for the period ended June 30, 2005 was not significant.  Management may choose not to swap floating debt to a fixed rate or may terminate a previously executed swap if the floating rate positions are more beneficial.

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8.Shareholders’ Equity

Common Shares

At the annual meeting of shareholders on May 3, 2005, our shareholders voted to increase the number of authorized common shares to 50 million from 20 million.  In the second quarter of 2005, the quarterly cash dividend was increased to $0.10 per share.  

Our shareholders’ rights plan and share-based compensation plans are more fully described in Note 11 of our Annual Report on Form 10-K for the year ended December 31, 2004.  

9.Legal Proceedings

We are involved in litigation and other legal matters arising in the normal course of business.  In the opinion of management, the recovery or liability, if any, under any of these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

10.Segment Information

The consolidated financial statements include operations from two reportable segments: BMC West and BMC Construction.  These segments represent businesses that are managed separately.  Each of these businesses requires distinct operating and marketing strategies.  Management reviews financial performance based on these operating segments.

BMC West sells building products, manufactures building components and provides construction services.  Products include structural lumber and building materials purchased from other manufacturers and manufactured building components including millwork, trusses and wall panels.  Construction services include framing and installation of miscellaneous building products.  Building products and construction services are sold principally to builders and contractors.

BMC Construction provides framing and other construction services to high-volume production homebuilders.  Framing and other construction services include managing labor, materials and construction schedules.

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The financial performance for these reporting segments is based on income from operations before interest expense, income taxes and minority interests.  The segments follow the accounting principles described in the Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2004.  Sales between segments are recognized at market prices and no single customer accounts for more than 10% of total sales.

Selected financial information by segment is as follows (thousands):

	Sales
	Segment Sales		Intersegment Eliminations			Total		Income Before Taxes and Minority Interests
Three Months Ended June 30, 2005
BMC West	$	398,230	$	(344	)	$	397,886	$	41,030
BMC Construction		303,648		(13	)		303,635		36,756
Corporate and other		―		―			―		(16,894	)
	$	701,878	$	(357	)	$	701,521		60,892
Interest expense									3,350
								$	57,542
Three Months Ended June 30, 2004
BMC West	$	360,185	$	(431	)	$	359,754	$	26,383
BMC Construction		183,659		(20	)		183,639		13,338
Corporate and other		―		―			―		(13,248	)
	$	543,844	$	(451	)	$	543,393		26,473
Interest expense									3,157
								$	23,316

	Sales
	Segment Sales		Intersegment Eliminations			Total		Income Before Taxes and Minority Interests
Six Months Ended June 30, 2005
BMC West	$	729,049	$	(477	)	$	728,572	$	69,905
BMC Construction		546,149		(272	)		545,877		65,288
Corporate and other		―		―			―		(33,993	)
	$	1,275,198	$	(749	)	$	1,274,449		101,200
Interest expense									6,548
								$	94,652
Six Months Ended June 30, 2004
BMC West	$	636,310	$	(1,110	)	$	635,200	$	40,565
BMC Construction		325,077		(41	)		325,036		20,067
Corporate and other		―		―			―		(23,508	)
	$	961,387	$	(1,151	)	$	960,236		37,124
Interest expense									5,911
								$	31,213

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Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We serve the homebuilding industry through two business segments: BMC West and BMC Construction.  With locations in the western and southern states, BMC West distributes building products and manufactures building components for professional builders and contractors.  BMC Construction provides construction services to high-volume production homebuilders through operations in key growth markets in western, southern and east coast states.  These two business segments are subsidiaries of our holding company - Building Materials Holding Corporation.

Favorable economic conditions combined with historically low interest rates shape the current homebuilding industry. Within our markets, the positive momentum from homebuilding activity has continued into the second quarter of 2005. Data from the U.S. Census Bureau indicates a similar outlook for the remainder of the year as single-family starts are projected at 1.7 million units which is consistent with last year’s historic level. As an indicator of future homebuilding activity, single-family permits in our markets are higher than the U.S. average for the three and six months ended June 2005. As these trends continue, our outlook remains positive for the remainder of 2005.

Our operations are positioned in markets supported by positive demographic trends and favorable economic conditions. At BMC West, we continue to expand sales of building products and construction services by implementing changes to our distribution processes and improving our customer service. During the past year, we implemented a regional market management strategy which serves to expedite shipping and coordinate product offerings.

We continue to pursue opportunities to expand our existing service and product offerings to high-volume production homebuilders. Recent acquisitions at BMC Construction include:

·   RCI Construction - a 51% interest in a company providing framing services in the greater Chicago area (January 2005)

·   Riggs Plumbing - a 73% interest in a business providing plumbing services in Phoenix and Tucson (60% acquired in April 2005 and 13% in July 2005)

·   Purchase of a stucco business in the Las Vegas market (May 2005)

·   BBP Companies - a 51% interest in a company providing concrete foundation services in Arizona (July 2005)

We evaluate our results of operations including and excluding acquisitions.  We believe a presentation of sales and income from operations excluding recent acquisitions enhances an understanding of the acquisitions as well as comparable operations for the respective periods.  In the discussion of the three and six months ended June 30, 2005 and 2004, a reconciliation of sales and operating income before recent acquisitions has been provided.

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Results of Operations

The following table and subsequent discussion should be read in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this document and in our Annual Report on Form 10-K for the year ended December 31, 2004.  The table sets forth the amounts and percentage relationship to sales of certain costs, expenses and income items (millions):

	Three Months Ended June 30										Six Months Ended June 30
	2005					2004					2005					2004
Sales
Building products	$	344.6		49.1	%	$	319.3		58.8	%	$	637.5		50.0	%	$	566.6		59.0	%
Construction services		356.9		50.9			224.1		41.2			636.9		50.0			393.6		41.0
Total sales		701.5		100.0			543.4		100.0			1,274.4		100.0			960.2		100.0
Costs and operating expenses
Cost of goods sold
Building products		253.8		73.7			244.2		76.5			469.4		73.6			430.4		76.0
Construction services		289.9		81.2			193.0		86.1			517.4		81.2			341.6		86.8
Impairment of assets		0.5		0.1			―		―			0.5		―			1.3		0.1
Selling, general and  administrative expenses		97.3		13.9			79.6		14.6			187.3		14.7			150.2		15.6
Other (income) expense, net		(0.9	)	(0.1	)		0.1		―			(1.4	)	(0.1	)		(0.4	)	―
Total costs and operating expenses		640.6		91.3			516.9		95.1			1,173.2		92.1			923.1		96.1
Income from operations		60.9		8.7			26.5		4.9			101.2		7.9			37.1		3.9
Interest expense		3.4		0.5			3.2		0.6			6.5		0.5			5.9		0.6
Income before income taxes and minority interests		57.5		8.2			23.3		4.3			94.7		7.4			31.2		3.3
Income taxes		20.4		2.9			8.2		1.5			33.4		2.6			10.9		1.1
Minority interests income, net		(3.8	)	(0.5	)		(2.5	)	(0.5	)		(6.8	)	(0.5	)		(3.5	)	(0.4	)
Net income	$	33.3		4.8		$	12.6		2.3		$	54.5		4.3		$	16.8		1.8

SECOND QUARTER OF 2005 COMPARED TO THE SECOND QUARTER OF 2004

Consolidated Financial Results

Selected financial results are as follows (millions):

	Three Months Ended June 30
	2005		2004
Sales
Building products	$	344.6	$	319.3
Construction services		356.9		224.1
	$	701.5	$	543.4
Income from operations	$	60.9	$	26.5

Sales increased 29% to $701.5 million compared to $543.4 million in the same period a year ago.  Benefiting from strong demand and despite lower commodity wood product prices, building product sales improved 8% for the quarter. Sales of construction services primarily accounted for the overall increase, up 59% or $132.8 million due to strong sales in most of our markets as well as acquisitions not included in the second quarter of 2004.  Construction services currently represent half of our total sales.  

Income from operations increased to $60.9 million from $26.5 million in the second quarter.  Gross margin percentage improved 3% to 22.5% compared to 19.5% in the second quarter of last year.  Building product margins were up 2.8% as inventory was effectively managed despite a decline in commodity wood product prices.  Margins for construction services improved 4.9% due to demand for our services, favorable changes in customer mix and continued improvement in the management of construction contracts.  Also contributing to the improvement in income was effective leveraging of operating expenses.  Operating expenses were $17.7 million higher, however these expenses were 13.9% compared to 14.6% as a percent of sales in the second quarter of 2004. 

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BMC West

Selected financial results are as follows (millions):

	Three Months Ended June 30
	2005		2004
Sales	$	397.9	$	359.8
Income from operations	$	41.0	$	26.4

Sales of $397.9 million were 11% higher than the second quarter of 2004.  Driven by strong housing demand, sales improved despite lower commodity wood product prices for the quarter.  Housing demand and construction activity were strong in most of our markets, particularly Texas, the Northwest and Intermountain regions. 

Income from operations increased 55% to $41.0 million compared to $26.4 million in the same quarter a year ago.  Gross margins improved 2.4% to 25.1%, reflective of our effective management of inventory as commodity wood product prices were lower during the quarter.  Income from operations also increased due to the effective leveraging of operating expenses.  Operating expenses as a percent of sales were 0.5% lower or 14.9% of sales compared to the same quarter a year ago.

BMC Construction

Selected financial results are as follows (millions):

		Three Months Ended June 30
		2005			2004
Sales	$	303.6		$	183.6
Less:  Acquisitions		(51.1	)		―
	$	252.5		$	183.6
Income from operations	$	36.8		$	13.3
Less:  Acquisitions		(3.5	)		―
	$	33.3		$	13.3

Sales increased 65% to $303.6 million compared to $183.6 million in the second quarter of last year.  Existing operations accounted for 57% of the $120 million increase, while the remainder reflects sales from the acquisitions described in our Overview and not present in the second quarter of 2004.  Single-family construction activity was strong in most of our markets, particularly Las Vegas, Phoenix and Florida.

Income from operations was $36.8 million, up significantly from $13.3 million in the second quarter of 2004.  Gross margins were an important factor, improving 5.7% over the same quarter a year ago.  The improvement was a result of strong demand for our services in the Las Vegas and Phoenix markets, favorable changes in customer mix and effective management of construction contracts.  Operating expenses increased $9.5 million partly due to acquisitions and were 6.9% of sales or 0.8% higher than the second quarter of 2004.  

Corporate

Selected financial results are as follows (millions):

	Three Months Ended June 30
	2005		2004
Operating expenses	$	16.9	$	13.2

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Corporate operating expenses include administrative costs to support operations at our BMC West and BMC Construction business segments.  These expenses were $3.7 million higher principally due to compensation expenses from improved operating performance, however these expenses remained at 2.4% of sales for both quarters.

FIRST SIX MONTHS OF 2005 COMPARED TO THE FIRST SIX MONTHS OF 2004

Consolidated Financial Results

Selected financial results are as follows (millions):

		Six Months Ended June 30
		2005		2004
Sales
Building products	$	637.5	$	566.6
Construction services		636.9		393.6
	$	1,274.4	$	960.2
Income from operations	$	101.2	$	37.1

Sales increased 33% to $1,274.4 million compared to $960.2 million in the same period a year ago.  Building product sales were 13% higher despite recent declines in commodity wood product prices.  Sales of construction services were up 62% or $243.3 million due to strong sales from existing operations and acquisitions not present in the same period a year ago.

Income from operations increased significantly to $101.2 million from $37.1 million in the first half of 2004.  Gross margin percentage improved 3% to 22.6% from 19.6% in the prior period.  Despite a recent decline in commodity wood product prices, margins for building products improved 2.4% as inventory was effectively managed.  Margins for construction services improved 5.6% as a result of demand for our services, favorable changes in customer mix and better management of construction contracts.  Operating expenses increased $37.1 million, however these expenses decreased to 14.7% of sales compare to 15.6% in the first half of 2004 due to effective leveraging.  

BMC West

Selected financial results are as follows (millions):

		Six Months Ended June 30
		2005		2004
Sales	$	728.6	$	635.2
Income from operations	$	69.9	$	40.6

Sales of $728.6 million were 15% higher than the first half of 2004 despite recent declines in commodity wood product prices.  Housing demand and construction activity were strong in our markets, particularly Texas, the Northwest and Intermountain regions. 

Income from operations was $69.9 million compared to $40.6 million in the same period a year ago.  Gross margins improved 2.1% to 25.2% as a result of continuing to effectively manage inventories despite a recent decline in commodity wood product prices.  Operating expenses were up $8.9 million, however these expenses as a percent of sales were effectively leveraged as they were 0.9% lower or 15.7% of sales compared to the same period a year ago.  

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BMC Construction

Selected financial results are as follows (millions):

		Six Months Ended June 30
		2005			2004
Sales	$	545.9		$	325.0
Less:  Acquisitions		(77.0	)		―
	$	468.9		$	325.0
Income from operations	$	65.3		$	20.1
Less:  Acquisitions		(4.5	)		―
	$	60.8		$	20.1

Sales increased 68% to $545.9 million compared to the same period a year ago.  Sales from existing operations represented approximately two-thirds of the $220.9 million increase, with the remainder from the acquisitions described in our Overview and not present in the first half of 2004.  Single-family construction activity was strong in most of our markets, particularly Las Vegas, Phoenix and Florida.

Income from operations was $65.3 million, up significantly from $20.1 million in the first half of 2004.  Gross margins were a key factor, improving 6.3% over the same period a year ago.  Higher gross margins were a result of strong demand for our services in the Las Vegas and Phoenix markets, favorable changes in customer mix as well as effective management of construction contracts.  Operating expenses were $17.0 million higher partly due to acquisitions and were 7.0% of sales or 0.5% higher than the first half of 2004.    

Corporate

Selected financial results are as follows (millions):

	Six Months Ended June 30
	2005		2004
Operating expenses	$	34.0	$	23.5

Corporate operating expenses include administrative costs to support operations at our BMC West and BMC Construction business segments.  These expenses increased to 2.7% from 2.4% of sales and were $10.5 million higher primarily due to compensation expenses from improved operating performance.

LIQUIDITY AND CAPITAL RESOURCES

Our primary need for capital resources is to fund working capital and acquisitions as well as finance capital expenditures.  Capital resources have primarily consisted of cash flows from operations and additional debt.  For the six months ended June 30, 2005, cash was provided by operations and used to fund acquisitions, purchase property and equipment as well as pay down debt.

Operations

Net cash provided by operating activities was $80.7 million compared to $21.6 million used in the same period of 2004.  Strong home construction activity and our increased capacity to provide additional construction services resulted in higher net income, providing $37.7 million of additional operating cash flow over the same period of 2004. Also, working capital requirements provided cash as a result of a recent decline in commodity wood product prices as well as effective management of receivables and accounts payable. This improved management of working capital provided cash of $1.0 million whereas the prior period used cash of $50.6 million.

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Capital Investments and Acquisitions

Net cash used in investing activities was $47.5 million compared to $24.5 million for the same period a year ago.  Cash use included $27.1 million for the acquisitions of businesses providing framing, plumbing and foundation services and $17.2 million for purchases of property and equipment.  Net cash used for investing activities was $23.0 million higher than the same period last year when $24.5 million was used primarily for the purchase of property, equipment, acquisitions and marketable securities.  

Financing

Net cash used by financing activities was $17.8 million compared to $56.2 million provided by financing activities in the same period of 2004.  Strong operating cash flow was used to pay down debt in 2005.   

Revolving Credit Facility

In June 2005, we entered into a $300 million revolving credit facility with a group of lenders.  The revolving credit facility matures in June 2010.  

The revolving credit facility consists of both LIBOR and Prime based borrowings.  Interest rates are subject to quarterly adjustment based on operating performance and range from LIBOR plus 0.75% to 2.00%, or Prime plus 0.0% to 0.75%.  As of June 30, 2005, no balance was outstanding under the revolving credit facility.

Term Notes

In June 2005, we also entered into a $75 million term note with a group of lenders.  The term note matures in June 2010 with 10% of the initial principal payable for each of the two years commencing September 2006, 20% of the initial principal payable for one year commencing September 2008 and the remaining principal balance due June 2010.  Interest rates are subject to quarterly adjustment based on operating performance and range from LIBOR plus 0.75% to 2.00%, or Prime plus 0.0% to 0.75%.  As of June 30, 2005, $75 million was outstanding under this term note. 

In August 2003, we entered into a $125 million term note with a group of lenders.  The term note matures in June 2010 and is payable in quarterly installments for the first six years in amounts equal to 1% of the initial principal amount per year and equal quarterly installments for the remaining principal balance during year seven.  The term note was amended in March 2005 to reduce interest rates by 0.75% and in June 2005 to reduce interest rates another 0.25%.  The interest rate for the term note is LIBOR plus 1.75%.  As of June 30, 2005, $122.5 million was outstanding under this term note.

Other

Other long-term debt consists of term notes, equipment notes and capital leases for equipment.  Interest rates are various and dates of maturity are through April 2010.

Expansion of Credit Facility, Covenants and Maturities

The revolving credit facility or term notes may be increased an aggregate amount of up to $150 million.  The revolving credit facility and term notes are collateralized by all tangible and intangible property, except assets of the captive insurance subsidiary.  The revolving credit facility and term notes contain covenants and conditions requiring the maintenance of certain financial ratios.  At June 30, 2005, we were in compliance with these covenants and conditions.

The scheduled principal payments of debt are $1.5 million in 2005, $7.9 million in 2006, $9.2 million in 2007, $12.9 million in 2008, $77.1 million in 2009 and $93.8 million thereafter.

Hedging Activities

Derivative and hedging activities are recorded on the balance sheet at their fair values.  In June 2004, we entered into interest rate swap contracts that effectively convert a portion of the floating rate borrowings of the $122.5 million term note to a fixed interest rate through June 2009, thus reducing the impact of increases in interest rates on future interest expense.  Approximately 82% of the outstanding floating rate borrowings of the term note as of June 30, 2005 have been hedged through the designation of interest rate swap contracts accounted for as cash flow hedges.  As a result, the interest rate on $100 million of the $122.5 million floating rate borrowings outstanding at June 30, 2005 was fixed at an average rate of 6.14%.  After giving effect to the interest rate swap contracts, total borrowings are 52% fixed and 48% floating.

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The fair value of derivative instruments is based on pricing models using current market rates.  The fair value of the interest rate swap contracts was a long-term liability of $1.4 million as of June 30, 2005.  The effective portion was recorded in accumulated other comprehensive loss, net, a separate component of shareholders’ equity, and is subsequently reclassified into earnings in the same financial statement line item, interest expense, in the same period during which the hedged transaction is recognized in earnings.  A corresponding deferred tax asset of $0.5 million was also recorded in accumulated other comprehensive loss, net for the income tax related to the estimated fair value of the interest rate swap contracts.  The ineffective portion of the change in the value of the interest rate swap contracts is immediately recognized as a component of interest expense.  Hedge ineffectiveness for the period ended June 30, 2005 was not significant.  Management may choose not to swap floating debt to a fixed rate or may terminate a previously executed swap if the floating rate positions are more beneficial.

Equity

In the third quarter of 1998, a shelf registration was filed with the Securities and Exchange Commission to register two million common shares.  We may issue these shares in connection with future business combinations, mergers or acquisitions.  Shares issued from this registration for a portion of the purchase price for acquisitions include common shares of 16,836 for BBP Companies, 15,059 for WBC Mid-Atlantic, 70,053 for WBC Construction and 34,364 for KBI Norcal (see Note 5).

At the annual meeting of shareholders on May 3, 2005, our shareholders voted to increase the number of authorized common shares to 50 million from 20 million.  These additional shares may be issued for reasons including but not limited to stock splits, financing acquisitions, establishing strategic relationships with corporate partners and providing equity incentives.

Based on our historical ability to generate cash flows from operations, borrowing capacity under the revolving credit facility and access to debt and equity markets, management believes it will have sufficient capital to meet anticipated needs.

Business Risks And Forward-Looking Statements

There are a number of business risks and uncertainties that affect our operations and therefore could cause future results to differ from past performance or expected results.  Additional information regarding business risks and uncertainties is contained in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2004.  These risks and uncertainties may include, but are not limited to:

·   demand for homebuilding which is influenced by changes in the overall condition of the U.S. economy, including job formation, interest rates and consumer confidence as well as other important factors;

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·   fluctuations in our costs and availability of sourcing channels for commodity wood products and building materials;

·   changes in the business models of our customers;

·   intense competition;

·   integration of acquired businesses may not result in anticipated cost savings and revenue synergies being fully realized or it may take longer to realize than expected;

·   our ability to identify suitable acquisition candidates;

·   availability of and ability to attract, train and retain qualified individuals;

·   unanticipated weather conditions including natural catastrophic events such as earthquakes, fire, flood, hurricanes, tornadoes, etc.;

·   implementation of cost structures that align with revenue growth;

·   actual and perceived vulnerabilities as a result of terrorist activities and armed conflict; and

·   numerous other matters of a local and regional scale, including those of a political, economic, business, competitive or regulatory nature.

Certain statements made in this Form 10-Q and other written or oral statements made by or on behalf of us may constitute forward-looking statements within the meaning of federal securities laws.  Statements that are not historical or current facts, including statements about our expectations, anticipated financial results and future business prospects are forward-looking statements within the meaning of these laws.  While these statements represent our current judgment on what the future may hold and we believe these judgments are reasonable, these statements involve risks and uncertainties that are important factors that could cause our actual results to differ materially from those in forward-looking statements.  These factors include, but are not limited to the risks and uncertainties cited in the above paragraph and more fully described in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2004.  Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date of this Form 10-Q.  We undertake no obligation to update forward-looking statements.

Critical Accounting Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  These estimates and assumptions include critical accounting estimates which are defined by the Securities and Exchange Commission as those that are most important to the portrayal of our financial condition, results of operations or cash flows.  These estimates require management's subjective and complex judgments often as a result of the need to estimate matters that are inherently uncertain.  We review the development, selection and disclosure of these estimates with our Audit Committee.  For us, these critical accounting estimates are: revenue recognition for construction services, estimated losses on uncompleted contracts and changes in contract estimates, goodwill and insurance deductible reserves.  Management believes the estimates utilized are reasonable under the circumstances, however actual results could differ from these estimates and may require adjustment in future periods.  There have been no significant changes during the six months ended June 30, 2005 to the critical accounting estimates disclosed in Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2004.

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Item 3 -Quantitative and Qualitative Disclosures about Market Risk

Prices of commodity wood products, which are subject to significant volatility, may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time.  We do not use derivative financial instruments to hedge commodity wood product prices.

Changes in interest expense occur when market interest rates change.  Changes in the carrying amount of debt could also increase interest rate risks.  Interest rate swap contracts are currently utilized to hedge interest rate risks.  Approximately 82% of the outstanding floating rate borrowings of the $122.5 million term note as of June 30, 2005 have been hedged through the designation of interest rate swap contracts accounted for as cash flow hedges.  After giving effect to the interest rate swap contracts, total borrowings are 52% fixed and 48% floating.  Based on debt outstanding as of June 30, 2005, a 0.25% increase in interest rates would result in approximately $0.2 million of additional interest expense annually.

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Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the design and operation of our disclosure controls and procedures.  This evaluation was conducted to determine whether the disclosure controls and procedures were effective and timely in bringing material information to the attention of senior management and are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with generally accepted accounting principles.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring material information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

Our disclosure controls and procedures and internal controls over financial reporting are routinely evaluated and tested for effectiveness.  These evaluations are discussed with management and the Audit Committee.  As a result of these evaluations, revisions and corrective actions are made to ensure the effectiveness of our disclosure controls and procedures and internal controls over financial reporting.  During the quarterly period covered by this report, there were no significant changes in the design or operation of our internal controls over financial reporting that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

We are involved in litigation and other legal matters arising in the normal course of business.  In the opinion of management, the recovery or liability, if any, under any of these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 - Defaults Upon Senior Securities

None.

Item 4 - Submission of Matters to a Vote of Security Holders

Election of Board of Directors

Our annual meeting of shareholders was held on May 3, 2005.  A total of 13,951,775 common shares were outstanding at the date of record and entitled to vote at the meeting.  Of the total outstanding, 11,802,973 shares were represented at the meeting, while 2,148,802 were not voted.  

In accordance with Delaware corporate law and our bylaws, directors are elected by a plurality of the votes, with the eight nominees receiving the highest number of affirmative votes being elected as directors.  As there were no votes cast for other candidates, each of the eight nominees below were elected as directors with terms expiring in 2006.

	For	Withheld
Robert E. Mellor	11,370,574	432,299
Alec F. Beck	11,267,783	535,190
Sara L. Beckman	11,744,144	58,829
H. James Brown	11,716,926	86,047
James K. Jennings, Jr.	11,744,217	58,756
R. Scott Morrison, Jr.	11,741,139	61,834
Peter S. O’Neill	11,715,343	87,630
Richard G. Reiten	5,824,356	5,978,617

Increase Authorized Common Shares to 50 Million

The increase in the number of authorized common shares to 50 million from 20 million was approved at the annual meeting and votes were cast as follows:

For	Withheld	Abstain	Not Voted
10,265,693	1,524,134	13,135	11

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Ratification of Independent Registered Public Accounting Firm

Our shareholders ratified the selection of KPMG LLP as our independent registered public accounting firm at the annual meeting and votes were cast as follows:

For	Withheld	Abstain	Not Voted
11,724,765	63,058	15,140	10

Item 5 - Other Information

None.

Item 6 - Exhibits

(a) Exhibits

Number Description

10.1	Amended and Restated Credit Agreement among Building Materials Holding Corporation, BMC West Corporation and other Subsidiary Guarantors, Wells Fargo Bank, National Association, as Administrative Agent, Co-Lead Arranger, Sole Book Runner and L/C Issuer, and Suntrust Bank as Co-Lead Arranger and Syndication Agent and the other financial institutions party hereto.  Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 6, 2005.
10.43.1	Incentive and Performance Compensation Pursuant to 2005 Financial Performance.
10.45	Second Amendment to the Employment Agreement between Robert E. Mellor and Building Materials Holding Corporation as of June 16, 2005.  Incorporated by reference to Exhibit 10.45 to the Form 8-K filed on June 20, 2005.
10.46	First Amendment to the Severance Plan for Certain Executive Officers, Senior Management and Key Employees of Building Materials Holding Corporation, effective as of June 16, 2005.  Incorporated by reference to Exhibit 10.46 to the Form 8-K filed on June 20, 2005.
11.0	Statement regarding computation of earnings per share (see Note 2)
31.1	Section 302 Certification
31.2	Section 302 Certification
32.0	Section 906 Certifications

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BUILDING MATERIALS HOLDING CORPORATION
Date: August 3, 2005	/s/ Robert E. Mellor
	Robert E. Mellor Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
Date: August 3, 2005	/s/ William M. Smartt
	William M. Smartt Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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