Boise Cascade Holdings, L.L.C. 10-Q 2007 Q2 Quarterly report

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 June 30, 2007

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

Commission File Number:  333-122770

Boise 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.)

1111 West Jefferson Street

P.O. Box 50

Boise, Idaho 83728

(Address of principal executive offices) (Zip Code)

(208) 384-6161

(Registrant’s telephone number, including area code)

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 o     No x

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

Large accelerated filer  o                             Accelerated filer  o                          Non-accelerated filer  ý

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

The registrant, a limited liability company, has no voting or nonvoting equity held by nonaffiliates and no common stock outstanding. Equity units issued and outstanding on July 31, 2007, were as follows:

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

These units are neither registered nor publicly traded.

Table of Contents

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

All reports we file with the Securities and Exchange Commission (SEC) are available free of charge via Electronic Data Gathering Analysis and Retrieval (EDGAR) through the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.bc.com as soon as reasonably practicable after filing such material with the SEC.

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PART 1—FINANCIAL INFORMATION

ITEM 1.          CONSOLIDATED FINANCIAL STATEMENTS

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

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

See accompanying notes to unaudited quarterly consolidated financial statements.

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

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

See accompanying notes to unaudited quarterly consolidated financial statements.

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

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

See accompanying notes to unaudited quarterly consolidated financial statements.

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

	June 30,		December 31,
	2007		2006
	(thousands)
LIABILITIES AND CAPITAL
Current
Short-term borrowings	$	—	$	3,200
Current portion of long-term debt	5,250		—
Accounts payable	386,310		341,201
Accrued liabilities
Compensation and benefits	82,901		93,287
Interest payable	11,785		11,847
Other	45,578		54,600
	531,824		504,135
Debt
Long-term debt, less current portion	1,238,438		1,213,900
Other
Compensation and benefits	126,344		111,676
Other long-term liabilities	38,465		36,642
	164,809		148,318
Redeemable equity units
Series B equity units — 16,995,889 and 17,107,889 units outstanding	17,365		17,477
Series C equity units — 39,527,950 and 39,576,540 units outstanding	7,984		6,434
	25,349		23,911
Commitments and contingent liabilities
Capital
Series A equity units — no par value; 66,000,000 and 66,000,000 units authorized and outstanding	75,421		78,290
Series B equity units — no par value; 550,000,000 and 550,000,000 units authorized; 530,356,601 and 530,356,601 units outstanding	765,681		724,988
Series C equity units — no par value; 44,000,000 and 44,000,000 units authorized	14,081		11,655
Total capital	855,183		814,933
Total liabilities and capital	$	2,815,603	$	2,705,197

See accompanying notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Holdings, L.L.C.
Consolidated Statements of Cash Flows
(unaudited)

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

See accompanying notes 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, 2005	66,000	$	39,885		530,357	$	417,601		—	$	7,535	$	465,021
Net income (a)	—	—			—	71,571			—	—		71,571
Other comprehensive income, net of tax (a) (b)
Cash flow hedges	—	—			—	(10,327		)	—	—		(10,327		)
Minimum pension liability adjustment	—	—			—	58			—	—		58
Unfunded accumulated benefit obligation	—	—			—	37,263			—	—		37,263
Capital contributions from members	—	34,773			—	237,709			—	—		272,482
Paid-in-kind dividend	—	3,632			—	(3,632		)	—	—		—
Tax distributions to members	—	—			—	(22,022		)	—	—		(22,022		)
Allocation of profit interest to Series C equity units	—	—			—	(4,120		)	—	4,120		—
Other	—	—			—	887			—	—		887
Balance at December 31, 2006 (c)	66,000	78,290			530,357	724,988			—	11,655		814,933
Net income (a)	—	—			—	39,435			—	—		39,435
Other comprehensive income, net of tax (a) (b)
Cash flow hedges	—	—			—	6,946			—	—		6,946
Unfunded accumulated benefit obligation	—	—			��	(5,991		)	—	—		(5,991		)
Paid-in-kind dividend	—	2,728			—	(2,728		)	—	—		—
Tax distributions to members	—	(5,597		)	—	5,597			—	—		—
Allocation of profit interest to Series C equity units	—	—			—	(2,426		)	—	2,426		—
Other	—	—			—	(140		)	—	—		(140		)
Balance at June 30, 2007 (c)	66,000	$	75,421		530,357	$	765,681		—	$	14,081	$	855,183

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

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

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

See accompanying notes to unaudited quarterly consolidated financial statements.

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Notes to Unaudited Quarterly Consolidated Financial Statements

1.             Basis of Presentation

As used in these consolidated financial statements, the terms “Boise” and “we” refer to Boise Cascade Holdings, L.L.C., and its consolidated subsidiaries. We are a diversified North American paper and forest products company headquartered in Boise, Idaho. We operate our business in the following five reportable segments: Building Materials Distribution, Wood Products, Paper, Packaging & Newsprint, and Corporate and Other. See Note 17, Segment Information, for additional information about our reportable segments.

The quarterly consolidated financial statements have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the results for the periods presented. Net income for the three and six months ended June 30, 2007 and 2006, involved estimates and accruals. Actual results may vary from those estimates. Quarterly results are not necessarily indicative of results that may be expected for the full year.

Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. For more information, see the discussion of Financial Accounting Standards Board (FASB) Staff Position (FSP) No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, adopted in January 2007, in Note 15, Recently Adopted Accounting Standards.

2.             Purchase of OfficeMax’s Forest Products and Paper Assets

Our operations began on October 29, 2004 (inception), when we acquired the forest products and paper assets of OfficeMax (the Forest Products Acquisition). We accounted for the Forest Products Acquisition using the purchase method of accounting. We allocated the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Estimated fair values were derived through consideration and application of standard valuation approaches and techniques. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. For more information, see Note 11, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

As part of the Forest Products Acquisition, we entered into an Additional Consideration Agreement with OfficeMax, pursuant to which we agreed to adjust the purchase price based on changes in paper prices over the six-year period following the Forest Products Acquisition. Under the Additional Consideration Agreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximum aggregate amount of $125.0 million, in each case net of payments received. After each anniversary of the Forest Products Acquisition, we review paper prices with the provisions of the Additional Consideration Agreement to determine whether any amounts are owed or receivable under the agreement. For the first and second anniversary periods, which ended October 29, 2005 and 2006, neither Boise nor OfficeMax owed additional consideration for the purchase price. Based on the actual market price for the benchmark grade of cut-size office paper through June 2007, and if June prices hold for the remaining portion of the anniversary period, we would owe OfficeMax approximately $33 million upon completion of the third anniversary period under the Additional Consideration Agreement. Any payments made or received pursuant to the Additional Consideration Agreement will be treated as adjustments to the purchase price and, therefore, will not be reported in our Consolidated Statement of Income but will be included in consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) for purposes of certain covenants under our debt agreements. For more information about the Additional Consideration Agreement, see “Item 13.  Certain Relationships and Related Transactions, and Director Independence” of our 2006 Annual Report on Form 10-K.

Restructuring Activities

In connection with the Forest Products Acquisition, we evaluated the acquired facilities and organizational structure. In accordance with the provisions of Emerging Issues Task Force (EITF) 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination, exit activities related to

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the Forest Products Acquisition increased goodwill. We had one year from the acquisition date to finalize our restructuring plans and adjust goodwill.

At June 30, 2007, we had approximately $0.2 million of restructuring reserves related to severance costs recorded in “Accrued liabilities, Compensation and benefits” on our Consolidated Balance Sheet. The severance costs related to approximately 350 terminated employees. The remaining reserve relates to severance payments that will be paid by the end of 2007. Of the $0.2 million remaining restructuring reserve, $0.1 million is recorded in our Paper segment, and $0.1 million is in Corporate and Other. Restructuring reserve liability account activity related to these charges is as follows:

	Severance			Other			Total
	(thousands)
2004 restructuring reserve	$	13,768		$	501		$	14,269
Charges against reserve	(1,012		)	(1		)	(1,013		)
Restructuring reserve at December 31, 2004	12,756			500			13,256
Additions to restructuring reserve	6,913			221			7,134
Charges against reserve	(16,162		)	(593		)	(16,755		)
Restructuring reserve at December 31, 2005	3,507			128			3,635
Charges against reserve	(2,894		)	(128		)	(3,022		)
Restructuring reserve at December 31, 2006	613			—			613
Charges against reserve	(414		)	—			(414		)
Restructuring reserve at June 30, 2007	$	199		$	—		$	199

3.             Transactions With Related Parties

Sales

During each of the periods presented, we sold paper and paper products to OfficeMax at sales prices that were designed to approximate market prices. For the three months ended June 30, 2007 and 2006, sales to OfficeMax were $159.5 million and $144.0 million, respectively. Sales to OfficeMax were $317.3 million and $276.8 million for the six months ended June 30, 2007 and 2006, respectively. These sales are included in “Sales, Related parties” in the Consolidated Statements of Income.

Debt and Interest

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

Equity Distributions

The majority of our businesses and assets are held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. We make cash distributions to permit the members of Boise and affiliates to pay income taxes. During the six months ended June 30, 2007, we made no cash distributions to Forest Products Holdings (FPH), our majority owner, or management investors; however, we made $2.8 million of cash distributions to OfficeMax to fund its tax obligations related to its investment in us.

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

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4.             Vendor and Customer Rebates and Allowances

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

We also provide rebates to our customers based on the volume of their purchases. We provide the rebates to increase the sell-through of our products. The rebates provided to our customers are accounted for in accordance with EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer. The rebates are recorded as a decrease in sales. At June 30, 2007, and December 31, 2006, we had $17.1 million and $23.9 million, respectively, of rebates payable to our customers recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheets.

5.             Other (Income) Expense, Net

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

	Three Months Ended June 30					Six Months Ended June 30
	2007			2006		2007			2006
	(thousands)
Changes in retiree healthcare programs	$	(4,367	)	$	—	$	(4,367	)	$	(3,741	)
Sales of assets, net	(1,700		)	822		(701		)	2,408
Project costs	10			2,135		249			2,135
Other, net (a)	966			276		2,274			306
	$	(5,091	)	$	3,233	$	(2,545	)	$	1,108

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

6.             Leases

We lease our headquarters building and a portion of our distribution centers as well as other property and equipment under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date we first take possession of the facility, including any periods of free rent and any option periods we are reasonably assured of exercising. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. Rental expense for operating leases was $6.3 million and $6.2 million for the three months ended June 30, 2007 and 2006, and $12.6 million and $11.2 million for the six months ended June 30, 2007 and 2006, respectively. Sublease rental income was not material in any of the periods presented.

For noncancelable operating leases with remaining terms of more than one year, the minimum lease payment requirements are $10.4 million for the remainder of 2007, $19.7 million in 2008, $18.2 million in 2009, $16.7 million in 2010, $13.6 million in 2011, and $11.9 million in 2012, with total payments thereafter of $51.1 million. These future minimum lease payment requirements have not been reduced by sublease rentals due in the future under noncancelable subleases. Minimum sublease income received in the future is not expected to be material.

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

In first quarter 2006, we sold our headquarters building in Boise, Idaho, for $27.2 million, net of related fees and expenses, and recognized a $1.7 million loss recorded in “Other (income) expense, net” in our Consolidated Statement of Income. The proceeds were used to pay down our Tranche D term loan. In connection with the sale, we leased back approximately 65% of the building over a staggered lease term of ten to 12 years. The lease is accounted for as an operating lease. The minimum lease payment requirements related to the transaction are included in the minimum lease payments disclosed above.

Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to purchase the leased property. Additionally, some agreements contain renewal options averaging approximately seven years, with fixed payment terms similar to those in the original lease agreements.

7.             Income Taxes

The majority of our businesses and assets are held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. The income taxes in respect to these operations are payable by our equity holders in accordance with their respective ownership percentages. We make cash distributions to permit the members of Boise and affiliates to pay these taxes. For the three months ended June 30, 2007 and 2006, we made zero and $10.7 million of cash distributions, respectively, to permit our equity holders to pay these taxes and $2.8 million and $10.7 million for the six months ended June 30, 2007 and 2006, respectively. Both our senior credit facilities and the indenture governing our notes permit these distributions.

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

During the three months ended June 30, 2007 and 2006, our effective tax rates for our separate subsidiaries that are taxed as corporations were 34.4% and 40.9%. Our effective tax rates were 34.7% and 41.8% for the six months ended June 30, 2007 and 2006. The primary reason for the difference in tax rates is the effect of state income taxes and the mix of domestic and foreign sources of income.

For the three and six months ended June 30, 2006, we received $0.3 million and $6.0 million of federal and state income tax refunds as a result of rescinding our C corporation status in fourth quarter 2005 and paid $2.0 million and $3.3 million of taxes, net of other refunds received. During the three and six months ended June 30, 2007, we paid $1.1 million and $1.3 million of taxes, net of refunds received. At both June 30, 2007, and December 31, 2006, we had $0.4 million of deferred tax liabilities related to our taxable subsidiaries recorded on our Consolidated Balance Sheets.

In January 2007, we adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, and it did not have a significant impact on our financial position or results of operations. On January 1, 2007, we had an insignificant amount of unrecognized tax benefits, none of which would affect our effective tax rate if recognized. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. We recognize interest and penalties on unrecognized tax benefits in “Income tax provision” in the Consolidated Statements of Income. For the three and six months ended June 30, 2007 and 2006, and the year ended December 31, 2006, we recognized an insignificant amount of interest and penalties in our Consolidated Statements of Income and on our Consolidated Balance Sheets.

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8.             Receivables

We have a large, diversified customer base. A large portion of our office papers sales volume is sold to OfficeMax. We market our newsprint through Abitibi-Consolidated (Abitibi) pursuant to an arrangement whereby Abitibi purchases all of the newsprint we produce at a price equal to the price at which Abitibi sells newsprint produced at its mills located in the southern United States, less associated expenses and a sales and marketing discount. Sales to OfficeMax and Abitibi-Consolidated represent concentrations in the volumes of business transacted and concentrations of credit risk. At June 30, 2007, we had $46.7 million and $27.7 million of accounts receivable due from OfficeMax and Abitibi, respectively, and at December 31, 2006, we had $37.2 million and $30.1 million.

A large portion of our receivables are used to secure our borrowings under the accounts receivable securitization program described in Note 13, Debt.

9.             Inventories

Inventories include the following:

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

10.          Property and Equipment

Property and equipment consisted of the following asset classes:

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

11.          Goodwill and Intangible Assets

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. We account for goodwill in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which requires us to assess our acquired goodwill and intangible assets with indefinite lives for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. We assess goodwill and intangible assets with indefinite lives in the fourth quarter of each year using a fair-value-based approach. We also evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. We completed our annual assessment in accordance with SFAS No. 142 in fourth quarter 2006 and determined that there was no impairment.

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We account for acquisitions using the purchase method of accounting. As a result, we allocate the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of acquisition. In accordance with SFAS No. 141, Business Combinations, we have one year from the purchase date to finalize or receive information to determine changes in estimates of the fair value of assets acquired and liabilities assumed.

Changes in the carrying amount of our goodwill by segment are as follows:

	Building Materials Distribution		Wood  Products		Paper		Packaging & Newsprint			Corporate and Other		Total
	(thousands)
Balance at December 31, 2005	$	5,593	$	6,577	$	1,341	$	1,590		$	—	$	15,101
Goodwill acquired during 2006 (a)	—		—		—		7,046			—		7,046
Purchase price adjustments during 2006	—		—		—		(301		)	—		(301		)
Balance at December 31, 2006, and June 30, 2007	$	5,593	$	6,577	$	1,341	$	8,335		$	—	$	21,846

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

Intangible assets represent the values assigned to trade names and trademarks, customer relationships, noncompete agreements, and technology. The Central Texas Corrugated trade name is amortized over five years. The trade names and trademark assets acquired in the Forest Products Acquisition have an indefinite life and are not amortized. Customer relationships are amortized over five to ten years, noncompete agreements are amortized over approximately two years, and technology is amortized over three to five years. Intangible assets consisted of the following:

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

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

Intangible asset amortization expense was $1.2 million and $2.3 million for the three and six months ended June 30, 2007, and $1.1 million and $1.9 million for the same periods in 2006. The estimated amortization expense is $2.8 million for the remainder of 2007, $3.8 million, $3.1 million, $1.1 million, $0.5 million, and $0.4 million in 2008, 2009, 2010, 2011, and 2012, respectively.

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12.          Asset Retirement Obligations

We account for asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, and FIN No. 47, Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143. We accrue for asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.

At June 30, 2007, and December 31, 2006, we had $12.0 million and $11.5 million of asset retirement obligations recorded in “Other, Other long-term liabilities” on our Consolidated Balance Sheets. These liabilities related primarily to landfill closure and closed-site monitoring costs. The liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. We do not have any assets legally restricted for purposes of settling asset retirement obligations. The table below describes changes to our asset retirement obligations for the six months ended June 30, 2007, and the year ended December 31, 2006:

	June 30, 2007		December 31, 2006
	(thousands)
Asset retirement obligation at beginning of period	$	11,544	$	11,484
Liabilities incurred	—		1,633
Accretion expense	467		1,020
Payments	—		(53		)
Revisions in estimated cash flows	—		(2,540		)
Asset retirement obligation at end of period	$	12,011	$	11,544

We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials on equipment and/or an operating facility if the equipment and/or facilities were to undergo major maintenance, renovation, or demolition; (ii) wastewater treatment ponds that may be required to be drained and/or cleaned if the related operating facility is closed; and (iii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in the period in which sufficient information becomes available to reasonably estimate the fair value of these obligations.

13.          Debt

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

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	June 30, 2007							December 31, 2006
	Amount			Interest Rate Without Swaps		Interest Rate With Swaps		Amount		Interest Rate Without Swaps		Interest Rate With Swaps
	(thousands)							(thousands)
Revolving credit facility, due 2010	$	—		N/A		N/A		$	—	N/A		N/A
Tranche D term loan, due 2011	—			N/A		N/A		538,900		7.1	%	6.8	%
Tranche E term loan, due 2014	523,688			6.9	%	6.6	%	—		N/A		N/A
Senior unsecured floating-rate notes, due 2012	250,000			8.2	%	7.6	%	250,000		8.2	%	7.6	%
7.125% senior subordinated notes, due 2014	400,000			7.1	%	N/A		400,000		7.1	%	N/A
Borrowings secured by receivables	70,000			5.3	%	N/A		25,000		5.6	%	N/A
Current portion of long-term debt	(5,250		)	6.9	%	6.6	%	—		N/A		N/A
Long-term debt, less current portion	1,238,438			7.1	%	6.9	%	1,213,900		7.3	%	7.1	%
Short-term borrowings	—			N/A		N/A		3,200		6.0	%	N/A
Current portion of long-term debt	5,250			6.9	%	6.6	%	—		N/A		N/A
Total debt	$	1,243,688						$	1,217,100

Amended and Restated Facilities

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

Our amended revolving credit facility agreement permits us to borrow up to $450.0 million for general corporate purposes. At June 30, 2007, we had no borrowings outstanding under our revolving credit facility; however, $35.5 million of letters of credit were considered a draw on the revolver, reducing our borrowing capacity to $414.5 million. Borrowings under our revolving credit facility are based on the prime rate, the federal funds effective rate, or the London Interbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustment based on the ratio of our total indebtedness to our last four quarters of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to 1.25% or the federal funds effective rate plus 1.00% to 1.75% or (ii) LIBOR plus 1.50% to 2.25%. For the six months ended June 30, 2007, and the year ended December 31, 2006, the average interest rate for our borrowings under the revolver was 6.0%. Letters of credit are subject to a 0.25% fronting fee payable to the issuing bank and a fee payable to the lenders equal to the product of the interest rate spread applicable to LIBOR borrowings under our revolving credit facility and the daily average amount available for drawing under the outstanding letters of credit. The minimum and maximum borrowings under the revolver were zero and $10.5 million during the six months ended June 30, 2007, and zero and $30.0 million during the year ended December 31, 2006. The weighted average amounts of borrowings outstanding under the revolver during the six months ended June 30, 2007 and 2006, were $0.1 million and $1.5 million. The revolving credit facility provides for a commitment fee of 0.50% per annum payable to the lenders on the average daily unused portion of the revolving credit facility. We also have a swingline option under the revolver, which allows us to borrow at negotiated rates up to an aggregate of $40.0 million from individual banks that are parties to the agreement. Swingline borrowings are considered borrowings under the revolving credit facility agreement.

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

Borrowings under the Facilities are subject to financial covenants, including a requirement to maintain a minimum interest coverage ratio and a maximum limit on our leverage ratio, as well as customary nonfinancial covenants. The financial maintenance covenants are applicable only to the

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

Senior Notes

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

Borrowings Secured by Receivables

In October 2005, our wholly owned subsidiary, Boise LLC, and several of its subsidiaries, including Birch Creek Investments, L.L.C. (Birch Creek), entered into an accounts receivable securitization program with Bank of America National Association and Calyon New York Branch (the Investors). Under this three-year program, Boise LLC sells its interest in a defined pool of accounts receivable generated by its domestic operations on a revolving basis to Birch Creek, a consolidated, wholly owned, special-purpose subsidiary. In turn, Birch Creek sells the receivables to the affiliates of the Investors. Because Boise LLC has the right to repurchase the sold receivables, sales of receivables under the program are accounted for as a secured borrowing. At June 30, 2007, and December 31, 2006, we had $70.0 million and $25.0 million outstanding under our accounts receivable securitization program. The receivables outstanding and the corresponding debt are included as “Receivables” and “Long-term debt,” respectively, on our Consolidated Balance Sheets. We record the financing costs associated with the program in “Interest expense” in our Consolidated Statements of Income. The cost of funds under this program varies based on changes in interest rates. At June 30, 2007, and December 31, 2006, the interest rates for borrowings secured by receivables were 5.3% and 5.6%.

Under the accounts receivable securitization program, the maximum borrowing amount is subject to change based on the level of eligible receivables and restrictions on concentrations of receivables and, at June 30, 2007, could not exceed $250.0 million. The accounts receivable securitization program contains financial covenants requiring us to maintain a minimum interest coverage ratio and a specified maximum leverage ratio.

Other

We also have other outstanding letters of credit, which are used for trade purchases. At June 30, 2007, and December 31, 2006, we had $4.2 million and $0.1 million, respectively, of outstanding letters of credit. These letters of credit do not reduce our borrowing capacity under our amended revolving credit facility.

We have entered into interest rate swaps to hedge the majority of the cash flow risk from the variable interest payments on our variable-rate debt. These swaps gave us effective interest rates on all of our long-term variable-rate debt of 6.8% and 7.0% at June 30, 2007, and December 31, 2006, respectively. For additional information on our interest rate swaps, see Note 14, Financial Instruments.

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

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

At June 30, 2007, and December 31, 2006, our average effective interest rates, including the effect of our interest rate swaps, on all of our long-term debt were 6.9% and 7.1%.

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

14.          Financial Instruments

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

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, we record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by third parties. Changes in the fair value of derivatives are recorded in either “Net income (loss)” or “Other comprehensive income,” as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in “Other comprehensive income” in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in our Consolidated Statements of Income (Loss). The gain or loss on derivatives designated as fair value hedges and the offsetting gain or loss on the hedged item attributable to the hedged risk are included in income (loss) in the period in which changes in fair value occur. The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.

Interest Rate Risk

Our debt is predominantly variable-rate. We manage interest rate risk on our variable-rate debt by entering into interest rate swaps. At June 30, 2007, the estimated current market value of our fixed-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $20.4 million less than the amount reported on our Consolidated Balance Sheet.

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

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

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

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

Energy Risk

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

Foreign Currency Risk

At June 30, 2007, we had no foreign currency hedges.

15.          Recently Adopted Accounting Standards

In January 2007, we adopted FSP No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, and began expensing the costs of periodic major overhauls and maintenance of plant and equipment as incurred. Prior to the adoption of this FSP, we charged planned shutdown maintenance costs in our Paper and Packaging & Newsprint segments to income (loss) ratably over the year. We recast our 2006 interim financial information included in this Form 10-Q using the direct expense method. As a result of adopting this FSP, we increased “Materials, labor, and other operating expenses” $2.2 million and decreased “Net income” by the same amount for the three months ended June 30, 2006. Of the $2.2 million adjustment, we reduced income $1.8 million in our Paper segment and $0.4 million in our Packaging & Newsprint segment. During the six months ended June 30, 2006, we increased “Materials, labor, and other operating expenses” $0.3 million and decreased “Net income” by the same amount. Of the $0.3 million adjustment, we increased income $1.6 million in our Paper segment and reduced income $1.9 million in our Packaging & Newsprint segment. The FSP increases the volatility of earnings in the period a planned shutdown occurs, but it has no impact on our annual results of operations.

In January 2007, we adopted FIN No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the criteria for recognizing tax benefits under FASB Statement No. 109, Accounting for Income Taxes. It also requires additional financial statement disclosures about uncertain tax positions. Because the majority of our businesses and assets are held and operated by limited liability companies and the income taxes of these operations are payable by our equity holders, it did not have a material impact on our financial position or results of operations. For more information, see Note 7, Income Taxes. Events could arise in the future that would cause the adoption of this interpretation to have a material impact on our financial statements. For example, if our tax status were to change in the future, we would have to reevaluate the impact of FIN No. 48 on our financial position and results of operations at that time.

In December 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and 132(R), which required us to recognize the funded status of our pension and other postretirement benefit plans on our 2006 Consolidated Balance Sheet. It also required us to recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of other comprehensive income, net of tax, in our Consolidated Statement of Capital. In connection with adopting SFAS No. 158, we reduced our liabilities $38.1 million and increased capital by about the same amount. Retrospective application was not permitted. For more information, see Note 15, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

In December 2006, we adopted Staff Accounting Bulletin (SAB) Topic 1N, Financial Statements — Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that

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 is material in light of relevant quantitative and qualitative factors. SAB 108 did not have a material impact on our financial position or results of operations.

In February 2006, we adopted FSP No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement Upon the Occurrence of a Contingent Event. FAS 123(R)-4 requires companies to assess the probability that a contingent cash settlement event will occur when it determines the classification of options or other similar instruments issued as part of employee compensation arrangements. Because redemption by Forest Products Holdings, our equity sponsor, and the expected parallel redemptions of the Series B and Series C equity units granted to our employees under the Management Equity Agreement are a contingent event outside employees’ control and not currently deemed probable of occurring, we account for the units using equity plan accounting in accordance with FAS 123(R)-4.

16.          Retirement and Benefit Plans

The following table presents the components of net periodic pension and postretirement benefit costs in accordance with revised SFAS No. 132, Employers’ Disclosures About Pensions and Other Postretirement Benefits:

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

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

In 2007, we are not required to make a minimum contribution to our pension plans; however, we may elect to make voluntary contributions.

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17.        Segment Information

There are no differences in our basis of segmentation or in our basis of measurement of segment profit or loss from those disclosed in Note 18, Segment Information, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in our 2006 Annual Report on Form 10-K.

An analysis of our operations by segment is as follows:

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

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

19

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

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

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

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

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

(d)EBITDA represents income before interest (interest expense, interest income, and change in fair value of interest rate swaps), income tax provision, and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management’s ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our

20

liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, change in fair value of interest rate swaps, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness and the capital expenditures needed to maintain our businesses. Management compensates for these limitations by relying on our GAAP results. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following is a reconciliation of net income to EBITDA:

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

18.          Commitments and Guarantees

Commitments

We have commitments for fiber, leases, and long-term debt that are discussed further in Note 1, Summary of Significant Accounting Policies; Note 7, Leases; and Note 13, Debt, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in our 2006 Annual Report on Form 10-K. In addition, we have purchase obligations for goods and services, capital expenditures, and raw materials entered into in the normal course of business. At June 30, 2007, there have been no material changes to our commitments, except as disclosed in Note 2, Purchase of OfficeMax’s Forest Products and Paper Assets, related to amounts we could pay OfficeMax under the Additional Consideration Agreement, and Note 13, Debt, related to our commitments under our amended and restated senior secured credit facilities, which we completed in May 2007, and changes to our lease commitments for the incremental lease expense related to the sale and lease-back of our building materials distribution center in Milton, Florida, in second quarter 2007. The updated lease payment stream is disclosed in Note 6, Leases.

Guarantees

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

21

19.          Consolidating Guarantor and Nonguarantor Financial Information

The following consolidating financial information presents the Statements of Income (Loss), Balance Sheets, and Cash Flows related to our business. The senior unsecured floating-rate notes are guaranteed on a senior basis, and the senior subordinated notes are guaranteed on a senior subordinated basis, in each case jointly and severally by Boise and each of its existing and future subsidiaries (other than the co-issuers, Boise LLC and Boise Cascade Finance Corporation). The nonguarantors include our foreign subsidiaries and Birch Creek. Other than the consolidated financial statements and footnotes for Boise Cascade Holdings, L.L.C., financial statements and other disclosures concerning the guarantors have not been presented because management believes that such information is not material to investors.

22

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Income (Loss)
For the Three Months Ended June 30, 2007

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

23

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Income (Loss)
For the Three Months Ended June 30, 2006

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

24

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Income (Loss)
For the Six Months Ended June 30, 2007

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

25

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Income (Loss)
For the Six Months Ended June 30, 2006

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

26

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

Consolidating Balance Sheets at June 30, 2007

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

27

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Balance Sheets at June 30, 2007 (continued)

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

28

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Balance Sheets at December 31, 2006

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

29

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Balance Sheets at December 31, 2006 (continued)

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

30

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2007

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

31

Boise Cascade Holdings, L.L.C., and Subsidiaries
Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2006

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

32

20.        Legal Proceedings and Contingencies

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

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

Understanding Our Financial Information

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

This discussion and analysis includes statements regarding our expectations with respect to our performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Item 1A.  Risk Factors” of our 2006 Annual Report on Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). There have been no material changes to our risk factors during the six months ended June 30, 2007, from those listed in our 2006 Annual Report on Form 10-K. We do not assume an obligation to update any forward-looking statement. Our actual results may differ materially from those contained in or implied by any of these forward-looking statements.

Our Segments

We operate our business using five reportable segments:  Building Materials Distribution, Wood Products, Paper, Packaging & Newsprint, and Corporate and Other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the company based on these segments.

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

Wood Products.  Our Wood Products segment manufactures and sells EWP, consisting of laminated veneer lumber (LVL), a high-strength engineered lumber often used in beams; I-joists, a structural support typically used in floors and roofs; and laminated beams. We also produce plywood, particleboard, dimension lumber, and high-quality ponderosa pine lumber, a premium lumber grade sold primarily to manufacturers of specialty wood windows, moldings, and doors. Our wood products are used primarily in new residential and light commercial construction and in residential repair and remodeling. Most of these products are sold to wholesalers, major retailers, and industrial converters or through our own wholesale building materials distribution outlets. During 2006, approximately 43% of the wood products we manufactured, including approximately 60% of our EWP, were sold to our Building Materials Distribution segment.

Paper.  Our Paper segment manufactures and sells uncoated free sheet (including cut-size office papers, commercial printing paper, envelope papers, and a wide range of value-added papers), market pulp, and containerboard (corrugating medium). Many of our paper products are commodity products,

33

while others have specialized features that make these products value-added. Our value-added grades include high-bright and colored cut-size office papers and custom-developed specialty papers for such uses as label and release. We sell to customers both directly from our mills and through distribution centers. In 2006, approximately 45% of our uncoated free sheet sales volume, including about 80% of our office papers sales volume, was sold to OfficeMax.

Packaging & Newsprint.  Our Packaging & Newsprint segment manufactures and sells containerboard (linerboard) and newsprint at our mill in DeRidder, Louisiana. We also operate five corrugated container plants in the Northwest and a sheet feeder plant in Waco, Texas. Our corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Our Waco plant, known as Central Texas Corrugated, or CTC, produces corrugated sheets that are sold to sheet plants in the region, where they are converted into corrugated containers for a variety of customers. Our containerboard and corrugated products are sold by our sales personnel or, in some cases, by brokers. We market our newsprint through Abitibi-Consolidated (Abitibi) pursuant to an arrangement whereby Abitibi purchases all of the newsprint we produce at a price equal to the price at which Abitibi sells newsprint produced at its mills located in the southern United States, less associated expenses and a sales and marketing discount. The newsprint price is verified through a third-party review.

Corporate and Other.  Our Corporate and Other segment includes corporate support staff services, related assets and liabilities, and foreign exchange gains and losses.

Overview of Financial Condition

Recent Trends and Operational Outlook

Recent trends and the outlook for our businesses are mixed. While housing has experienced a significant downturn, printing and converting papers have been softer, and newsprint markets have been weak, office paper and packaging markets have been strong.

New residential construction activity continued at a slow pace in second quarter 2007 relative to recent years. The U.S. Department of Commerce reported housing starts at a seasonally adjusted annual rate of 1.47 million units in June 2007, compared with 1.82 million units in June 2006 and 1.63 million units in December 2006. This reduction in new residential construction activity resulted in decreased demand for the wood and building products that we manufacture and sell. This reduction in demand was met with lower pricing and volumes for engineered wood products and commodity products such as structural lumber. In response to these price and demand reductions, some producers curtailed operations or, in some cases, indefinitely closed facilities.

Second quarter 2007 uncoated free sheet prices were generally higher than first quarter 2007 prices. Effective May 2007, we announced a price increase for the cut-size grades we produce. This price increase has been fully implemented. Demand for our cut-size grades exceeded our production during second quarter 2007 resulting in decreasing inventories.

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

As a result of solid-wood mill curtailments and some closures, residual chip supply markets in the Pacific Northwest have been very tight in recent quarters. Softwood chip prices began to moderate in the latter part of the first quarter, as pulp mills had rebuilt their inventories from the increased flow of chips from pulpwood. During second quarter 2007, against relatively flat consumption, softwood pulpwood and softwood residual chip prices continued to decline from their first quarter peaks. The outlook for residual fiber supply in the Pacific Northwest continues to be difficult. These higher wood fiber costs are having a significant negative impact on our St. Helens, Oregon, pulp and paper mill. Continued weakness in the housing sector may prompt further closures of wood products facilities in the region, driving residual fiber supply down further and costs higher. As a result, we may choose to change our operating configuration at that facility, including potentially closing some or all of the facility, if we cannot continue to operate on a positive cash-flow basis. We will continue to evaluate its ongoing financial performance.

34

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

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

Factors That Affect Our Operating Results

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

·General economic conditions, including but not limited to housing starts, repair-and-remodel activity, nonresidential construction, white-collar employment, electronic substitution, durable goods production, and relative currency values;

·Volatility in raw material and energy prices;

·Pricing volatility in our distribution business;

·The commodity nature of our products and our ability to maintain margins;

·Industry cycles and capacity utilization rates;

·Actions of suppliers, customers, and competitors; and

·The other factors described in “Item 1A. Risk Factors” in our 2006 Annual Report on Form 10-K.

Commodity and Value-Added Products and Product Margins

Many of the products we manufacture and distribute are widely available and can be readily produced by our competitors. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is primarily based on price, which is determined by supply relative to demand. Generally, market conditions beyond our control determine the prices for our commodity products, and the price for any one or more of these products may fall below our cash production costs. Therefore, our profitability with respect to these products is highly dependent on managing our cost structure, particularly raw material and energy costs, which also exhibit commodity characteristics.

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

Comparing second quarter 2007 with second quarter 2006, sales of EWP from our Wood Products segment increased from approximately 48% of segment sales in 2006 to 49% of sales in 2007. The increase in EWP production capacity that we implemented in 2005 has positioned us to continue to grow this business; however, the recent slowdown in new residential construction has slowed the growth in our EWP sales in the short term. In our Paper segment, sales of specialty and premium papers decreased from approximately 32% of uncoated free sheet tons sold during second quarter 2006 to 31%

35

of uncoated free sheet tons sold during the same period in 2007. The project to convert our Wallula, Washington, W-3 paper machine to enable it to produce pressure sensitive grades is a key step in providing us with the capacity to increase production of specialty and premium paper grades. As discussed above, this project came online during second quarter 2007.

Demand

The overall level of demand for the products we make and distribute is affected by, among other things, construction activity, manufacturing activity, employment, and consumer spending. Accordingly, we believe that our financial results depend in large part on general macroeconomic conditions in North America, as well as on regional economic conditions in the geographic markets in which we operate. While no single product line drives our overall financial performance, individual product lines are influenced by conditions in their respective industries. For example:

·Demand for building materials, including wood products, depends on new residential and light commercial construction and residential repair-and-remodeling activity, which are affected by demographic trends, interest rate levels, weather, and general economic conditions. In recent years, demand for wood products has been high due to strong new housing starts, the increasing size of new homes, a robust repair-and-remodeling market, and a recovering light commercial construction market. However, during the second half of 2006, there was a significant increase in the number of homes for sale relative to the monthly sales activity. This has led to a drop in new home construction activity, resulting in price declines for many products. For example, sales prices for LVL, I-joists, and lumber by our Wood Products segment during second quarter 2007 were down 10%, 7%, and 12%, respectively, from the same period of 2006. The trend in reduced construction activity continued into second quarter 2007 and continued to reduce demand for our products. For example, the sales volumes of lumber and I-joists by our Wood Products segment during second quarter 2007 were down 18% and 6%, respectively, from the same period of 2006. Offsetting the broader trend, sales volumes in second quarter 2007 for our LVL increased 2%, relative to the same period in 2006, and sales prices for our plywood were down only 1% during second quarter 2007, compared with the same period a year ago.

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

·A large share of the demand for corrugated containers, and therefore containerboard, is driven by manufacturing, specifically the manufacture of nondurable goods. In addition, inventory stocking or liquidation of these goods has an impact, as do currency exchange rates that affect the cost-competitiveness of foreign manufacturers. Demand continues to be negatively affected by the offshoring of durable and nondurable goods manufacturing, as those products are then packaged abroad rather than in North America.

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

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Supply

Industry supply of commodity wood products and paper is affected by the number of operational or idled facilities, the building of new capacity, and the shutting down of existing capacity. Capacity also tends to increase gradually over time without significant capital expenditures, as manufacturers improve production efficiencies. Generally, more capacity is added or employed when supply is tight and margins are relatively high, and capacity is idled or eliminated when capacity significantly exceeds demand and margins are poor. Because of relatively lower capital investments, lower shutdown and start-up costs, and the ability in most facilities to reduce production economically by curtailing shifts, wood products manufacturing producers tend to react more quickly to oversupply situations by removing shifts or curtailing facilities than pulp and paper manufacturers. For example, during the third and fourth quarters of 2006, as structural panel prices fell dramatically, a number of our competitors reduced shifts or shut down facilities entirely in response to dramatically reduced margins. We also curtailed some operations.

While new capacity additions are constrained by the high capital investment and long lead times required to plan, obtain regulatory approvals for, and build a new mill, a favorable pricing environment may prompt manufacturers to initiate expansion projects. Recently, a number of OSB producers started up or are building new capacity. In some applications, OSB is a competing product for plywood, which we produce. These projects were announced during the period of high residential construction activity that was witnessed in recent years. This increase in supply, coupled with dramatically lower demand as construction has slowed, has had a negative impact on the price of all structural panel products, including plywood. Some major OSB producers have announced indefinite shutdowns of existing facilities in the face of declining prices, and others have announced delays in previously announced capacity additions. A number of OSB producers have announced the intention to produce a strand lumber product that is intended to be a substitute for EWP in some applications. Their ability to produce such a product and its impact on the EWP market are uncertain.

In 2005, faced with declining demand, rising costs (especially energy costs), ongoing dissatisfaction with financial performance, and in the case of some Canadian producers, a declining U.S. dollar, several North American paper producers announced mill closures that decreased or will decrease supply. From 2002 to 2006, North American uncoated free sheet, containerboard, and newsprint capacities declined 6%, 3%, and 19%, respectively, according to RISI. In addition, some suppliers have recently announced either modifications to paper machines to move capacity to other grades or shutdowns of paper machines and paper mills.

Industry supply of commodity wood products and paper is also influenced by the level of imports and overseas production capacity, which has grown in recent years. The weakness of the U.S. dollar has mitigated the level of imports in recent years.

Operating Costs

Our major costs of production are labor, wood fiber, energy, and chemicals. The relative importance of these costs varies by segment. Given the significance of raw material and energy costs to our total operating expenses and our limited ability to control these costs, compared with other operating costs, volatility in these costs can materially affect our margins. In addition, the timing and degree of price cycles of raw materials and energy differ with respect to each type of raw material and energy we use.

Labor.  Our labor costs tend to increase steadily due to inflation in healthcare and wage costs. Labor costs are not as volatile as our energy and wood fiber costs.

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

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

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

Our primary sources of logs and wood fiber are timber and byproducts of timber, such as wood chips, wood shavings, and sawdust. Our wood fiber costs also include purchases of semifinished materials such as OSB and lumber for use in EWP production as well as purchased market pulp, which is used in paper production. We acquire substantially all of our fiber from outside sources, including pursuant to long-term supply agreements with Forest Capital Partners. In our Wood Products segment, we convert logs into lumber and veneer, and in turn, we convert veneer into EWP and plywood. Logs are a lower percentage of the total cost of materials, labor, and other operating expenses in producing engineered wood than commodity products such as lumber and plywood. While log costs are still a significant component of costs, as we continue to produce more engineered wood relative to commodity products, direct-log costs decline as a percentage of the total cost of materials, labor, and other operating expenses. We also convert residual wood fiber from our operations, as well as from third parties, into particleboard. In our Paper and Packaging & Newsprint segments, we convert logs and wood chips into pulp, which we sell or use at our paper mills to produce paper. On an aggregate basis, we are generally able to produce all of our pulp needs, generally purchasing and selling similar amounts on the open market. However, the planned outages at our International Falls, St. Helens, and Wallula mills contributed to an increased volume of purchased pulp during second quarter 2007.

Logs and wood fiber are commodities, and prices for logs and wood fiber have historically been cyclical due to changing levels of demand. Log and fiber supply may be limited by public policy or government regulation as well as fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding, other weather conditions, and other natural and man-made causes. Residual chip supply may be limited due to reduction in primary manufacturing at sawmills and plywood plants. Declines in log and fiber supply, driven primarily by changes in public policy and government regulation, have been severe enough to cause the closure of numerous facilities in some of the regions in which we operate. Any sustained undersupply and resulting increase in wood fiber prices could decrease our production volumes and/or increase our operating costs. Prices for our products might not reflect increases or decreases in log and wood fiber prices, and as a result, our operating margins could fluctuate. Market prices for a variety of fiber sources, including logs and chips for our Northwest operations and logs for our Minnesota operations, were high relative to historical standards in the first half of 2006. While wood costs came down in Minnesota during the second half of 2006 and into the first half of 2007, they are still high by historical standards. In the Pacific Northwest, residual chip costs began to come down late in first quarter 2007 but continue to be high by historical standards. Because residual fiber in the Pacific Northwest comes predominantly from sawmills and plywood plants, curtailments in these mills as a result of decreased demand for these products related to the housing slowdown will continue to impact the availability of chips for our Northwest pulp and paper operations. Relative to historical standards, fiber costs were high in Louisiana in the first half of 2007 due to unusually high and persistent rainfall, which limited access to many harvest areas and limited supply availability.

Other raw materials and energy purchasing and pricing.  We purchase other raw materials and energy used to manufacture our products in both the open market and through long-term contracts. These contracts are generally with regional suppliers who agree to supply all of our needs for a certain raw material or energy at one of our facilities. These contracts normally contain minimum purchase requirements and are for terms of various lengths. They also contain price adjustment mechanisms that take into account changes in market prices. Therefore, although our long-term contracts provide us with supplies of raw materials and energy that are more stable than open-market purchases, in many cases, they may not alleviate fluctuations in market prices.

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Our costs will rise if prices for our raw materials or energy rise. Specifically, some of our key chemicals, including pulping and bleaching chemicals consumed in our Paper and Packaging & Newsprint mills and glues and resins consumed in our Wood Products operations, are heavily influenced by energy costs. A number of our major suppliers have obtained price increases tied to their increased energy costs. For our commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, determines our ability to increase prices. Consequently, we may be unable to pass increases in our operating costs to our customers in the short term.

Energy.  Energy prices, particularly for electricity, natural gas, and fuel oil, have been volatile in recent years and currently exceed historical averages. In addition, we have limited flexibility to switch between fuel sources in the short term; accordingly, we have significant exposure to natural gas price changes. Energy costs represented the following percentages of materials, labor, and other operating expenses for our Wood Products, Paper, and Packaging & Newsprint segments:

	Six Months Ended June 30
	2007		2006
Wood Products	4	%	4	%
Paper	15	%	15	%
Packaging & Newsprint	15	%	16	%

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

Chemicals.  Important chemicals we use in the production of our products include precipitated calcium carbonate, sodium chlorate, sodium hydroxide, dyes, resins, and adhesives. Purchases of chemicals represented the following percentages of materials, labor, and other operating expenses for our Wood Products, Paper, and Packaging & Newsprint segments:

	Six Months Ended June 30
	2007		2006
Wood Products	6	%	6	%
Paper	13	%	13	%
Packaging & Newsprint	5	%	5	%

We have experienced higher chemical costs during second quarter 2007 in our Paper segment, compared with the same period in 2006, due in part to increases in energy and transportation costs sustained by our chemical suppliers that they have partially passed through to us.

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

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Acquisitions

Forest Products Acquisition

Our operations began on October 29, 2004 (inception), when we acquired the forest products and paper assets of OfficeMax (the Forest Products Acquisition). We accounted for the Forest Products Acquisition using the purchase method of accounting. We allocated the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Estimated fair values were derived through consideration and application of standard valuation approaches and techniques. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. For more information, see Note 11, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

As part of the Forest Products Acquisition, we entered into an Additional Consideration Agreement with OfficeMax, pursuant to which we agreed to adjust the purchase price based on changes in paper prices over the six-year period following the Forest Products Acquisition. Under the Additional Consideration Agreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximum aggregate amount of $125.0 million, in each case net of payments received. After each anniversary of the Forest Products Acquisition, we review paper prices with the provisions of the Additional Consideration Agreement to determine whether any amounts are owed or receivable under the agreement. For the first and second anniversary periods, which ended October 29, 2005 and 2006, neither Boise nor OfficeMax owed additional consideration for the purchase price. Based on the actual market price for the benchmark grade of cut-size office paper through June 2007, and if June prices hold for the remaining portion of the anniversary period, we would owe OfficeMax approximately $33 million upon completion of the third anniversary period under the Additional Consideration Agreement. Any payments made or received pursuant to the Additional Consideration Agreement will be treated as adjustments to the purchase price and, therefore, will not be reported in our Consolidated Statement of Income but will be included in consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) for purposes of certain covenants under our debt agreements. For more information about the Additional Consideration Agreement, see “Item 13.  Certain Relationships and Related Transactions, and Director Independence” of our 2006 Annual Report on Form 10-K.

Restructuring Activities

In connection with the Forest Products Acquisition, we evaluated the acquired facilities and organizational structure. In accordance with the provisions of Emerging Issues Task Force (EITF) 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination, exit activities related to the Forest Products Acquisition increased goodwill. We had one year from the acquisition date to finalize our restructuring plans and adjust goodwill.

At June 30, 2007, we had approximately $0.2 million of restructuring reserves related to severance costs recorded in “Accrued liabilities, Compensation and benefits” on our Consolidated Balance Sheet. The severance costs related to approximately 350 terminated employees. The remaining reserve relates to severance payments that will be paid by the end of 2007. Of the $0.2 million remaining restructuring reserve, $0.1 million is recorded in our Paper segment, and $0.1 million is in Corporate and Other. Restructuring reserve liability account activity related to these charges is as follows:

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	Severance			Other			Total
	(millions)
2004 restructuring reserve	$	13.8		$	0.5		$	14.3
Charges against reserve	(1.0		)	—			(1.0		)
Restructuring reserve at December 31, 2004	12.8			0.5			13.3
Additions to restructuring reserve	6.9			0.2			7.1
Charges against reserve	(16.2		)	(0.6		)	(16.8		)
Restructuring reserve at December 31, 2005	3.5			0.1			3.6
Charges against reserve	(2.9		)	(0.1		)	(3.0		)
Restructuring reserve at December 31, 2006	0.6			—			0.6
Charges against reserve	(0.4		)	—			(0.4		)
Restructuring reserve at June 30, 2007	$	0.2		$	—		$	0.2

Central Texas Corrugated Acquisition

On February 1, 2006, we purchased the assets of Central Texas Corrugated (CTC) in Waco, Texas, for an aggregate purchase price of $43.8 million, including fees and expenses but before working capital adjustments. In 2006, we paid approximately $42.5 million of cash for the acquisition, which is net of a $2.0 million holdback that is payable in five years. At June 30, 2007, “Other long-term liabilities” on our Consolidated Balance Sheet included a $1.5 million discounted holdback (including accrued accretion expense). CTC manufactures corrugated sheets that it sells primarily to regional container plants in Texas, Louisiana, Arkansas, and Mexico. CTC is located close to our mill in DeRidder, Louisiana, which produces linerboard used in CTC’s manufacturing processes. During the six months ended June 30, 2007, we produced approximately 279,000 short tons of linerboard in our Packaging & Newsprint segment, and our Paper segment produced approximately 66,000 tons of corrugating medium. Our corrugated container and sheet plants consumed approximately 251,000 tons of containerboard, or the equivalent of 73% of our containerboard production.

We accounted for the acquisition using the purchase method of accounting. As a result, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the acquisition. For more information, see Note 4, Purchase of Central Texas Corrugated’s Assets, of the Notes to Consolidated Financial Statements in “Item 8. Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

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Our Operating Results

The following tables set forth the results of operations in dollars and as a percentage of sales for the three and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007			2006
	(millions)
Sales
Trade	$	1,288.9		$	1,415.8		$	2,452.1		$	2,753.3
Related parties	159.5			144.0			317.3			276.8
	1,448.4			1,559.8			2,769.4			3,030.1
Costs and expenses
Materials, labor, and other operating expenses	1,270.3			1,362.5			2,427.2			2,673.3
Depreciation, amortization, and depletion	40.7			38.5			81.1			75.1
Selling and distribution expenses	73.7			71.6			142.0			142.7
General and administrative expenses	20.2			26.2			39.7			47.7
Other (income) expense, net	(5.1		)	3.2			(2.5		)	1.1
	1,399.8			1,502.0			2,687.5			2,939.9
Income from operations	$	48.6		$	57.8		$	81.9		$	90.2
	(percentage of sales)
Sales
Trade	89.0		%	90.8		%	88.5		%	90.9		%
Related parties	11.0			9.2			11.5			9.1
	100.0		%	100.0		%	100.0		%	100.0		%
Costs and expenses
Materials, labor, and other operating expenses	87.7		%	87.3		%	87.7		%	88.2		%
Depreciation, amortization, and depletion	2.8			2.5			2.9			2.5
Selling and distribution expenses	5.1			4.6			5.1			4.7
General and administrative expenses	1.4			1.7			1.4			1.6
Other (income) expense, net	(0.4		)	0.2			(0.1		)	—
	96.6		%	96.3		%	97.0		%	97.0		%
Income from operations	3.4		%	3.7		%	3.0		%	3.0		%

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Sales Volumes and Prices

Set forth below are our segment sales volumes and average net selling prices for our principal products for the three and six months ended June 30, 2007 and 2006:

	Three Months Ended  June 30				Six Months Ended June 30
	2007		2006		2007		2006
	(millions)
Building Materials Distribution
Sales dollars	$	723.7	$	832.7	$	1,332.4	$	1,594.5

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

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

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

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

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

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Operating Results

Sales

For the three months ended June 30, 2007, total sales decreased $111.4 million, or 7%, compared with the same period a year ago. For the six months ended June 30, 2007, total sales decreased $260.7 million, or 9%. In both periods, sales in Paper and Packaging & Newsprint increased, while sales in Building Materials Distribution and Wood Products declined, compared with the same periods a year ago. The increase in both of our paper businesses is driven by improved pricing in the current year relative to the same periods of 2006 in most of the paper grades we produce. The lower sales in both of our building materials-related businesses continued to reflect the softer new residential construction market.

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

Wood Products.  Sales decreased $36.0 million, or 11%, to $278.7 million for the three months ended June 30, 2007, from $314.7 million for the three months ended June 30, 2006. During the six months ended June 30, 2007, sales decreased $94.7 million, or 15%, to $532.6 million from $627.3 million in the same period a year ago. The decrease was driven primarily by lower volumes and prices driven by lower new residential construction activity. During the three months ended June 30, 2007, prices for LVL and I-joists decreased 10% and 7%, relative to the same period in 2006, and lumber prices decreased 12%. While plywood prices were down only 1% in second quarter 2007, compared with the same period in 2006, plywood prices during the six months ended June 30, 2007, were down 7%, reflecting significantly lower plywood prices in first quarter 2007, compared with the same period in 2006.

Paper.  Sales increased $19.4 million, or 5%, to $401.1 million for the three months ended June 30, 2007, from $381.7 million for the three months ended June 30, 2006. During the six months ended June 30, 2007, sales increased $44.0 million, or 6%, to $796.1 million from $752.1 million in the same period a year ago. Comparing second quarter 2007 with second quarter 2006, prices were higher for commodity papers, specialty and premium papers, market pulp, and corrugating medium by 10%, 6%, 27%, and 9%, respectively. Comparing the first six months of 2007 with the same period in 2006, prices for commodity papers, specialty and premium papers, market pulp, and corrugating medium increased 14%, 6%, 31%, and 16%, respectively. The increase in sales during both periods was driven by improved pricing in many of our paper grades as a relatively strong worldwide economy coupled with stable industry supply allowed us to fully implement our announced price increases. The U.S. market continued to be assisted by a relatively weak U.S. currency, which made other markets more attractive to offshore producers.

Packaging & Newsprint. Sales increased $2.1 million, or 1%, to $192.9 million for the three months ended June 30, 2007, from $190.8 million for the three months ended June 30, 2006. During the six months ended June 30, 2007, sales increased $17.3 million, or 5%, to $386.9 million from $369.6 million in the same period a year ago. The increase in sales was driven by linerboard and corrugated container and sheet prices, which were up 7% and 4%, respectively, in second quarter 2007, compared with the same period in 2006. These increases were offset, in part, by lower newsprint prices, which decreased 10% during second quarter 2007, compared with second quarter 2006, as demand continued to weaken. Comparing the six months ended June 30, 2007, with the same period a year ago, sales increased due to higher linerboard and corrugated container and sheet prices, which increased 13% and 6%, respectively. The price increases were aided by a supply-demand balance that reflected the relatively strong worldwide economy, coupled with a relatively weak U.S. currency.

Costs and Expenses

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

44

purchased materials costs and volumes in our Building Materials Distribution segment, as lower residential construction activity drove industry volumes down, resulting in lower purchase prices for many of the materials we purchase for resale. In addition, input wood costs in our Wood Products segment were generally lower. Relative to the three and six months ended June 30, 2006, as a percent of sales, these costs remained relatively flat.

Depreciation, amortization, and depletion expenses increased $2.2 million, or 6%, to $40.7 million for the three months ended June 30, 2007, from $38.5 million during the same period in the prior year. Relative to the six months ended June 30, 2007, these expenses increased $6.0 million, or 8%, to $81.1 million, compared with $75.1 million in the prior year. As a percentage of sales, these costs increased to 2.8% and 2.9% respectively, for the three and six months ended June 30, 2007, from 2.5% in the same periods in the prior year. During both periods, the increase was primarily the result of our reviewing the estimated useful lives of some of our depreciable assets and determining that some of our assets would be used for a shorter period of time than the depreciable lives previously assigned to them. As a result, we revised our depreciation estimates to reflect the remaining expected use of the assets.

Selling and distribution expenses increased $2.1 million, or 3%, to $73.7 million for the three months ended June 30, 2007, compared with $71.6 million for the same period in the prior year. During the six months ended June 30, 2007, these costs decreased $0.7 million to $142.0 million, compared with $142.7 million during the same period a year ago. During the six months ended June 30, 2006, our Paper segment recorded a $2.3 million write-off of bad debt related to the bankruptcy of a customer. The results for both periods reflect incremental costs related to the expansion of our distribution centers in California, Florida, and Ohio in our Building Materials Distribution segment.

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

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

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

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

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Income (Loss) From Operations

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

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

Wood Products.  Segment income decreased $1.5 million, or 8%, to $15.7 million for the three months ended June 30, 2007, compared with $17.2 million for the three months ended June 30, 2006. Relative to the three months ended June 30, 2006, segment income declined due to lower prices for many of our products. These were offset in part by lower input wood costs such as logs and purchased OSB used in I-joists. During the six months ended June 30, 2007, segment income decreased $16.6 million, or 46%, to $19.4 million, compared with $36.0 million in the same period a year ago. Segment income decreased primarily due to lower prices and volumes for most of our products. These decreases were offset by higher particleboard prices and by lower input wood costs such as logs and purchased OSB used in I-joists.

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

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

Other

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

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

Income tax provision.  For the three and six months ended June 30, 2007, income tax expense was $3.5 million and $4.7 million, compared with $0.3 million and $1.5 million for the same periods a year ago. In both periods, the increase primarily related to income tax expense related to our cash flow hedges and the true-up of miscellaneous state income tax items. During the three and six months ended June 30, 2007, our effective tax rates for our separate subsidiaries that are taxed as a corporation were 34.4% and 34.7%, compared with 40.9% and 41.8% for the same periods in the prior year.

Liquidity and Capital Resources

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

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

Operating Activities

We operate in a cyclical industry, and our operating cash flows vary accordingly. Our principal operating cash expenditures are for purchased inventories, compensation, fiber, energy, and interest. For the six months ended June 30, 2007 and 2006, our operating activities provided $77.6 million and $83.1 million of cash. In 2007, items included in net income provided $125.6 million of cash. Unfavorable changes in working capital and other items used $48.0 million of cash from operations. Working capital is subject to cyclical operating needs, the timing of the collection of receivables, the payment of payables and expenses, and to a lesser extent, seasonal fluctuations in our operations. In second quarter 2007, the increase in working capital was primarily attributable to higher receivables in Building Materials Distribution. Higher receivables in Building Materials Distribution reflected increased sales of approximately 46%, comparing June 2007 sales with December 2006 sales. This increase in receivables was partially offset by higher overall accounts payable and accrued liabilities.

During the six months ended June 30, 2006, our operating activities provided $83.1 million of cash. In 2006, items included in net income provided $131.8 million of cash. Unfavorable changes in working capital and other items used $48.7 million of cash from operations. The 2006 increase in working capital was primarily attributable to higher receivables in Building Materials Distribution and, to a lesser extent, increased company inventory levels. These increases were partially offset by higher overall accounts payable and accrued liabilities. Higher receivables in Building Materials Distribution reflected increased sales of approximately 36%, comparing June sales with December sales.

Investment Activities

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

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

In 2006, investing activities included approximately $42.5 million of cash paid for the purchase of CTC’s assets in Waco, Texas, partially offset by $27.2 million of proceeds from the sale of our headquarters building in Boise, Idaho. In connection with the sale, we leased back approximately 65% of the building over a staggered lease term of ten to 12 years. Purchases of property, plant, and equipment also used $71.3 million during the first six months of 2006. Capital expenditures for property and equipment consisted primarily of expansion, business improvement and quality/efficiency projects, replacement projects, and ongoing environmental compliance.

We expect capital investments in 2007 to total approximately $195 million, excluding acquisitions. This level of capital expenditures could increase or decrease as a result of a number of factors, including our financial results and future economic conditions. Our capital spending in 2007 will be for expansion (such as the Wallula project described above), business improvement and quality/efficiency projects, replacement projects, and ongoing environmental compliance. During 2006, we spent $9 million on environmental compliance. We expect to spend approximately $10 million in 2007 for this purpose.

Financing Activities

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

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

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

	June 30, 2007							December 31, 2006
	Amount			Interest Rate Without Swaps		Interest Rate With Swaps		Amount		Interest Rate Without Swaps		Interest Rate With Swaps
	(millions)							(millions)
Revolving credit facility, due 2010	$	—		N/A		N/A		$	—	N/A		N/A
Tranche D term loan, due 2011	—			N/A		N/A		538.9		7.1	%	6.8	%
Tranche E term loan, due 2014	523.7			6.9	%	6.6	%	—		N/A		N/A
Senior unsecured floating-rate notes, due 2012	250.0			8.2	%	7.6	%	250.0		8.2	%	7.6	%
7.125% senior subordinated notes, due 2014	400.0			7.1	%	N/A		400.0		7.1	%	N/A
Borrowings secured by receivables	70.0			5.3	%	N/A		25.0		5.6	%	N/A
Current portion of long-term debt	(5.3		)	6.9	%	6.6	%	—		N/A		N/A
Long-term debt, less current portion	1,238.4			7.1	%	6.9	%	1,213.9		7.3	%	7.1	%
Short-term borrowings	—			N/A		N/A		3.2		6.0	%	N/A
Current portion of long-term debt	5.3			6.9	%	6.6	%	—		N/A		N/A
Total debt	$	1,243.7						$	1,217.1

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Amended and Restated Facilities

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

Our amended revolving credit facility agreement permits us to borrow up to $450.0 million for general corporate purposes. At June 30, 2007, we had no borrowings outstanding under our revolving credit facility; however, $35.5 million of letters of credit were considered a draw on the revolver, reducing our borrowing capacity to $414.5 million. Borrowings under our revolving credit facility are based on the prime rate, the federal funds effective rate, or the London Interbank Offered Rate (LIBOR). Pricing is subject to quarterly adjustment based on the ratio of our total indebtedness to our last four quarters of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA). The range of borrowing costs under the pricing grid is:  (i) the higher of prime plus 0.50% to 1.25% or the federal funds effective rate plus 1.00% to 1.75% or (ii) LIBOR plus 1.50% to 2.25%. For the six months ended June 30, 2007, and the year ended December 31, 2006, the average interest rate for our borrowings under the revolver was 6.0%. Letters of credit are subject to a 0.25% fronting fee payable to the issuing bank and a fee payable to the lenders equal to the product of the interest rate spread applicable to LIBOR borrowings under our revolving credit facility and the daily average amount available for drawing under the outstanding letters of credit. The minimum and maximum borrowings under the revolver were zero and $10.5 million during the six months ended June 30, 2007, and zero and $30.0 million during the year ended December 31, 2006. The weighted average amounts of borrowings outstanding under the revolver during the six months ended June 30, 2007 and 2006, were $0.1 million and $1.5 million. The revolving credit facility provides for a commitment fee of 0.50% per annum payable to the lenders on the average daily unused portion of the revolving credit facility. We also have a swingline option under the revolver, which allows us to borrow at negotiated rates up to an aggregate of $40.0 million from individual banks that are parties to the agreement. Swingline borrowings are considered borrowings under the revolving credit facility agreement.

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

Borrowings under the Facilities are subject to financial covenants, including a requirement to maintain a minimum interest coverage ratio and a maximum limit on our leverage ratio, as well as customary nonfinancial covenants. The financial maintenance covenants are applicable only to the $450 million revolving credit portion of the agreement and function as debt incurrence covenants with respect to the remainder of the facility. At June 30, 2007 and 2006, we were in compliance with these covenants.

Senior Notes

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

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million of commitments for a delayed-draw term loan that, absent unforeseen market or business conditions, we plan to use to redeem the majority of our senior unsecured floating-rate notes when they become callable at par in October 2007. The delayed-draw term loan has a commitment fee of 1.5% per annum until drawn. Once drawn, the pricing is the same as for the Tranche E term loan. We are required to make scheduled principal payments on the delayed-draw term loan in the amount of $0.5 million in 2007, $2.0 million in each of 2008 through 2012, $95.3 million in 2013, and $94.2 million in 2014.

Borrowings Secured by Receivables

In October 2005, our wholly owned subsidiary, Boise LLC, and several of its subsidiaries, including Birch Creek Investments, L.L.C. (Birch Creek), entered into an accounts receivable securitization program with Bank of America National Association and Calyon New York Branch (the Investors). Under this three-year program, Boise LLC sells its interest in a defined pool of accounts receivable generated by its domestic operations on a revolving basis to Birch Creek, a consolidated, wholly owned, special-purpose subsidiary. In turn, Birch Creek sells the receivables to the affiliates of the Investors. Because Boise LLC has the right to repurchase the sold receivables, sales of receivables under the program are accounted for as a secured borrowing. At June 30, 2007, and December 31, 2006, we had $70.0 million and $25.0 million outstanding under our accounts receivable securitization program. The receivables outstanding and the corresponding debt are included as “Receivables” and “Long-term debt,” respectively, on our Consolidated Balance Sheets. We record the financing costs associated with the program in “Interest expense” in our Consolidated Statements of Income. The cost of funds under this program varies based on changes in interest rates. At June 30, 2007, and December 31, 2006, the interest rates for borrowings secured by receivables were 5.3% and 5.6%.

Under the accounts receivable securitization program, the maximum borrowing amount is subject to change based on the level of eligible receivables and restrictions on concentrations of receivables and, at June 30, 2007, could not exceed $250.0 million. The accounts receivable securitization program contains financial covenants requiring us to maintain a minimum interest coverage ratio and a specified maximum leverage ratio.

Other

We also have other outstanding letters of credit, which are used for trade purchases. At June 30, 2007, and December 31, 2006, we had $4.2 million and $0.1 million, respectively, of outstanding letters of credit. These letters of credit do not reduce our borrowing capacity under our amended revolving credit facility.

We have entered into interest rate swaps to hedge the majority of the cash flow risk from the variable interest payments on our variable-rate debt. These swaps gave us effective interest rates on all of our long-term variable-rate debt of 6.8% and 7.0% at June 30, 2007, and December 31, 2006, respectively. For additional information on our interest rate swaps, see Note 14, Financial Instruments, in “Item 1.  Consolidated Financial Statements” of this Form 10-Q.

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

At June 30, 2007, and December 31, 2006, our average effective interest rates, including the effect of our interest rate swaps, on all of our long-term debt were 6.9% and 7.1%.

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

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

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Contractual Obligations

For information on contractual obligations, see Contractual Obligations in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Annual Report on Form 10-K. As of June 30, 2007, there have been no material changes to our contractual obligations outside the normal course of business, except as disclosed in “Forest Products Acquisition” under Acquisitions in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, related to amounts we could pay OfficeMax under the Additional Consideration Agreement, and those amounts disclosed in “Financing Activities” under Liquidity and Capital Resources in this Management’s Discussion and Analysis of Financial Condition and Results of Operations related to commitments under our amended and restated senior secured credit facilities, which we completed in May 2007. In addition, our lease obligations have increased in connection with the sale and lease-back of our building materials distribution center in Milton, Florida, in second quarter 2007. See Note 6, Leases, for our updated lease payment requirements.

Off-Balance-Sheet Activities

At June 30, 2007, and December 31, 2006, we had no off-balance-sheet arrangements with unconsolidated entities.

Guarantees

Note 19, Commitments and Guarantees, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” in our 2006 Annual Report on Form 10-K describes the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make. As of June 30, 2007, there have been no material changes to the guarantees disclosed in our 2006 Annual Report on Form 10-K, except that Boise Cascade Holdings, L.L.C., and its direct and indirect domestic subsidiaries, excluding foreign subsidiaries and Birch Creek, now guarantee the obligations of our amended and restated obligations discussed in “Financing Activities” under Liquidity and Capital Resources in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Environmental

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

Critical Accounting Estimates

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

Recently Adopted Accounting Standards

In January 2007, we adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, and began expensing the costs of periodic major overhauls and maintenance of plant and equipment as incurred. Prior to the adoption of this FSP, we charged planned shutdown maintenance costs in our Paper and Packaging & Newsprint segments to income (loss) ratably over the year. We recast our 2006 interim financial information included in this Form 10-Q using the direct expense method. As a result of adopting this FSP, we increased “Materials, labor, and other operating expenses” $2.2 million and decreased “Net income” by the same amount for the three months ended June 30, 2006. Of the $2.2 million adjustment, we reduced income $1.8 million in our Paper segment and $0.4 million in our Packaging & Newsprint segment. During the six months ended June 30, 2006, we increased “Materials, labor, and other operating expenses” $0.3 million

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and decreased “Net income” by the same amount. Of the $0.3 million adjustment, we increased income $1.6 million in our Paper segment and reduced income $1.9 million in our Packaging & Newsprint segment. The FSP increases the volatility of earnings in the period a planned shutdown occurs, but it has no impact on our annual results of operations.

In January 2007, we adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the criteria for recognizing tax benefits under FASB Statement No. 109, Accounting for Income Taxes. It also requires additional financial statement disclosures about uncertain tax positions. Because the majority of our businesses and assets are held and operated by limited liability companies and the income taxes of these operations are payable by our equity holders, it did not have a material impact on our financial position or results of operations. For more information, see Note 7, Income Taxes. Events could arise in the future that would cause the adoption of this interpretation to have a material impact on our financial statements. For example, if our tax status were to change in the future, we would have to reevaluate the impact of FIN No. 48 on our financial position and results of operations at that time.

In December 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and 132(R), which required us to recognize the funded status of our pension and other postretirement benefit plans on our 2006 Consolidated Balance Sheet. It also required us to recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of other comprehensive income, net of tax, in our Consolidated Statement of Capital. In connection with adopting SFAS No. 158, we reduced our liabilities $38.1 million and increased capital by about the same amount. Retrospective application was not permitted. For more information, see Note 15, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in “Item 8.  Consolidated Financial Statements” of our 2006 Annual Report on Form 10-K.

In December 2006, we adopted Staff Accounting Bulletin (SAB) Topic 1N, Financial Statements — Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 did not have a material impact on our financial position or results of operations.

In February 2006, we adopted FSP No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement Upon the Occurrence of a Contingent Event. FAS 123(R)-4 requires companies to assess the probability that a contingent cash settlement event will occur when it determines the classification of options or other similar instruments issued as part of employee compensation arrangements. Because redemption by Forest Products Holdings, our equity sponsor, and the expected parallel redemptions of the Series B and Series C equity units granted to our employees under the Management Equity Agreement are a contingent event outside employees’ control and not currently deemed probable of occurring, we account for the units using equity plan accounting in accordance with FAS 123(R)-4.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, we record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by third parties. Changes in the fair value of derivatives are recorded in either “Net income (loss)” or “Other comprehensive income,” as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in “Other comprehensive income” in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in our Consolidated Statements of Income (Loss). The gain or loss on derivatives designated as fair value hedges and the offsetting gain or loss on the hedged item attributable to the hedged risk are included in income (loss) in the period in which changes in fair value occur. The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.

Interest Rate Risk

Our debt is predominantly variable-rate. We manage interest rate risk on our variable-rate debt by entering into interest rate swaps. At June 30, 2007, the estimated current market value of our fixed-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $20.4 million less than the amount reported on our Consolidated Balance Sheet.

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

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

At June 30, 2007, we had four interest rate swaps to hedge our exposure to interest rate fluctuations associated with a portion of our variable-rate debt. The swaps effectively hedge $500 million of our variable-rate debt exposure through 2009. Assuming no changes in interest rates, we expect to reclassify $4.1 million of amounts recorded in “Accumulated other comprehensive income” as a decrease in interest expense during the remainder of 2007. At June 30, 2007, we recorded no ineffectiveness related to these hedges.

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Energy Risk

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

Foreign Currency Risk

At June 30, 2007, we had no foreign currency hedges.

ITEM 4.CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures

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

We evaluate the effectiveness of our disclosure controls and procedures on at least a quarterly basis. A number of key components in our internal control system assist us in these evaluations. Since the company’s inception, we have had a disclosure committee. The committee meets regularly and includes input from our senior management, general counsel, internal audit staff, and independent accountants. This committee is charged with considering and evaluating the materiality of information and reviewing the company’s disclosure obligations on a timely basis. Our internal audit department also evaluates components of our internal controls on an ongoing basis. To assist in its evaluations, the audit staff uses a web-based application that helps to identify, document, and test our internal controls. Our intent is to maintain disclosure controls and procedures as dynamic processes that change as our business and working environments change.

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

Limitations on the Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, we recognized that disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. We have also designed our disclosure controls and procedures based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under 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 arise in the ordinary course of our business. We are not currently a party to any legal proceedings or environmental claims that we believe would have a material adverse effect on our financial position, results of operations, or cash flows.

ITEM 1A.RISK FACTORS

This Quarterly Report on Form 10-Q contains forward-looking statements. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results, projected capital expenditures, and future business prospects, are forward-looking statements. You can identify these statements by our use of words such as “may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate,” and other similar expressions. You can find examples of these statements throughout this report, including the Overview of Financial Condition section of Management’s Discussion and Analysis of Financial Condition and Results of Operations. We cannot guarantee that our actual results will be consistent with the forward-looking statements we make in this report. You should review carefully the risk factors listed in “Item 1A.  Risk Factors” of our 2006 Annual Report on Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). There have been no material changes to our risk factors for the six months ended June 30, 2007, from those listed in our 2006 Annual Report on Form 10-K.

ITEM 1B.UNRESOLVED STAFF COMMENTS

We have no unresolved comments from the Commission staff.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

Not applicable.

ITEM 5.OTHER INFORMATION

None.

ITEM 6.EXHIBITS

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

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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.

BOISE CASCADE HOLDINGS, L.L.C.

/s/ Samuel K. Cotterell

Samuel K. Cotterell

Vice President and Controller

(As Duly Authorized Officer and Chief

Accounting Officer)

Date:  August 14, 2007

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BOISE CASCADE HOLDINGS, L.L.C.

INDEX TO EXHIBITS

Filed With the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2007

Number	Description
31.1	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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