UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2006~~2008

¨ 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 001-33192

www.bmhc.com

Building Materials Holding Corporation

	Delaware		91-1834269
	(State of incorporation)		(IRS Employer Identification No.)

~~Four Embarcadero~~720 ~~Center~~Park Boulevard, Suite ~~3200~~ 200, ~~San Francisco~~Boise, ~~CA 94111~~Idaho 83712

(~~415~~208) ~~627~~ 331-~~9100~~4300

Securities registered pursuant to Section 12(b) of the Act:

			Name of each exchange
	Title of each Class		on which registered
	Common Stock, $0.001 par value per share		New York Stock Exchange

	Name of each exchange
Title of each Class	on which registered

None

Securities registered pursuant to Section 12(g) of the Act:

~~None~~Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No þ

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

Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer þ¨ ~~Accelerated~~Non-accelerated filer ¨ ~~Non-accelerated~~Accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No þ

The ~~aggregate~~ aggregate market value of common ~~stock~~shares held by non-affiliates of the registrant as of June 30, ~~2006~~2008 was $~~605~~43,~~536~~457,~~534~~242. The market value computation excludes 7 4,~~268~~921,~~622~~246 shares ~~of common stock~~ held by affiliates such as directors, officers and holders of more than 5% of the common shares outstanding as of June 30, ~~2006~~ 2008.

The number of common shares outstanding ~~of common stock~~ as of ~~February 20~~April 10, ~~2007~~ 2009 was 29,~~164~~732,~~105~~742.

Documents Incorporated by Reference

~~(1) Portions of the Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders on May 1, 2007, are incorporated by reference in Part III of this Form 10-K.~~None

Building Materials Holding Corporation

FORM 10-K

For the Fiscal Year Ended December 31, ~~2006~~2008

INDEX

				Page
PART I			Page
PART I
	Item 1.	Business	3
	Item 1.	Business		3
	Item 1A.	Risk Factors	12
	Item 1A.	Risk Factors		13
	Item 1B.	Unresolved Staff Comments	20
	Item 1B.	Unresolved Staff Comments		17
	Item 2.	Properties	21
	Item 2.	Properties		18
	Item 3.	Legal Proceedings	22
	Item 3.	Legal Proceedings		19
	Item 4.	Submission of Matters to a Vote of Security Holders	23
	Item 4.	Submission of Matters to a Vote of Security Holders		20
PART II
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21
	Item 6.	Selected Financial Data	25
	Item 6.	Selected Financial Data		23
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		43
	Item 8.	Financial Statements and Supplementary Data	57
	Item 8.	Financial Statements and Supplementary Data		44
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	110
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		78
	Item 9A.	Controls and Procedures	111
	Item 9A.	Controls and Procedures		78
	Item 9A. (T)	Controls and Procedures	112
	Item 9B.	Other Information	113	78
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	114	79
	Item 11.	Executive Compensation	118	84
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	128	84
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	130	84
	Item 14.	Principal Accounting Fees and Services	131	84
PART IV
	Item 15.	Exhibits, Financial Statement Schedules	132	85
		Signatures	140	92

Introduction - – Risk Factors and Forward-Looking Statements

There are a number of business risks and uncertainties that affect our operations and therefore could cause future results to differ from past financial performance or expected results and ultimately affect the trading price of our common shares. Information regarding these risks and uncertainties is contained in Item 1A of ~~this~~ Form 10-K under the caption Risk Factors.

Certain statements in this Form 10-K including those related to expectations about homebuilding activity in our markets, demographic trends supporting ~~homebuilding~~ ~~and~~homebuilding, competition trends, anticipated sales and operating income and negotiations with our lenders are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results and future business prospects are forward-looking statements. While these statements represent our ~~current~~ current judgment on what the future may hold and we believe these judgments are reasonable, these statements involve risks and uncertainties that are important factors that could cause our actual results to differ materially from those in forward-looking statements. These factors include, but are not limited to, the risks and uncertainties cited in Item 1A of this Form 10-K under the caption Risk Factors. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date of the filing of our ~~2006~~ 2008 Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements.

PART I

ITEM 1. Business

General

Building Materials Holding Corporation is one of the largest providers of residential ~~construction~~building ~~services~~products and ~~building~~construction ~~products~~services in the United States, with a focus in the ~~western~~ western and southern states. We ~~provide~~distribute ~~construction services and~~ building ~~products~~materials, ~~through~~manufacture ~~our~~building ~~two~~components ~~subsidiaries~~(millwork, ~~SelectBuild~~ floor and ~~BMC West, in~~roof 16trusses ofand ~~the top~~wall 25panels) ~~single-family~~and ~~residential~~provide construction ~~markets. SelectBuild provides construction~~ services to ~~high-volume~~professional ~~homebuilders~~builders inand contractors ~~key~~through ~~growth~~a ~~markets.~~network ~~BMC West~~of ~~markets~~43 ~~and~~distribution ~~sells building materials~~facilities, ~~manufactures~~29 ~~building components~~manufacturing facilities and ~~provides~~ 5 regional construction services tofacilities. Based ~~professional builders and contractors through~~on aNational ~~network~~Association of 41Home ~~distribution~~Builders ~~facilities~~building ~~and~~permit 60activity, ~~manufacturing~~we ~~facilities. We~~provide ~~have increasingly~~building ~~focused~~products onand ~~providing~~ construction services ~~and~~in ~~manufactured building~~10 ~~components~~of tothe ~~our~~top ~~customers~~25 single-family construction markets.

Incorporated in the state of Delaware in 1987, Building Materials Holding Corporation trades on the ~~NYSE~~OTC Bulletin Board (OTCBB) under the ticker symbol ~~BLG~~BLGM and is headquartered in ~~San Francisco,~~ ~~California~~Boise, Idaho.

~~Periodic~~ Our periodic and current reports are filed with the Securities and Exchange Commission at www.sec.gov and are also available aton our website at www.bmhc.com. Additionally, our reports filed with the Securities Exchange Commission may be read or copied at the Security Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information regarding the operation of the Public Reference Room may be obtained by calling 1 (800) SEC-0330.

Industry Overview

The residential ~~construction~~building ~~services~~products and ~~building~~construction ~~products~~services industry is dependent on demand for single-family homes. Housing demand is influenced by many factors ~~including~~ including the overall condition of the U.S. economy, mortgage and other interest rates, consumer confidence, job formation and demographic trends as well as ~~other~~ other factors. The ~~U.S.~~production ~~Census~~of ~~Bureau reported a 15% drop in~~ single-family ~~housing starts~~homes to 1.5 million units in 2006 compared to the historic high of 1.7 million units in 2005. Single-family housing starts in 2007 are expected to decline to 1.3 million units according to the National Association of Home Builders. We believe homebuilding is ~~adjusting to a more historically sustainable pace as~~therefore ~~evidenced~~variable ~~by the current climate of slowing demand, higher inventories of new homes~~ and ~~price~~cyclical ~~concessions~~in ~~offered by builders~~nature.

~~Although~~Already under ~~the industry~~contraction, ~~remains~~single-family ~~fragmented,~~housing ~~consolidation~~starts ~~continues~~declined tofurther ~~occur~~in ~~among~~the fourth quarter ~~homebuilders~~of 2008 as home foreclosures increased, ~~building~~lending ~~material~~standards ~~distributors~~tightened and ~~construction~~rising unemployment ~~service~~sapped ~~providers~~consumer confidence. ~~The~~ According ~~industry~~to isthe ~~experiencing~~U.S ~~the~~Census Bureau ~~emergence~~as of ~~larger~~November ~~scale~~2008, ~~operations~~single-family ~~with~~housing starts for the U.S. as a whole ~~improved~~fell ~~financial~~below ~~strength,~~an ~~negotiating~~annualized ~~leverage~~rate ~~and~~of ~~other~~0.5 ~~resources~~million. Excluding Wethe boom ~~believe~~years ~~this~~of ~~continued~~2006 ~~consolidation~~through ~~will~~2003, ~~favor high~~single-~~volume~~family ~~homebuilders,~~housing ~~our target~~starts ~~market,~~for asthe ~~well~~U.S. as ~~larger,~~a ~~established~~whole averaged ~~construction~~1.1 ~~service~~million ~~providers and building~~starts ~~material~~per ~~distributors~~year since 1990.

~~At SelectBuild~~Similarly, we ~~offer~~as of ~~construction~~November ~~services~~2008 toannualized ~~high~~single-~~volume~~family ~~homebuilders.~~permits ~~These~~in ~~builders~~our ~~generally outsource~~markets ~~framing~~fell ~~and~~46% ~~other~~to ~~construction services~~0. ~~Our services include wood~~2 ~~framing~~million orfrom ~~concrete~~the ~~block~~prior ~~masonry~~year. Accordingly, ~~concrete~~we ~~services,~~implemented ~~plumbing and other~~the ~~services.~~following ~~Construction~~significant ~~services~~changes ~~include~~to ~~managing~~our ~~labor~~operations ~~and~~for construction schedules as well as sourcing materials. We currently offer these services in the major metropolitan markets of California, Arizona, Nevada, Florida, Illinois and Virginia. 2008:

·	closure of 42 and consolidation of 15 business units in underperforming markets,

·	centralized administrative functions of information systems, reporting, accounts payable and human resources to our existing administrative support operation and

·	reduced employees 42% in our operations and 12% in our administrative support operation.

According to the U.S. Census Bureau as of February 2009, single-family housing starts for the U.S. as a whole fell to an annualized rate below 0.4 million and single-family permits in our markets fell to an annualized rate below 0.2 million. This suggests 2009 will be more challenging than 2008 as the decline in housing starts will cause competition to sharpen. As a result, we continue to assess the operating performance of business units and eliminate cost inefficiencies. We continue to believe our employees’ efforts to maintain our preferred supplier status with our customers and focus on cost efficiencies are distinguishing factors in our ability to weather this unprecedented downturn in the basic necessity of housing.

~~Table~~ Under our BMC West brand, we market and sell building products, manufacture building components and provide construction services to professional builders and contractors. Products include structural lumber and building materials purchased from manufacturers as well as manufactured building components such as millwork, trusses and wall panels. Construction services include installation of ~~Contents~~various building products and framing. We serve our customers based on a regional market management approach where our business units offer our entire breadth of building products, manufactured building components and construction services to a market area. We currently offer these products and services in major metropolitan markets in Texas, Washington, Colorado, Idaho, Utah, Montana, California and Oregon.

At Under ~~BMC West, we~~our ~~market~~SelectBuild ~~and sell building products~~brand, ~~manufacture~~we ~~building~~offer integrated ~~components and provide~~ construction services to ~~professional~~production ~~builders~~homebuilders ~~and contractors. Products include structural lumber and building materials purchased from manufacturers~~ as well as ~~manufactured~~commercial ~~building components such as millwork, trusses~~ and ~~wall~~multi-family ~~panels~~builders. ~~Construction~~ These ~~services~~builders ~~include~~generally outsource framing and ~~installation~~other ofconstruction ~~various~~services. Our ~~building~~services ~~products.~~include Wewood ~~serve~~framing, ~~our~~concrete ~~customers~~services, ~~based~~plumbing onand ~~a regional market management approach~~other ~~where~~services. Construction ~~strategic~~services ~~locations~~include ~~offer~~managing ~~our~~labor ~~entire breadth of building products, manufactured building components~~ and construction ~~services~~schedules toas awell ~~market~~as ~~area~~sourcing materials. We ~~currently~~ currently offer these ~~products and~~ services in ~~the~~ major metropolitan markets ~~of Texas,~~ ~~Colorado,~~in ~~Washington, Idaho, Utah,~~ California, ~~Oregon~~Arizona, ~~Montana and~~ Nevada and Illinois.

~~Acquisition Strategy~~Restructuring

WeIn ~~grow~~response ~~our~~to ~~business~~challenging ~~through~~economic ~~acquisitions~~and asindustry ~~well~~conditions, asin ~~strategically~~May ~~expanding~~2008 ~~the~~we ~~breadth~~initiated ofa ~~our~~comprehensive ~~construction~~analysis ~~services~~of ~~and~~our ~~building~~businesses ~~products~~operations ~~offered~~ to ~~high-volume~~ ~~homebuilders~~improve ~~and other professional builders and contractors. In~~cash ~~particular,~~flow ~~we believe high-volume homebuilders are seeking quality, reliable~~ and ~~cost~~profitability ~~effective~~as ~~solutions~~well toas ~~meet~~rationalize ~~their~~our ~~construction~~operations ~~service~~for ~~needs. Our growth over~~ the ~~past several years has been largely due to acquisitions. The~~current ~~fragmented~~conditions ~~nature~~ of the ~~construction~~homebuilding ~~services and building products~~ industry ~~provides us with acquisition opportunities~~. The Weplan ~~clearly~~places ~~define~~a ~~and thoroughly~~priority ~~analyze target markets. In attractive markets, acquisitions are evaluated based~~ on ~~their~~positive ~~anticipated~~cash ~~performance~~flow, ~~management~~efficient ~~depth,~~use ~~cultural~~of ~~fit,~~capital ~~industry reputation~~ and ~~long-term~~higher ~~potential~~returns ~~customer~~and ~~base. We typically enter a market~~focuses ~~by purchasing~~on ~~all~~closing or ~~part~~consolidating ofunderperforming ~~an existing~~ business ~~and~~units ~~seek~~as towell ~~rapidly~~as ~~integrate~~improving ~~our services~~business ~~and products to capture market share~~processes. As Wea ~~assign~~result, ~~experienced due diligence teams to review potential acquisition candidates and develop integration plans once~~ we ~~have~~implemented ~~agreed in principle to~~ the ~~general terms of~~following ~~an acquisition.~~changes:

~~Over the~~Fourth ~~past few years, SelectBuild acquired businesses providing construction services to high-volume homebuilders. Specifically, these businesses were as follows:~~Quarter

~~2006~~· closure of our concrete business and lumber distribution facility in Southern California,

· ~~distribution~~closure ~~services~~of a concrete business in ~~Southern~~Northern California,

· ~~remaining~~relocation ~~49%~~of ~~interest~~building materials distribution operation in Kent, Washington to our existing ~~business~~operations ~~providing~~in ~~concrete~~the ~~services~~Puget inSound ~~Arizona~~area of Washington,

· ~~window~~relocation ~~installation~~of ~~services~~millwork operation in ~~Phoenix~~Fort Collins, ~~Arizona~~Colorado to our existing operation in Greeley, Colorado,

· ~~framing~~closure ~~services~~of building materials distribution, millwork and truss operations in ~~Southern~~Sparks, ~~California~~Nevada and

· ~~concrete~~exit ~~services~~of inoperating ~~Northern~~leases ~~Arizona~~for various operating facilities.

· wall panel and truss manufacturer in Palm Springs, California

· remaining 20% interest in our existing business providing concrete block masonry and concrete services in Florida

· framing services in Palm Springs, California and Reno, Nevada

2005

· framing services in San Diego, California

· concrete and plumbing services in Las Vegas, Nevada and Southern California

· additional 20% interest in our existing business providing concrete block masonry and concrete services in Florida (initial purchase of 60% January 2003)

· 51% interest in concrete services in Arizona

~~Table of~~Third ~~Contents~~Quarter

· ~~73%~~closure ~~interest~~of intruss ~~plumbing~~operation ~~services~~ in ~~Phoenix and Tucson~~Minden, ~~Arizona~~Nevada,

· ~~stucco~~relocation ~~services~~of millwork operation in ~~Las~~Boise, ~~Vegas~~Idaho to our existing building distribution and truss operation in Boise, ~~Nevada~~Idaho,

· ~~51%~~relocation ~~interest~~of millwork operation in ~~framing~~Salt ~~services~~Lake City, Utah to our existing operation in ~~Chicago~~Orem, ~~Illinois~~Utah and

~~2004~~· exit of operating leases for various operating facilities.

·Second ~~window installation services in Napa, California~~Quarter

· ~~51%~~streamlining ~~interest~~of inour aorganizational ~~truss~~structure ~~manufacturer~~by inreducing ~~Fort~~the ~~Pierce,~~previous ~~Florida~~13 regions to 6 as well as realigning management functions,

· ~~remaining~~integration ~~49%~~and ~~interest~~centralization inof ~~our~~administrative ~~existing~~functions ~~framing~~at construction services ~~business~~operations into ~~Northern~~our ~~California~~existing ~~(initial~~administrative ~~purchase~~support ~~of 51% July 2002)~~operations,

· ~~distribution~~closure ~~services~~of the following business units in ~~Tucson,~~underperforming ~~Arizona~~markets:

~~At BMC West, we~~§ ~~are expanding our building products, manufactured building components,~~ millwork and ~~construction~~ ~~services~~building tomaterials ~~become~~distribution aoperations ~~full-service provider to homebuilders. To facilitate this expansion~~ in ~~products~~Merced and ~~services~~Bakersfield, ~~BMC West acquired:~~California,

~~2006~~§ concrete and framing services in Tucson, Arizona,

·§ ~~building~~block ~~materials~~masonry, ~~distribution~~concrete services and truss manufacturing in ~~Eastern~~Florida ~~Idaho~~and

·§ ~~building~~various ~~materials~~underperforming ~~distribution~~trades ~~and~~within ~~millwork~~our ~~services~~operating inregions ~~Houston, Texas~~and

~~2005~~· exit of operating leases for various operating facilities.

·First ~~truss manufacturer in McCall, Idaho~~Quarter

~~2004~~· appointment of a chief operating officer to assume responsibility for the operation of our building product and construction service offerings and

· discontinued framing services in ~~Denver, Colorado~~Virginia.

~~As part~~During of2008 ~~our growth strategy,~~ we ~~continue to evaluate acquisition opportunities~~ ~~that~~reduced ~~strengthen~~the ~~and~~number ~~broaden~~of ~~our~~employees ~~construction~~42% ~~services~~for operations and ~~building~~12% ~~products~~for administrative ~~as well~~support ascompared ~~our~~to ~~presence~~a inyear ~~attractive markets~~ago.

~~Both~~We ofcustomize our ~~business~~ ~~segments customize their respective~~ mix of ~~construction~~building ~~services~~products and ~~building~~ ~~products~~construction services to meet customer needs in ~~their~~each ~~respective~~of our markets. The ~~Our~~significant housing ~~acquisition~~downturn ~~and expansion strategy~~ has changed our sales mix as follows:

	2006			2005			2004
Construction Services		59	%		54	%		43	%
Building Products		41			46			57
		100	%		100	%		100	%

Competitive Strengths

Strategically located in growing and diverse markets. We have focused our business on large rapidly growing market areas, principally in the western and southern states. According to single-family housing permit data from the U.S. Census Bureau, in 2006 we had operations in 16 of the top 25 U.S. metropolitan statistical areas. Due to the number and variety of geographic market areas in which we do business, we believe that we are less subject to regional or local economic downturns than locally focused businesses.

Superior quality turnkey construction services. Through SelectBuild, we provide superior quality and reliable construction services to high-volume homebuilders in our markets. Certifications from the National Association of Home Builders demonstrate our professional credibility, competence, business integrity and solid record of customer satisfaction. Because we provide services to multiple high-volume homebuilders in our markets, we are able to maintain a stable, well-trained workforce to provide our services. We believe our services enable homebuilders to increase profitability by reducing cycle time with higher quality construction at a lower cost.

~~Table~~Sales ~~of Contents~~Mix

~~Full~~Competitive offering of manufactured products and other services. We believe we are well known and respected in our markets for the superior quality and breadth of our products and services. Through BMC West, we have significantly increased our sales of manufactured products, which provide us with higher margins and increased opportunities to cross-sell other products to our customers. By supplying professional builders and contractors with manufactured products and other services as well as key building products, we are able to help them reduce costs and cycle time.Strengths

~~Significant economies~~Strategically oflocated ~~scale~~in growing and diverse markets. Our strategy focuses on offering building ~~Due~~products toand ~~the~~construction ~~high~~services in large, rapidly growing ~~volume~~markets. According ofto ~~materials~~single-family ~~and~~housing ~~other~~permit ~~building~~data ~~products~~from wethe ~~purchase~~U.S. Census Bureau, in 2008 we ~~negotiate~~had ~~lower prices~~operations onin ~~materials~~10 ~~and~~of ~~further~~the ~~lower~~top ~~costs~~25 toU.S. ~~our~~metropolitan statistical ~~customers~~areas. Our Inoperations ~~addition, we have~~are ~~established~~geographically ~~strong~~diverse ~~relationships~~and principally ~~with~~located ~~our~~in ~~suppliers.~~the ~~These~~western ~~strong~~and south central ~~relationships~~states. According ~~provide~~to usthe ~~significant~~U.S. ~~purchasing~~Census ~~advantages~~Bureau, ~~including~~housing ~~volume~~starts have ~~rebate~~favored ~~programs~~the western and ~~preferred~~southern ~~customer~~regions, ~~status~~averaging ~~when~~75% ~~supplies~~of ~~are~~annual starts over ~~limited~~the past three years.

~~Strong balance~~Full ~~sheet~~offering ~~with~~of ~~access~~manufactured products toand ~~additional~~other ~~capital~~services. We believe ~~that high-volume~~we ~~homebuilders~~are well known and respected ~~other~~in ~~professional~~our ~~builders~~markets for the superior quality and ~~contractors~~breadth ~~prefer to~~of ~~deal~~our ~~with~~products and aservices. We ~~stable,~~have ~~financially~~increased ~~strong~~our ~~company~~sales ~~like~~of usmanufactured toproducts, which provide ~~their construction~~us ~~services~~with higher margins and ~~building~~increased ~~materials~~opportunities ~~needs.~~to Wecross-sell other ~~actively~~products ~~manage~~to our ~~balance~~ ~~sheet~~customers. By tosupplying ~~have~~professional ~~low~~builders and ~~leverage~~contractors with manufactured products and ~~significant~~other ~~liquidity.~~services Inas ~~addition,~~ well as akey ~~larger~~building ~~publicly traded company~~materials, we ~~have~~are ~~better~~able ~~access~~ to ~~capital~~help ~~than~~them ~~many of our~~reduce ~~competitors~~costs and cycle time.

~~Variable cost~~Superior ~~structure. We~~quality ~~estimate~~turnkey ~~that~~construction ~~nearly~~services. We ~~all~~provide ofsuperior ~~our~~quality, cost ofeffective ~~sales~~ and reliable aconstruction ~~large~~service ~~portion~~solutions ofto ~~our~~production ~~selling,~~homebuilders ~~general~~ and other ~~administrative~~builders ~~expenses~~in ~~are~~key ~~variable~~markets. Certifications ~~Additionally,~~from wethe ~~can~~National ~~maximize free cash~~Association ~~flow~~of ~~during~~Home ~~industry~~Builders ~~downturns~~demonstrate byour ~~reducing~~professional ~~capital~~credibility, ~~expenditures~~competence, ~~due to the~~business ~~fact that~~integrity aand ~~significant~~solid ~~portion~~record of ~~our~~customer ~~capital expenditures are discretionary~~satisfaction.

Experienced management team. We have a dedicated and experienced management team that combines extensive industry experience, local knowledge in the market areas we serve and experience managing a large, sophisticated enterprise. Our senior management team averages approximately 16 years of industry experience.

Focus on Service. Our focus on service is a key factor that distinguishes us from competitors. We employ experienced, service-oriented individuals. Our construction service skills and product knowledge enable customers to rely on our expertise for project implementation and product recommendations. Our quality assurance efforts and initiatives limit callbacks on the services and products we provide. Our dedication to providing superior customer service to builders allows our employees to develop consistent relationships and generate repeat and referral business.

Our Customers

We build relationships with professional homebuilders engaged in single-family residential construction. These builders are generally repeat customers, with high-volume material and labor needs that require materials procurement, manufactured building components, construction services and on-time job-site delivery. These services and products are not typically offered by retailers selling to do-it-yourselfers, home improvement contractors and trades people.

~~Table~~Long-term vendor ofrelationships. We ~~Contents~~have established strong relationships with our suppliers. These strong relationships provide us purchasing advantages, including volume rebate programs and preferred customer status when supplies or liquidity are limited.

~~SelectBuild customers~~Experienced ~~are~~management ~~high-volume homebuilders~~team. We ~~BMC West customers~~have ~~are~~a dedicated and experienced management team that ~~primarily~~combines extensive industry experience, local ~~and~~knowledge ~~regional~~in ~~professional~~the ~~homebuilders~~market asareas ~~well~~we serve asand ~~contractors~~experience managing a large, sophisticated enterprise. Our senior management team averages approximately 22 years of industry experience.

OnFocus on service. Our afocus ~~consolidated~~on ~~basis,~~service ~~our~~is ~~largest~~a ~~customer~~key ~~accounted~~factor ~~for~~that ~~6.5%~~distinguishes ofus ~~sales~~from inour competitors. We ~~2006~~employ experienced, service-oriented ~~while~~individuals. Our ~~the~~product ~~top~~knowledge ~~five~~and construction service skills enable customers ~~represented~~to ~~approximately~~rely ~~23%~~on ofour ~~consolidated~~expertise for project implementation and product ~~sales~~recommendations. Our Atquality ~~SelectBuild~~assurance ~~and~~initiatives ~~BMC~~limit ~~West,~~callbacks on the ~~top~~services ~~five~~and ~~customers~~products ~~accounted~~we ~~for~~provide. Our dedication to providing ~~approximately~~superior ~~35%~~customer ~~and~~service ~~15%~~to ofbuilders ~~each~~allows ~~business~~our ~~segment’s~~employees ~~sales,~~to ~~respectively.~~develop consistent relationships and generate repeat and referral business.

Our Customers

Our customers are national, regional and local professional homebuilders engaged in single-family residential construction. We also offer construction services to commercial and multi-family builders. These builders require materials procurement, manufactured building components, construction services and on-time job-site delivery. Our products and services are not typically offered by retailers selling to do-it-yourselfers, home improvement contractors and trades people.

On a consolidated basis, our largest customer accounted for 5% of sales in 2008, while the top five customers represented approximately 18% of consolidated sales. The loss of one or more of our significant customers or changes in customer mix may adversely affect our financial condition, results of operations or cash flows.

Competition

Our products and construction services ~~and products~~ compete with similar offerings in the marketplace and our competitors vary in size, management expertise and financial capabilities. Additionally, the markets in each of our business segments are fragmented and highly competitive. Given the fragmented nature of the industry, consolidation continues to occur among homebuilders, building material distributors and construction service providers. The industry is experiencing the emergence of larger scale operations with improved financial strength, negotiating leverage and other resources.

~~SelectBuild~~We ~~competitors~~compete range from single-crew operations to large well-managed organizations spanning multiple markets. Also, some high-volume homebuilders perform their own framing and other construction services. BMC West competes with local, regional and national building products distributors. Builders generally select suppliers based on competitive pricing, product availability, reliable delivery, service, trade credit and knowledgeable personnel. Competitors providing construction services range from single-crew operations to large well-managed organizations spanning multiple markets. Some production homebuilders also perform their own framing and other construction services.

Sales and Marketing

Our operations are located in many of the largest ~~and most rapidly growing~~ markets for single-family home construction. Economic strength as well as historical population and migration trends have generally supported the growth of residential construction in our markets. According to the U.S. Census Bureau, housing starts have favored the western and southern regions, ~~contributing over 70~~averaging 75% of annual starts over the past three years.

SelectBuild relies on the value and solid reputation of their integrated construction services model to secure and maintain national and regional relationships with high-volume homebuilders.

BMC West attracts customers by consistently providing quality building products and dependable customer service. Sales personnel are dedicated to sourcing new business and maintaining customer relationships. Marketing consists of industry-wide brand communications along with an array of regional marketing events and activities to enhance customer relationships.

Because of weather conditions in some of our markets, our operating results may be affected by slower construction activity during the first and fourth quarters of the year.

Business Segments

The following information is presented for our business segments.

Sales to external customers for construction services and building products are as follows (thousands):

~~Table~~We attract customers by consistently providing quality building products and dependable customer service. We also rely on the value and solid reputation of ~~Contents~~our construction services to secure and maintain national and regional relationships with production homebuilders. Our sales personnel are dedicated to sourcing new business and maintaining customer relationships. Marketing consists of industry-wide brand communications along with an array of regional marketing events and activities to enhance customer relationships.

	2006		2005		2004
SelectBuild
Construction services	$	1,691,973	$	1,358,333	$	744,932
Building products		39,841		35,553		8,769
	$	1,731,814	$	1,393,886	$	753,701
BMC West
Construction services	$	234,104	$	228,176	$	159,430
Building products		1,279,251		1,290,098		1,177,894
	$	1,513,355	$	1,518,274	$	1,337,324
Total	$	3,245,169	$	2,912,160	$	2,091,025

Cyclicality and Seasonality

~~Selected~~Our business is ~~financial~~dependent on demand for and supply of single-family homes, which are ~~information~~influenced by changes in the overall condition of the U.S. economy, including interest rates, consumer confidence, job formation and other important factors. The production of single-family homes is astherefore ~~follows~~variable and ~~(thousands):~~ cyclical in nature.

	Sales							Income (1) (Loss) Before Taxes and			Depreciation
	Total		Inter- Segment			Trade		Minority Interests			and Amortization		Capital (2) Expenditures		Assets
Year Ended December 31, 2006
SelectBuild	$	1,744,092	$	(12,278	)	$	1,731,814	$	148,416		$	30,002	$	33,409	$	722,328
BMC West		1,515,121		(1,766	)		1,513,355		124,523			12,178		33,135		487,703
Corporate		—		—			—		(75,484	)		3,104		6,174		118,880
	$	3,259,213	$	(14,044	)	$	3,245,169		197,455		$	45,284	$	72,718	$	1,328,911
Interest Expense									29,082
								$	168,373
Year Ended December 31, 2005
SelectBuild	$	1,395,182	$	(1,296	)	$	1,393,886	$	160,957		$	13,695	$	62,611	$	623,877
BMC West		1,519,903		(1,629	)		1,518,274		151,030			11,218		17,335		447,619
Corporate		―		―			―		(72,631	)		2,450		―		79,029
	$	2,915,085	$	(2,925	)	$	2,912,160		239,356		$	27,363	$	79,946	$	1,150,525
Interest Expense									14,420
								$	224,936
Year Ended December 31, 2004
SelectBuild	$	753,956	$	(255	)	$	753,701	$	59,689		$	8,216	$	14,382	$	268,498
BMC West		1,338,470		(1,146	)		1,337,324		96,083			11,740		17,036		409,160
Corporate		―		―			―		(47,664	)		2,859		―		65,386
	$	2,092,426	$	(1,401	)	$	2,091,025		108,108		$	22,815	$	31,418	$	743,044
Interest Expense									13,560
								$	94,548

Because of weather conditions in some of our markets, our financial condition, results of operations or cash flows may be adversely affected by slower construction activity during the first and fourth quarters of the year.

(1) The following impairments were recognized:

· In 2006, $1.8 million for the carrying amount of goodwill and $0.4 million for the carrying amount of certain customer relationships for SelectBuild.

· In 2005, $1.3 million for goodwill and certain customer relationships for SelectBuild.

· In 2004, $1.3 million for the carrying amount of certain properties held for sale and $1.0 million for the carrying amount of goodwill for BMC West.

(2) Property and equipment from acquisitions are included as capital expenditures.

Table of Contents

Operating Strategy

~~Our business~~Sales ~~units operate in specific markets and are organized under our business segments, SelectBuild and BMC West. Each regional manager has substantial autonomy and responsibility~~ to ~~address customer needs specific to their markets. The~~customers ~~reputation~~for ~~of a construction services provider or~~ building products ~~distributor is often determined locally, where service, product suitability~~ and ~~knowledgeable~~ ~~customer~~construction ~~service~~services are ~~critical.~~as ~~Managers are responsible for~~follows optimizing business activities in their markets, including the efficient use of personnel, assessing and maintaining working capital and construction labor requirements, identifying potential customers and developing appropriate service and product offerings. Incentive compensation is based on successful growth and financial returns tied to specific market areas and regions. (thousands):

We focus on improving efficiency and productivity at our business units while giving special attention and support to units that are not meeting strategic objectives. When a business unit fails to meet performance criteria, alternatives include adjusting the mix of products and services, restructuring management, consolidation or liquidation.

	2008		2007		2006
Building products	$	693,664	$	997,035	$	1,254,056
Construction services		631,015		1,182,038		1,697,106
	$	1,324,679	$	2,179,073	$	2,951,162

Our business units operate in specific markets and are organized under the brands of BMC West and SelectBuild. Each regional manager has substantial autonomy and responsibility to address customer needs specific to their markets. The reputation of a building products distributor or construction services provider is often determined locally, where service, product suitability and knowledgeable customer service are critical. Managers are responsible for optimizing business activities in their markets, including the efficient use of personnel, assessing and maintaining working capital, procuring construction labor and material requirements, identifying potential customers and developing appropriate service and product offerings. Incentive compensation is based on successful growth and operating results tied to specific market areas and regions.

We focus on improving efficiency and productivity at our business units while giving special attention and support to units that are not meeting strategic objectives. When a business unit fails to meet performance criteria, remedies include adjusting the mix of products and services, restructuring management, closure and consolidation.

Purchasing

We purchase building products from numerous manufacturers and suppliers. Our largest supplier accounted for approximately ~~9.5~~6% of purchases in ~~2006. Because~~ commodity wood products are available from several manufacturers and suppliers, we believe the loss of any single supplier would not have a material adverse effect on our financial position, results of operations or cash flows2008.

InWe ~~order~~have topreferred ~~meet~~suppliers ~~market~~for ~~specific~~certain ~~needs~~building ~~and~~products. We maintain ~~appropriate~~an ~~inventory~~open dialogue ~~levels,~~with our suppliers to avoid supply disruptions. Suppliers may ~~purchasing~~experience ~~decisions~~liquidity ~~are~~problems ~~made~~due atto the ~~business~~decline ~~unit~~in ~~level~~the homebuilding industry and tightened credit availability. ~~Large~~Also, ~~volume~~our ~~purchases~~suppliers may have concerns about ~~are~~our ~~made~~financial ~~under~~viability ~~company-wide~~and ~~guidelines~~address their own liquidity needs by requesting faster payment of invoices or other assurances. InIf ~~addition~~this were to happen, our need for cash may intensify and we ~~participate~~may inbe ~~volume discount~~unable ~~allowances~~to ~~from~~make payments to our suppliers. as they become due.

The prices of commodity wood products, concrete, steel and other building products are volatile and may adversely impact financial condition and results of operations when prices rapidly rise or fall. Our information systems allow business unit managers to closely monitor sales and inventory. With this supply and demand information, we generally avoid overstocking commodity wood products. As a result, we turn our commodity wood product inventory on average 11 to 14 times per year. Such rapid inventory turnover limits our potential exposure to inventory loss from commodity price fluctuations. 8

To meet market specific needs and maintain appropriate inventory levels, purchasing decisions are made at the business unit level within the framework of corporate negotiated programs. Large volume purchases are made under company-wide guidelines. In addition, we participate in volume discount and cooperative advertising programs with suppliers. We have established strong relationships with our suppliers. These strong relationships provide us purchasing advantages, including volume rebate programs and preferred customer status when supplies or liquidity are limited.

The prices of commodity wood products, concrete, steel and other building products are volatile and may adversely impact financial condition, results of operations and cash flows when prices rapidly rise or fall. Our information systems allow business unit managers to closely monitor sales and inventory. With this supply and demand information, we generally avoid overstocking commodity wood products. As a result, we turn our commodity wood product inventory on average 10 times per year. Such rapid inventory turnover limits our potential exposure to inventory loss from commodity price fluctuations.

Management Information Systems

We ~~are~~continue ~~standardizing~~to standardize software and infrastructure platforms that support the information needs of our organization. Our standardization effort includes job cost and construction information, estimating, accounts receivable management, inventory management, reporting, project scheduling and human resource management.

We ~~have~~use ~~developed~~ a project methodology that allows us to efficiently ~~deploy~~maintain ~~these~~and enhance these information systems tofor our business units. To eliminate redundant activities and ~~acquisitions.~~reduce ~~Most~~administrative ~~acquisitions~~costs, we transferred payroll, accounts ~~are~~payable ~~on-line~~and ~~with~~general ledger processes to our ~~corporate~~existing ~~infrastructure~~administrative ~~within~~support operations 30during ~~days~~2008. ofAs ~~acquisition~~we focus on reducing costs, future implementations ~~enabling~~will ~~access~~be limited, however we will continue to maintain the effectiveness and stability of our ~~network~~information ~~capabilities.~~processes and systems.

~~Our~~We ~~job~~continue ~~cost~~to research and ~~construction~~ ~~information~~recommend ~~systems~~new ~~are~~technology ~~operating~~solutions into ~~approximately~~improve information ~~90%~~for ofdecision-making, ~~our SelectBuild~~however ~~business~~new ~~units~~technology ~~with~~solutions ~~full~~must ~~deployment~~have ~~scheduled~~a short-term byand ~~mid~~positive ~~2007~~return to be implemented. WeRemote ~~expect~~information technology ~~our~~functions ~~inventory~~have ~~management~~been ~~system~~consolidated and moved to beBoise, ~~upgraded~~Idaho byto ~~early~~lower ~~2008~~costs and improve efficiencies. We ~~continue~~are ~~to research,~~also ~~recommend~~pursuing ~~and~~negotiations ~~implement~~with ~~new~~our technology vendors ~~solutions~~ to ~~improve information~~achieve ~~for~~economies ~~decision-making~~on ~~and our efficiencies~~pricing.

9Our network infrastructure consists of data centers in Boise, Idaho and Las Vegas, Nevada. This network infrastructure provides redundant services between data centers and allows for a more seamless disaster recovery capability.

Table of Contents

We have also made investments in our infrastructure to improve backup capabilities for our network. Because of our rapid growth, we expanded our data center capabilities beyond our facility in Boise, Idaho to also include Las Vegas, Nevada. This will provide redundant services between the two centers and allow for a more seamless disaster recovery capability.

In 2007, we will complete the implementation of the next generation of wide area network technology. This architecture will provide a redundant link between our locations and the data centers, reduce the costs to operate our network and provide us with the capability to rapidly deploy additional bandwidth to meet accelerating business demand.

Safety and Risk Management

~~Due to our growth in construction services in recent years, the number of employees dedicated to our construction trades has increased.~~ The construction services industry incurs a higher number of accidents and subsequent costs for workers’ compensation claims than typically experienced at building materials distribution facilities. Consequently, we have ~~initiated~~ several programs to enhance safety and reduce the risks encountered by our employees. These programs include instruction and training for truck drivers, construction safety, behavioral safety as well as on-line and instructor led training programs relating to OSHA compliance matters and safety hazards in the workplace. ~~Additionally, our managers are compensated for their effectiveness in reducing the incidence of workers compensation claims.~~

We maintain comprehensive insurance coverage to mitigate the potential cost of claims. Our estimated cost for automobile, general liability and workers compensation claims is determined by actuarial methods. Claims in excess of certain amounts are insured with third-party insurance carriers. Reserves for claims are recognized based on the estimated costs of these claims as limited by the deductible of the applicable insurance policies. 9

We maintain comprehensive insurance coverage to mitigate the potential cost of claims. Our estimated cost for automobile, general liability and workers’ compensation claims is determined by actuarial methods. Claims in excess of certain amounts are insured with third-party insurance carriers. Reserves for claims are recognized based on the estimated costs of these claims as limited by the deductible of the applicable insurance policies.

Employees

Our success is highly dependent on the quality of our employees. Due to competition in in attracting and retaining qualified employees, we maintain competitive compensation and benefit programs to attract, motivate and retain top-performers. We also provide extensive product knowledge, customer ~~service~~ service and other supervisory/ or management training programs to achieve our goal of being both the employer and supplier of choice.

WeAs ~~employ~~of December 2008, we employed approximately 178,~~000~~200 people. ~~Specifically,~~of ~~SelectBuild~~which ~~employs~~98% ~~12,000~~were in ~~employees,~~our ~~while~~operations ~~BMC~~and ~~West~~2% ~~employs~~were ~~5,000.~~in our administrative support functions. Unions represent approximately ~~700~~ 400 or less than 5% of ~~these~~ our employees. We have not experienced any strikes or other ~~work~~ work interruptions and have maintained generally favorable relations with our employees. However, recently there have been attempts by a union to organize our construction workers principally in our Arizona and Nevada operations. We will continue to balance shareholder value with competitive compensation and benefits, safe jobsites and quality construction skills for our employees.

Executive Officers

Name	Age	~~Age~~Position and Business Experience	~~Position and Business Experience~~
Robert E. Mellor	65	63Chairman of the Board and Chief Executive Officer Mr. Mellor became Chairman of the Board of Directors in 2002 and has been Chief Executive Officer since 1997. He has been a director since 1991. He was previously Of Counsel with the law firm of Gibson, Dunn & Crutcher LLP from 1990 to 1997. He is on the boards of directors of Coeur d’Alene Mines Corporation and The Ryland Group. He is also on the board of councilors of Save-the-Redwoods League. He does not serve on the audit committee of any of these boards. He serves on the compensation committee of the board of directors of Coeur d’Alene Mines.	Chairman of the Board, President and Chief Executive Officer Mr. Mellor became Chairman of the Board of Directors in 2002 and has been President and Chief Executive Officer since 1997. He has been a director since 1991. He was previously Of Counsel with the law firm of Gibson, Dunn & Crutcher LLP from 1990 to 1997. He is a director for Coeur d’Alene Mines Corporation, The Ryland Group and Monro Muffler Brake. He is also on the board of councilors of Save-the-Redwoods League. He does not serve on the audit committee of any of these boards. Mr. Mellor will not stand for re-election to the Board of Monro Muffler Brake in 2007.
William M. Smartt	66	Senior Vice President and Chief Financial Officer Mr. Smartt has been a Senior Vice President and Chief Financial Officer since April 2004. Prior to joining the Company, he was an independent consultant from August 2001 to March 2004. From 1992 to 2001, he was Executive Vice President, Chief Financial and Administrative Officer of DHL Express, a leader in international air express services. His previous experience as a Chief Financial Officer included 10 years with Di Giorgio Corporation, a Fortune 500 Company, whose product lines included the distribution of building materials, prefabricated components and framing services.

Table of Contents

Stanley M. Wilson	64	President and Chief Operating Officer Mr. Wilson was appointed President and Chief Operating Officer of Building Materials Holding Corporation in February 2008. Mr. Wilson was appointed President and CEO of BMC West in 2004 and was appointed Senior Vice President in 2003. He was appointed Vice President in 2000 and was General Manager of the Pacific Division of BMC West from 1993 to 2003. Mr. Wilson has been with the company since its beginning in 1987. His previous experience includes 20 years with the building materials distribution business of Boise Cascade Corporation.

Eric R. Beem	39	Vice President and Controller Mr. Beem was appointed Vice President in January 2006 and Controller in April 2005. He joined the Company as Accounting Manager in 1996. Mr. Beem is a Certified Public Accountant and his experience includes 3 years with an international public accounting firm.

Mark R. Kailer	55	Vice President, Treasurer and Investor Relations Mr. Kailer has been Vice President and Treasurer since 2003. He joined the Company in 2000 as Assistant Treasurer. He was previously Senior Manager of Treasury Services at Circle International Group, a publicly-traded global logistics company based in San Francisco, from 1997 to 2000.

Paul S. Street	61	Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary Mr. Street joined the Company in 1999 as Senior Vice President, General Counsel and Corporate Secretary and has been Chief Administrative Officer since 2001. He previously served as our outside General Counsel & Secretary while a partner of the law firm of Moffatt, Thomas, Barrett, Rock & Fields.

William M. Smartt	64	Senior Vice President and Chief Financial Officer Mr. Smartt has been a Senior Vice President and Chief Financial Officer since April 2004. Prior to joining the Company, he was an independent consultant from August 2001 to March 2004. From 1992 to 2001, he was Executive Vice President, Chief Financial and Administrative Officer of DHL Express, a leader in international air express services. His previous experience as a Chief Financial Officer included 10 years with Di Giorgio Corporation, a Fortune 500 Company, whose product lines included the distribution of building materials, prefabricated components and framing services.
Michael D. Mahre	47	Senior Vice President - Corporate Development, President and Chief Executive Officer - SelectBuild Mr. Mahre was elected a Senior Vice President in 2003. He was elected Vice President of Corporate Development in 2001 and Chief Executive Officer of SelectBuild in 2002. He joined the Company in 1999 as Director of Financial Planning and Analysis. Mr. Mahre was a principal of The Cambria Group, a private equity investment firm, from 1997 to 1998.
Stanley M. Wilson	62	Senior Vice President, President and Chief Executive Officer - BMC West Mr. Wilson was elected President and CEO of BMC West in 2004 and was appointed Senior Vice President in 2003. He was elected Vice President in 2000 and was General Manager of the Pacific Division of BMC West from 1993 to 2003. Mr. Wilson has been with the company since its beginning in 1987. His previous experience includes 20 years with the building materials distribution business of Boise Cascade Corporation.
Eric R. Beem	37	Vice President and Controller Mr. Beem was appointed Vice President in January 2006 and Controller in April 2005. He joined the Company as Accounting Manager in 1996. Mr. Beem is a Certified Public Accountant and his experience includes 3 years with an international public accounting firm.
Mark R. Kailer	53	Vice President, Treasurer and Investor Relations Mr. Kailer has been Vice President and Treasurer since 2003. He joined the Company in 2000 as Assistant Treasurer. He was previously Senior Manager of Treasury Services at Circle International Group, a publicly-traded global logistics company based in San Francisco, from 1997 to 2000.

~~Table of~~Item ~~Contents~~1A. Risk Factors

Jeffrey F. Lucchesi	53	Senior Vice President, Chief Information Officer Mr. Lucchesi joined the Company in August 2004 as Senior Vice President and Chief Information Officer. From 2000 to 2004, he was Senior Vice President of Worldwide Operations for Corio, Inc., an enterprise application service provider. Mr. Lucchesi also served from 1994 to 2000 as Vice President and Chief Information Officer for DHL Express, a leader in international air express services.
Steven H. Pearson	59	Senior Vice President - Human Resources Mr. Pearson has been Senior Vice President of Human Resources since 2001. From 1987 through 2001 he served as Vice President of Human Resources. Mr. Pearson has been with the Company since its beginning in 1987. His previous experience also includes 18 years in the human resource function of Boise Cascade Corporation.
Paul S. Street	58	Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary Mr. Street joined the Company in 1999 as Senior Vice President, General Counsel and Corporate Secretary and has been Chief Administrative Officer since 2001. He previously served as our outside General Counsel & Secretary while a partner of the law firm of Moffatt, Thomas, Barrett, Rock & Fields.

ITEM 1A. Risk Factors

Risks Related to Our Business

~~There~~We ~~are~~face a number of ~~business~~significant risks and uncertainties ~~that~~in connection with our operations. The factors described below may adversely affect our business, financial position, results of operations or cash flows and ~~therefore~~ could cause future results to differ from past performance or expected results. ~~These risks or uncertainties may include, but are not limited to the following factors:~~

~~Our~~While we describe ~~business~~each isrisk ~~dependent~~separately, onsome ~~demand~~of ~~for~~these ~~and~~risks ~~supply~~are ofinterrelated ~~single-family~~and ~~homes~~certain ~~which~~risks ~~is influenced~~could bytrigger ~~changes~~other inrisks ~~the~~described ~~overall~~below. ~~condition~~Also, of the ~~U.S.~~risks ~~economy,~~and ~~including~~uncertainties ~~interest~~described ~~rates,~~below ~~job~~are ~~formation,~~not ~~consumer~~the ~~confidence~~only risks and ~~other~~uncertainties ~~important~~we may face: ~~factors.~~

~~The residential construction~~There ~~services and building products industry~~ is ~~highly~~substantial ~~dependent~~doubt ~~on demand~~about ~~for single-family homes which is influenced by several factors. These~~our ~~factors~~ability include economic changes nationally and locally, mortgage and other interest rates, job formation, consumer confidence, demographic trends, inflation and building permit activity as well as other factors. The construction of new homes may also experience declines due to ~~home~~continue inventory levels, the availability and affordability of land in attractive metropolitan areas, shortages of qualified trades people, shortages of materials and regulations that impose restrictive zoning and density requirements. Also, changes to housing patterns may occur, such as ana ~~increase~~going ~~in consumer demand for urban living rather than single-family suburban neighborhoods~~concern. ~~All of these factors could limit demand for home construction and may adversely impact our financial condition, results of operations or cash flows.~~

~~There~~Our consolidated financial statements were prepared assuming we will continue as a going concern. We may not be able to meet near-term working capital and scheduled interest and debt payment requirements if cash flows are ~~risks~~inadequate from ~~associated~~our suppressed operating activities or if our access to the revolver portion of our credit facility is restricted due to lack of compliance with financial covenants or revolver borrowing base limitations. Absent any waiver, forbearance or modification to our ~~business~~current ~~model~~credit agreement or other financing options, we believe our recurring losses from operations, interest and debt burden amid declining sales and potential inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue near-term as a going concern.

~~Our business~~Additionally, ~~model~~our ~~seeks~~long-term ~~the~~future ~~strategic~~is ~~growth~~dependent ofon ~~construction~~more ~~services~~normal ~~and~~levels ~~distribution~~ of ~~building~~single-family housing ~~products~~starts inand anour ~~effort~~ability to ~~provide~~implement aand ~~comprehensive~~maintain ~~solution~~cost tostructures, ~~high-volume~~including reduced interest and ~~other~~ ~~homebuilders~~debt, that align with single-family housing trends. If ~~Providing~~this ~~these~~fails ~~services~~to ~~and~~transpire ~~products~~or ~~includes~~if ~~the~~we ~~risks of availability~~cannot ~~and~~obtain ~~cost~~a ofwaiver, forbearance ~~qualified~~or ~~labor~~modification to ~~and~~our ~~claims~~current ~~for~~credit ~~construction~~agreement ~~defects,~~or other financing ~~product~~options, ~~liability~~we ~~and~~may ~~workers~~not ~~compensation~~be asable ~~well~~to continue as ~~the~~a ~~timely~~going ~~sourcing~~concern and may ~~availability~~potentially ofbe ~~building~~forced ~~products.~~to ~~Additionally,~~seek ~~there~~relief isthrough noa ~~guarantee that~~bankruptcy ~~our efforts~~filing. Such toactions ~~offer~~may ~~these~~have ~~comprehensive~~an ~~solutions~~adverse ~~will~~impact ~~continue~~on tothe beholders ~~accepted~~of our ~~by the~~common ~~marketplace~~shares.

~~The~~Our business is dependent on demand for ~~integration~~and supply of ~~acquired~~single-family ~~businesses~~homes that ~~may~~are ~~not~~influenced ~~result~~by changes in ~~anticipated~~the ~~cost savings~~overall ~~and~~condition ~~revenue~~of ~~synergies~~the ~~being~~U.S. ~~fully~~economy, ~~realized~~including orinterest ~~may~~rates, consumer ~~take~~confidence, job ~~longer~~formation, toavailability ~~realize~~of ~~than~~credit and other important ~~expected~~factors.

~~Our~~The residential ~~growth~~building ~~over~~products ~~the~~and construction services industry is highly dependent on ~~past~~demand for single-family homes, which is influenced by several ~~years~~factors. ~~has~~These factors ~~been~~include ~~largely~~economic ~~due~~changes tonationally ~~acquisitions~~and locally, mortgage and weother interest ~~intend~~rates, toconsumer confidence, job formation, demographic trends, tax ~~continue~~incentives ~~this~~and ~~strategy~~availability of credit as well as other factors. The ~~integration~~ construction of ~~acquired~~new ~~businesses~~homes may ~~not~~experience ~~result~~decline due to excess unsold home inventory levels, ~~in anticipated~~lack ~~cost~~of ~~savings~~availability of credit for lenders, builders and ~~revenue~~homebuyers, ~~synergies~~lack ~~being~~of available ~~fully~~and ~~realized~~affordable orland ~~may~~in attractive metropolitan areas, shortages of ~~take~~qualified tradespeople, shortages of materials and regulations that impose ~~longer~~restrictive tozoning ~~realize~~and ~~than~~density ~~expected~~requirements. Also, ~~The~~changes ~~management~~to ~~and~~housing patterns ~~acquisition~~may ofoccur, ~~businesses~~such as an increase in consumer demand for urban living ~~involves~~rather ~~substantial~~than ~~risks~~single-family ~~including:~~suburban neighborhoods.

~~· the uncertainty that an acquired business will achieve anticipated operating results;~~12

·All ~~significant~~of ~~expenses~~these factors could limit demand for home construction and may result in lower sales of our building products and construction services as well as lower operating results due to ~~integrate;~~our inability to align our cost structure with these sales trends.

·Our ~~diversion~~ability ofto ~~management~~maintain ~~attention;~~adequate liquidity, reduce operating costs and increase market share in an industry experiencing a 55% reduction in average annual housing starts may not be fully realized or may take longer to realize than expected.

·Excluding ~~departure~~the boom years of ~~key~~2006 ~~personnel~~through ~~from~~2003, single-family housing starts for the ~~acquired~~U.S. ~~business;~~as a whole averaged 1.1 million starts per year since 1990. For 2008, annualized single-family housing starts for the U.S. as a whole were 55% lower or 0.5 million starts. Housing starts have been negatively impacted by an excess inventory of unsold homes and home foreclosures as lending standards tightened and recent growing economic hardships of rising unemployment have sapped consumer confidence. These trends may not substantially improve for some time.

·Single-family permits ~~effectively~~in ~~managing~~our ~~entrepreneurial~~markets ~~spirit~~declined 46% for 2008 and ~~decision~~31% for 2007. The decline was widespread across all our markets for both building products and construction services. Lower sales from weakening buyer demand and increased competition for fewer contracts led to declines in our margins, particularly for construction services. As of February 2009, single-~~making;~~family housing starts for the U.S. as a whole fell to an annualized rate below 0.4 million and single-family permits in our markets fell to an annualized rate below 0.2 million. We expect market conditions to be challenging and may apply further pressure to our sales, margins and operating results.

·● ~~integration~~Our ofliquidity ~~different~~is ~~information~~dependent ~~systems;~~on operating performance, an efficient cash conversion cycle and compliance with financial covenants.

·Liquidity ~~managing~~is ~~new~~essential ~~construction~~to ~~service~~our business. We ~~trades;~~fund working capital requirements and necessary capital expenditures with cash flow from operations and seasonal borrowings under our credit facility. A substantial deterioration in operating performance as well as inefficient conversion of business activities to cash may adversely affect our ability to obtain funding from operations or our credit facility.

·We may ~~unanticipated~~not ~~costs~~be able to meet near-term working capital and ~~exposure~~scheduled interest and debt payment requirements if cash flows are inadequate from our suppressed operating activities or if our access to ~~unforeseen~~the ~~liabilities;~~revolver portion of our credit facility is restricted due to lack of compliance with financial covenants or revolver borrowing base limitations. Absent any waiver, forbearance or modification to our current credit agreement or other financing options, we believe our recurring losses from operations, interest and debt burden amid declining sales and potential inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue near-term as a going concern.

·Additionally, ~~impairment~~our credit agreement requires monthly compliance with financial covenants including minimum liquidity and adjusted earnings before interest, taxes, depreciation and amortization (monthly Adjusted EBITDA) at least through 2010. Operating results, particularly income from continuing operations, are a primary factor for these covenants and our ability to comply with these covenants depends on our operating performance. At December 31, 2008, we were in compliance with the financial covenants of ~~assets~~the credit agreement.

~~Table~~Based on financial information for February 2009, we were not in compliance with the monthly Adjusted EBITDA requirement of ~~Contents~~our credit agreement. In March 2009, we obtained a limited waiver through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA requirement and we preserved access to limited liquidity as we may borrow up to $20 million on the revolver portion of our credit facility. Each lender approving the limited waiver was paid a fee of 0.10% of their revolver commitment and their portion of the outstanding principal amount of the term note.

~~Our~~Previously, we obtained waivers for ~~growth~~financial iscovenants ~~dependent~~related ~~upon~~to our ~~ability~~credit agreement due to ~~identify~~lower ~~suitable~~than ~~acquisition~~planned ~~candidates~~operating performance as of both June 2008 and December 2007. In September 2008, we entered into an amendment to our credit agreement with our lenders. The amended credit facility continues to provide a $200 million revolver subject to borrowing base limitations and a $340 million term note maturing in November 2011. As of December 31, 2008, no borrowings were outstanding under the revolver and $325.8 million was outstanding under the term note. As of March 31, 2009, there were $2.3 million borrowings outstanding under the revolver and $313.8 million was outstanding under the term note.

Due to the difficulty of reliably projecting our operating results within the suppressed business conditions of the homebuilding industry, there is significant uncertainty as to our ability to meet the financial covenants of our current credit agreement during 2009. Also, our independent registered public accounting firm included a going concern explanatory paragraph in their report on our financial statements for the year ended December 31, 2008 citing among other things, the uncertainty we will remain in compliance with these financial covenants. The going concern explanatory paragraph would constitute a default under our credit agreement. In April 2009, we obtained a waiver for the going concern explanatory paragraph.

~~Our growth~~Lack ~~over~~of ~~the~~compliance ~~past~~with ~~several~~these ~~years~~covenants ~~has~~constitutes ~~been~~an ~~largely~~event ~~due~~of todefault ~~acquisitions~~under ~~and~~the ~~we intend to~~credit ~~continue this strategy~~agreement. As ~~Failure~~a toresult ~~identify~~ and ~~acquire~~absent ~~suitable~~any ~~acquisition candidates~~waiver, ~~could~~forbearance ~~have~~or anmodification, the ~~adverse~~lenders ~~effect~~under on our ~~growth.~~credit ~~Also,~~agreement would have the ~~increasing level~~right ofto ~~consolidation~~cause ~~occurring~~all inamounts ~~the~~borrowed ~~construction~~to ~~services~~become due and ~~building~~payable ~~products~~immediately ~~distribution~~and ~~industry~~cease ~~may~~further ~~limit~~borrowings ~~the~~by ~~availability~~us ~~and~~under ~~suitability~~the ofcredit ~~acquisition candidates~~facility.

In April 2009, we and our lenders agreed to extend the limited waiver through June 1, 2009. This waiver continues to waive the monthly Adjusted EBITDA, forecast and projection requirements of our credit agreement. The limited waiver limits borrowings under the revolver to $20 million subject to borrowing base limitations and limits capital expenditures to $0.5 million. This limited waiver also requires we complete timely tax filings for tax refunds as a result of net operating losses and provide a revised business plan. The satisfaction of the conditions of timely tax filings and revised business plan are subject to the discretion of our lenders. Each lender approving the waiver for the going concern explanatory paragraph and extending the limited waiver was paid a fee of 0.10% of their revolver commitment and their portion of the outstanding principal amount of the term note.

We are currently negotiating with our lenders to modify our credit agreement. These negotiations may provide us additional time and flexibility to develop a capital structure to support our long-term strategic plan and business objectives.

There is no assurance these negotiations will result in a credit agreement acceptable to us and the lenders or an agreement that will achieve our desired goals. We continue to pursue alternative financing arrangements as well as evaluate all other financing options.

If our operating performance, particularly cash flows from operations, is inadequate, we could suffer unfavorable consequences, such as payment delays to our suppliers or failure to honor contractual commitments including financial obligations.

Changes in or perceptions of our liquidity or the liquidity of our suppliers and customers may adversely affect our cash flows and compound other risks. Our suppliers of building products as well as customers of our building products and construction services may experience or perceive uncertain liquidity and cause changes in our liquidity. For example, vendors may disrupt supply with changes in terms such as credit and quantity limitations, pricing or payment. Similarly, customers may disrupt demand with changes in purchasing habits.

Increases in interest rates and the credit risk premium assigned to us as well as changes in the amount of debt will increase our interest expense. Higher interest expense may adversely impact our financial position, results of operations or cash flows for operating needs.

●	An inability to implement and maintain cost structures that align with sales trends may have an adverse impact on our operating results or the anticipated benefits of restructuring may not be fully realized or may take longer to realize than expected.

When we experience slower periods of homebuilding activity, we may experience inefficiencies in our cost structures. In response to the current challenging economic and industry conditions, we have implemented restructuring plans that include closure or consolidation of underperforming business units, reductions in the number of employees and consolidation of certain administrative functions. These actions are designed to align our cost structures with anticipated sales. Our evaluation of and changes to expenses in response to declining sales may not be sufficient, timely or realized, leading to costs that are too high relative to sales and to lower returns on sales.

●	Loss of customers as well as changes in the business models of customers may have an adverse impact on our operating results.

We are exposed to the risk of loss arising from the failure or financial distress of customers. Although amounts due from our customers are typically secured by liens on their construction projects, in the event a customer cannot meet its payment obligations to us, there is a risk that lender evaluations of customer creditworthiness may limit amounts paid to us or the value of their underlying project will not be sufficient to recover the amounts owed to us. Estimated credit losses are considered in the valuation of amounts due from our customers, however the entire carrying amount is generally at risk.

While market and regulatory changes seek to reduce excess unsold home inventory and stabilize housing affordability, we may experience losses of and changes in customers. Many homebuilders are experiencing business and financial challenges in the current housing environment. Our 5 largest customers represent 18% of consolidated sales. Additionally, diversification of our sales to more products and services for multi-family and commercial projects may result in changes in our customer mix. The loss of one or more of our significant customers or changes in customer mix may adversely affect our financial condition, results of operations or cash flows.

As the business models of our customers evolve, our existing building products and construction service offerings may not meet the needs of certain homebuilders. Homebuilders may decide to no longer outsource construction services or may purchase construction services and building products from separate suppliers. If we do not timely assess shifts in customer expectations, preferences and demands, our financial condition, results of operations or cash flows may be adversely affected.

Due to the continuing downturn in the housing industry, we may incur additional impairment charges and costs to close or consolidate additional business units in underperforming markets.

If weakness in the housing industry continues, all or a portion of remaining intangible assets for customer relationships as well as operating assets of underperforming business units may be impaired. Our ongoing evaluation of business operations places a priority on positive cash flow, efficient use of capital and higher returns. As a result of these evaluations, we may incur additional costs to close or consolidate additional underperforming business units. These impairment charges and costs may adversely affect our financial condition, results of operations or cash flows.

Our business is subject to intense competition.

For 2008, annualized single-family housing starts for the U.S. as a whole were 55% lower or 0.5 million starts compared to an average of 1.1 million starts per year since 1990. Specifically, single-family building permits in our markets declined 46% for 2008 and 31% for 2007. There are numerous competitors providing building materials and construction services for these lower housing starts. These competitive factors have led to pricing pressures and caused reductions in sales or margins as well as increases in operating costs. Loss of significant market share due to competition could result in the closure of facilities. Additionally, the availability of our financial information as well as concerns about our financial viability may be utilized against us by our competitors. Intense competition may adversely affect our financial condition, results of operations or cash flows.

Our success is dependent upon the availability of and our ability to attract, train and retain qualified individuals.

Competition for employees is especially intense in both ~~construction~~building ~~services~~products ~~and~~distribution ~~building~~and ~~products~~construction ~~distribution~~services. Weak Inoperating ~~markets~~results ~~with~~may ~~strong~~limit ~~housing~~our ~~demand,~~ability to weoffer competitive compensation and benefits and may ~~experience shortages~~result in shortages of qualified labor and key personnel, ~~which~~and in turn, may limit our ability to ~~complete~~ complete contracts as well as obtain additional contracts with builders. Also, ~~Additional~~as a result of the downturn in the homebuilding industry, many qualified individuals have and ~~perceived~~may ~~enforcement~~continue ofto asseek employment in other industries. Additional employment and eligibility requirements as well as ~~changes~~enhanced toand ~~immigration policies~~perceived enforcement from state and federal authorities could also limit the availability of qualified labor. We cannot guarantee that we will be successful in recruiting and retaining qualified employees in the future.

AnOur success is also ~~inability~~dependent on our ability to profitably implement ~~and~~evolving ~~maintain~~employment legislation. For ~~cost~~example, ~~structures~~potential ~~that~~legislation ~~align~~easing ~~with~~union organizing ~~revenue~~activities and limiting arbitration options may significantly ~~growth~~increase costs and may ~~have~~reduce anor ~~adverse~~eliminate ~~impact~~our onability to provide goods or services in certain markets. Increases in health care and unemployment benefits, holidays and various job protections increase costs. Likewise, changes required to reasonably balance employment levels and profitability are difficult to obtain under binding arbitration provisions. There is no assurance we will be successful in balancing a changing sense of entitlement with shareholder value. Employment legislation may adversely affect our ~~operating~~financial condition, results of operations or cash flows.

When we experience slower periods of homebuilding activity, acquire new businesses or expand existing operations, we may experience inefficiencies in our cost structures. Our evaluation and changes to expenses in response to declining sales may not occur in a timely manner, leading to higher costs and lower returns on sales. 16

~~Changes~~Our operating results are affected by fluctuations in ~~the~~our ~~business~~costs ~~models~~and ofthe ~~customers~~availability ~~may~~of ~~limit~~sourcing ~~our~~channels ~~ability~~for commodity towood ~~provide construction~~products, ~~services~~concrete, steel and other building products ~~required by our customers~~.

As the business models of our customers evolve, our existing construction service and building product offerings may not meet the needs of certain homebuilders. Additionally, homebuilders may decide to no longer outsource construction services. If we do not timely assess shifts in customer expectations, preferences and demands in a timely manner, our financial condition, results of operations or cash flows could be adversely affected.

Our operating results are affected by fluctuations in our costs and the availability of sourcing channels for commodity wood products, concrete, steel and other building materials.

Prices of commodity wood products, concrete, steel and other building products are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations and periodic delays in delivery. Rapid and significant changes in product prices may affect sales as well as margins due to a limited ability to pass on short-term price changes. We do not use derivative financial instruments to hedge commodity price changes.

We may experience shortages of building products as a result of unexpected demand or production difficulties as well as transportation limitations. We have preferred suppliers for certain building products. We maintain an open dialogue with our suppliers to avoid supply disruptions. Suppliers may experience liquidity problems due to the decline in the homebuilding industry and tightened credit availability. Also, our suppliers may have concerns about our financial viability and address their own liquidity needs by requesting faster payment of invoices or other assurances. If this were to happen, our need for cash may intensify and we may be unable to make payments to our suppliers as they become due. Any disruption in our sources of supply for key building products could negatively impact our financial condition, results of operations or cash flows.

Our business is subject to intense competition.

We experience competition across all markets for our construction services and building products. Recently, there has been increased consolidation within the construction services and building materials distribution industry. As the industry consolidates, other building materials distributors, including large retail distributors focused on consumers, may aggressively pursue our target market of high-volume homebuilders and other professional builders and contractors. These competitive factors may lead to pricing pressures and cause reductions in sales or margins, increases in operating costs and may limit acquisition opportunities. Loss of significant market share due to competition could result in the closure of facilities.

Table of Contents

Weather conditions, including natural catastrophic events, may cause our operating results to fluctuate each quarter.

Our first and fourth quarters historically have been, and are expected to continue to be, adversely affected by weather conditions in some of our markets, causing decreases in operating results due to slower homebuilding activity. In addition, natural catastrophic events may cause our operating results to fluctuate.

The nature of our business exposes us to product liability and construction defect ~~and product liability~~ claims as well as other legal proceedings.

We are involved in ~~construction~~product ~~defect~~liability and ~~product~~construction ~~liability~~defect claims relating to the products we distribute and manufacture and our various construction trades. We ~~and~~are ~~the~~also ~~products~~exposed weto ~~distribute~~potential claims arising from the conduct of homebuilders and ~~manufacture~~their subcontractors. We also operate a large fleet of trucks and other vehicles and therefore face some risk of accidents. Although we believe we maintain adequate insurance, we may not be able to maintain such insurance on acceptable terms or such insurance may not provide adequate protection against potential liabilities. ~~Current or future claims may adversely affect our financial condition, results of operations or cash flows.~~

The nature of our business also exposes us to wage and hour claims. Accuracy of timekeeping methods may be difficult to defend and the extrapolation methods utilized may result in significant claims. Current or future claims may adversely affect our financial condition, results of operations or cash flows.

We may be adversely affected by disruptions in our information systems.

Our operations are dependent upon information for decision-making and the related information systems. A substantial disruption in our information systems for a ~~prolonged~~ prolonged period could ~~result~~delay inthe ~~delays~~delivery inof our ~~services~~products and ~~products~~services and adversely affect our ability to complete contracts and fulfill customer demands. Such delays, problems or costs may have an adverse effect on our financial condition, results of operations or cash flows.

Actual and perceived vulnerabilities as a result of widespread credit and liquidity concerns, terrorist activities and armed ~~conflict~~ conflict may adversely impact consumer confidence and our business.

Instability in the economy and financial markets as a result of widespread credit and liquidity concerns, terrorism or war may impact consumer confidence and result in a decrease in homebuilding in our markets. Terrorist attacks may also directly impact our ability to maintain operations and services and may have an adverse effect on our business.

Federal, state and other regulations could impose substantial costs and/or restrictions on our business.

We are subject to various federal, state, local and other regulations, including among other things, work safety regulations promulgated by the Department of Labor’s Occupational Safety and Health Administration, transportation regulations promulgated by the Department of Transportation, employment regulations promulgated by the United States Equal Employment Opportunity Commission and state and local zoning restrictions and building codes. More burdensome regulatory requirements in these or other areas may increase our costs and have an adverse effect on our financial condition, results of operations or cash flows. :

15§ work safety regulations promulgated by the Department of Labor’s Occupational Safety and Health Administration,

~~Table~~ § transportation regulations promulgated by the Department of ~~Contents~~Transportation,

§	employment regulations promulgated by the Department of Homeland Security and the United States Equal Employment Opportunity Commission as well as

§	state and local zoning restrictions and building codes.

More burdensome regulatory requirements in these or other areas may increase our costs and have an adverse effect on our financial condition, results of operations or cash flows.

Numerous other matters of a local and regional scale, including those of a political, economic, business, competitive or regulatory nature may have an adverse impact on our business.

Many factors shape the homebuilding industry and our business. In addition to the factors previously cited, there are other matters of a local and regional scale, including those of a political, economic, business, competitive or regulatory nature that may have an adverse effect on our business.

Risks Related to Our Shares

Risks related to our shares may include, however are not limited to:

§ Our share price may fluctuate significantly, which may make it difficult for shareholders to trade our shares when desired or at attractive prices.

The market price of our shares is subject to significant changes as a result of our operating performance and the other factors discussed above as well as perceptions and events that are beyond our control. Price and trading volume fluctuations for our shares may be unrelated or disproportionate to our operating performance. Additionally, our share price could fluctuate based on the expectations and performance of other publicly traded companies in the ~~construction services and~~ building products distribution and construction services industry.

Anti-takeover defenses in our governing documents and certain provisions under Delaware law could prevent an acquisition of our company or limit the price that investors might be willing to pay for our shares.18

§ Our ~~governing~~ ~~documents~~shares ~~and~~may ~~certain~~be ~~provisions~~less ofattractive ~~Delaware~~as ~~law~~they ~~that~~are ~~apply~~not totraded ~~us could~~on ~~make it difficult for another company to acquire control of our company. For example, we have~~ a ~~shareholder~~ ~~rights plan~~large, ~~commonly~~ well-known ~~as a “poison pill,” which would make it difficult for someone to acquire our company without the approval of our Board of Directors~~exchange. Also, our certificate of incorporation allows our Board of Directors to issue, at any time and without shareholder approval, preferred shares with such terms as it may determine. These provisions and others could delay, prevent or allow our Board of Directors to resist an acquisition of our company, even if a majority of our shareholders favored the proposed transaction.

16Our shares trade on the OTC Bulletin Board. Our shares were suspended from trading on the New York Stock Exchange (NYSE) in October 2008 as our market capitalization was less than $25 million for a 30 trading-day period. The OTC Bulletin Board may be perceived by investors as less desirable than the larger, more well-known exchanges. As a result, there may be a reduction in the number of investors willing to acquire or hold our shares which could impact our ability to raise equity financing as well as reduce the liquidity and market price of our shares.

§	Anti-takeover defenses in our governing documents and certain provisions under Delaware law could prevent an acquisition of our company or limit the price that investors might be willing to pay for our shares.

Our governing documents and certain provisions of Delaware law that apply to us could make it difficult for another company to acquire control of our company. For example:

our certificate of incorporation allows our Board of Directors to issue, at any time and without shareholder approval, preferred shares with such terms as they may determine;

our bylaws provide that during certain types of transactions that could affect control, including the acquisition of 15% or more of our common shares, affiliates of any party to the transaction and persons having a material financial interest in the transaction may not be elected to the Board of Directors; and

certain provisions of Delaware law generally prohibit us from engaging in any business combination with a person owning 15% or more of our common shares, or who is affiliated with us and owned 15% or more of our common shares at any time within three years prior to the proposed business combination, for a period of three years from the date the person became a 15% owner, unless specified conditions are met.

These provisions and others could delay, prevent or allow our Board of Directors to resist an acquisition of our company, even if a majority of our shareholders favored the proposed transaction.

ITEM 1B. Unresolved Staff Comments

We have no unresolved comments from the Securities and Exchange Commission.

1720

ITEM 2. Properties

We lease our headquarters in ~~San Francisco, California and our administrative service center in~~ Boise, Idaho. Principal properties include ~~distribution~~ distribution centers for building products, millwork fabrication and distribution sites, truss manufacturing plants, and sales and administrative offices. Properties are located in growing metropolitan areas and emerging housing markets. Properties for ~~SelectBuild~~our operations are 1152% owned and 8948% leased. Currently, ~~while at BMC West 69~~24% ~~are~~of ~~owned and 31%~~these ~~are leased. Our~~ properties are invacant good operating condition and we believe they provide adequate capacity to meet the needs of our customers. Locations operate under the trade names BMHC, SelectBuild and BMC West, as well as other brand names or ~~trademarks. Properties by business segment are as~~ ~~follows:~~subleased.

SelectBuild		BMC West		Corporate
Location	Properties	Location	Properties	Location	Properties
Arizona	15	Arizona	3	California	1
California	23	California	7	Idaho	1
Florida	12	Colorado	18	Nevada	1
Illinois	1	Idaho	11
Nevada	9	Montana	6
Virginia	1	Nevada	3
		Oregon	2
		Texas	27
		Utah	6
		Washington	5

Our properties are in good operating condition and we believe they provide adequate capacity to meet the needs of our customers. Our locations operate under the brands of BMC West and SelectBuild as well as other brand names or trademarks within certain markets. Our properties are located as follows:

Operations		Administrative
Location	Properties	Location	Properties
Arizona	12	California	1
California	21	Idaho	1
Colorado	13	Nevada	1
Florida	2
Idaho	12
Illinois	1
Montana	7
Nevada	13
North Carolina	1
Oregon	1
Texas	28
Utah	5
Washington	5

ITEM 3. Legal Proceedings

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

1922

ITEM 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year.

2023

PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Shares

Our common shares trade on the OTC ~~are~~Bulletin Board (OTCBB) under the symbol BLGM. Prior to October 2008, our common shares traded on the NYSE ~~market~~ under the symbol BLG. The high and low share prices as well as cash dividends for each period were as follows:

	2006								2005
	2008					2007					2006
	High		Low	~~Low~~	Cash Dividends Declared	~~Cash Dividends Declared~~High		Low	~~High~~	Cash Dividends Declared	~~Low~~High		Low	~~Cash DividendsDeclared~~	Cash Dividends Declared
First quarter	$7	~~$40.32~~	$4		$~~32.27~~—	$25	~~$0.10~~	$18		$240.8710	$40	~~$17.00~~	$32		$ 0.0410
Second quarter	$5	~~$38.29~~	$2		$~~25.36~~—	$18	~~$0.10~~	$13		$360.1310	$38	~~$22.00~~	$25		$ 0.0510
Third quarter	$3	~~$28.01~~	$0.47		$~~20.84~~—	$15	~~$0.10~~	$11		$480.6610	$28	~~$34.68~~	$21		$0.~~075~~10
Fourth quarter	$1	~~$27.72~~	$0.21		$~~23.95~~—	$12	~~$0.10~~	$5		$480.1110	$28	~~$34.11~~	$24		$0.~~075~~10

~~On February~~Our ~~20,~~credit ~~2007,~~facility amended ~~our~~in ~~Board~~September of2008 ~~Directors~~prohibits ~~approved~~the apayment ~~2007~~of ~~first quarter~~ cash ~~dividend~~ ofdividends ~~$0.10~~on ~~per~~our common ~~share~~ shares. The ~~dividend~~determination ~~was~~of ~~payable~~future todividend ~~shareholders~~payments (cash or ~~of record~~shares) aswill ofdepend ~~March~~on 23many factors, ~~2007~~including ~~and~~credit ~~will~~facility berestrictions, financial ~~paid~~position, onresults orof ~~about April~~operations ~~13, 2007~~and cash flows.

OnAs ~~February~~of 14April 10, ~~2006~~2009, ~~our~~there ~~Board~~were ofapproximately 2,291 ~~Directors~~shareholders ~~approved~~of arecord and ~~two~~the ~~for~~closing ~~one~~price ~~split~~ of our ~~outstanding~~ ~~common~~ shares. ~~Shareholders~~on ofApril ~~record as of February 28~~9, ~~2006~~2009 ~~received a stock dividend of one additional common share for every common share they owned~~was $0. ~~All share and per share information for all prior periods presented has been adjusted to reflect this share split~~28.

~~At the~~Peer ~~annual meeting of shareholders on May 3, 2005, our shareholders voted to increase the number of authorized common shares to 50 million from 20 million.~~ Companies

~~Dividends are~~Our ~~paid at~~peers ~~the discretion of the Board of Directors and we expect to continue these~~are ~~payments.~~composed ~~The continuation~~ of ~~dividend~~companies ~~payments~~that ~~(cash~~provide orbuilding ~~shares)~~products ~~depends~~and ~~on many factors,~~construction ~~including financial position, results of operations or cash flows.~~services as follows:

~~As of~~· ~~February~~Avatar ~~20,~~Holdings ~~2007,~~Inc. ~~there~~· ~~were~~Lennar ~~approximately~~Corp. 6· Simpson Manufacturing Co. Inc. · Beazer Homes USA Inc. · Masco Corp. · Standard Pacific Corp. · Brookfield Homes Corp. · Meritage Homes Corp. · Toll Brothers Inc. · Builders FirstSource Inc. · MDC Holdings Inc. · Universal Forest Products,~~200~~ ~~shareholders~~Inc. of· ~~record and the~~D.R. ~~closing~~Horton ~~price~~Inc. of· ~~our~~NVR ~~shares~~Inc. ~~was~~· ~~$22~~USG Corp.30 · KB Home · Ryland Group Inc.

~~Share~~Securities Authorized for Issuance Under ~~Performance~~Equity ~~Graph~~Compensation Plans

The ~~graph~~ ~~below~~following table ~~depicts~~summarizes ~~our~~equity ~~cumulative~~compensation ~~total~~information ~~shareholder~~as ~~returns~~of ~~relative~~December to31, ~~the~~2008 ~~performance~~(thousands, ofexcept per share data):

· NYSE Index

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders	2,841		$13.11	1,901
Equity compensation plans not approved by security holders	2,825	(1)	$0.47	—
Total	5,666		$6.81	1,901

·(1) In connection ~~Philadelphia~~with ~~Housing~~the ~~Sector~~amendment ~~Index~~of ~~and~~our credit facility in September 2008, our Board of Directors authorized issuance of these warrants that entitle the lenders to purchase approximately 8.75% or 2.8 million of our common shares at a purchase price of $0.47 per common share, the closing price on the NYSE on September 30, 2008. These warrants may be exercised through September 2015.

~~· Peer Group Index~~24

The graph assumes $100 invested at the closing price of our common shares or the applicable index as well as reinvestment of dividends on the date paid. The points of the graph represent year-end index levels based on the last trading day of each year.

Table of Contents

Our peer group index is composed of companies that reflect construction services and building products as follows:

· Avatar Holdings Inc. · Lennar Corp. · Simpson Manufacturing Co. Inc. · Beazer Homes USA · Masco Corp. · Standard Pacific Corp. · Builders FirstSource · Meritage Homes Corp. · Toll Brothers Inc. · Brookfield Homes · MDC Holdings Inc. · Universal Forest Products, Inc. · D.R. Horton Inc. · NVR Inc. · USG Corp. RT · KB Home · Ryland Group Inc.

Five Year Cumulative Return

ITEM 6. Selected Financial Data

The following selected financial data should be read in conjunction with Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Item 8 - Financial Statements and Supplementary Data. These ~~resources provide~~items provide further information to understand the comparability of selected ~~financial~~ financial data.

Selected Financial Data

(thousands, except share and permit data)

	Year Ended December 31	~~Year Ended December 31~~
		2006			2005			2004			2003		2002
	2008		2007		2006		2005		2004
Sales (1)
Sales (1) (3)
Construction services		$	1,926,077		$	1,586,509		$	904,362		$	498,052	$	293,063
Building products	$	693,664	$	997,035	$	1,254,056	$	1,291,899	$	1,155,999
Building products			1,319,092			1,325,651			1,186,663			917,019		868,431
Construction services		631,015		1,182,038		1,697,106		1,285,940		656,697
Total sales	$	$1,324,679	~~3,245,169~~$	2,179,073	$	2,~~912~~951,~~160~~162	$	$2,577,839	~~2,091,025~~$	1,812,696	$	~~1,415,071~~	$	~~1,161,494~~
Income from operations (2)		$	197,455		$	239,356		$	108,108		$	40,429	$	39,121
Impairment of assets (2)	$	53,015	$	272,152	$	—	$	508	$	2,274
Net income		$	102,074		$	129,507		$	53,910		$	19,929	$	7,015	(3)
(Loss) income from continuing operations (3)	$	(192,456)	$	(265,767)	$	81,545	$	104,442	$	44,988
Net income per share (4)
(Loss) income from discontinued operations (1)	$	(22,353)	$	(46,946)	$	20,529	$	25,065	$	8,922
Basic			$3.57			$4.61			$2.00			$0.75		$0.27
Net (loss) income	$	(214,809)	$	(312,713)	$	102,074	$	129,507	$	53,910
Diluted			$3.45			$4.41			$1.94			$0.74		$0.26
Net (loss) income per diluted share		$(7.39)		$(10.86)		$3.45		$4.41		$1.94
Annual cash dividends declared
Annual cash dividends declared per share		$—		$0.40		$0.40		$0.24		$0.14
per share (4)			$0.40			$0.24			$0.14			$0.105		$0.025
Working capital	$	137,271	$	262,741	$	239,692	$	295,220	$	264,272
Working capital		$	242,800		$	304,459		$	284,173		$	216,898	$	170,492
Total assets	$	539,715	$	874,844	$	1,328,911	$	1,150,525	$	743,044
Total assets		$	1,328,911		$	1,150,525		$	743,044		$	604,199	$	503,074
Long-term debt, net of current portion	$	287,009	$	343,937	$	348,374	$	276,987	$	204,321
Long-term debt, net of current portion		$	349,161		$	278,169		$	206,419		$	186,773	$	157,375
Shareholders’ equity	$	44,262	$	253,742	$	572,629	$	470,061	$	327,678
Shareholders’ equity		$	572,629		$	470,061		$	327,678		$	271,010	$	251,300
Cash flows (used) provided by operations	$	(23,126)	$	67,279	$	273,418	$	198,294	$	33,374
Cash flows provided by operations		$	273,418		$	198,294		$	33,374		$	12,479	$	35,726
Annualized single-family building permits in our markets per US Census Bureau as of November		152,264		280,890		409,744		491,901		479,037

			2006		2005			2004			2003			2002
		2008			2007				2006				2005			2004
(1)	Acquisitions provided sales of:		$	701,604	$	403,919		$	221,407		$	155,176		$	117,371
(1) Sales from discontinued operations:		$	40,645		$	135,604			$	294,007			$	334,321		$	278,329
(2)	Acquisitions provided income
Income (loss) from discontinued operations:		$	(22,353	)	$	(46,946	)		$	20,529			$	25,065		$	8,922
	(loss) from operations of:		$	55,454	$	31,588		$	2,764		$	(3,628	)	$	9,827
(3)	The transitional impairment analysis of goodwill resulted in an impairment of $11.7 million net of tax.
(4)	All share and per share information for all periods presented has been adjusted to reflect a two for one split of our common shares in February 2006.

23(2) As a result of changes in specific markets, the following impairments were recognized in 2008:

~~ITEM~~· 7$53.0 ~~Management's~~million ~~Discussion~~for ~~and~~carrying ~~Analysis~~amount of ~~Financial~~customer ~~Condition~~relationships, goodwill and ~~Results~~certain ofproperty ~~Operations~~and equipment.

~~The following discussion~~As ~~should~~a beresult ~~read~~of changes in ~~conjunction~~specific ~~with~~markets, the ~~Consolidated Financial~~ ~~Statements~~following ~~and~~impairments ~~related~~were ~~notes~~recognized ~~that appear~~ in ~~Item 8 of Form 10-K as well as the caption under this item entitled Business Risks and Forward-Looking Statements.~~2007:

~~Business Environment~~· $272.2 million for the carrying amount of goodwill and ~~Executive~~certain ~~Overview~~customer relationships.

We are one of the largest providers of residential construction services and building products in the United States, with a focus in the western and southern states. We provide construction services and building products in 16 of the top 25 single-family residential construction markets through our two subsidiaries, SelectBuild and BMC West. SelectBuild provides construction services to high-volume homebuilders in key growth markets. BMC West markets and sells building products, manufactures building components and provides construction services to professional builders and contractors through a network of 41 distribution facilities and 60 manufacturing facilities. We have increasingly focused on providing construction services and manufactured building components to our customers.


	2008		2007		2006		2005		2004
(3) Sales from acquisitions:	$	—	$	82,088	$	701,604	$	387,819	$	64,815
Income from acquisitions:	$	—	$	7,595	$	55,454	$	30,588	$	2,152

New home construction was sharply down in 2006. The U.S. Census Bureau reported single-family housing starts fell 15% to 1.5 million units in 2006 as compared to the historic high of 1.7 million units in 2005. Single-family housing starts in 2007 are expected to decline to 1.3 million units according to the National Association of Home Builders. The housing market is currently adjusting an oversupply of inventory by offering buyers incentives to purchase existing inventory and by severely restricting the construction of new homes.

Our markets for new residential construction and building products have also been dramatically impacted by the national slowdown in homebuilding. Across all our markets and particularly during the second half of 2006, we experienced substantial declines in housing starts and building permits. To counter the effects of the downturn, we have reduced our labor force by more than 30%, decreased variable expenses and focused our efforts to reduce costs by leveraging our scale and shared resources. The overall economic backdrop that historically has supported the homebuilding industry, such as the condition of the U.S. economy, interest rates, job formation and consumer confidence, remain favorable. We believe that the excess inventory of new homes will be gradually absorbed on a market-by-market basis over the next several quarters.

Our operations are located in attractive metropolitan areas that have historically outpaced U.S. averages for residential building permit activity. With construction services and building products offered in California, Texas, Nevada, Arizona, Florida, the Northwest and Intermountain states, Illinois, and Virginia, we believe we are in homebuilding markets supported by positive long-term population growth, household formation and demographic trends.

We grow our business through acquisitions as well as strategically expanding the breadth of our construction services and building products offered to high-volume homebuilders and other professional builders and contractors. In particular, we believe high-volume homebuilders are seeking quality, reliable and cost effective solutions to meet their construction services needs. Our services include framing, concrete, plumbing and other construction services as well as building product distribution and manufactured building components including trusses, millwork and wall panels. In 2006, we completed several acquisitions to expand the trades offered to homebuilders.

Table of Contents

Acquisition History

Over the past few years, SelectBuild acquired businesses providing construction services to high-volume homebuilders. Specifically, these businesses were as follows:

2006

· distribution services in Southern California

· remaining 49% interest in our existing business providing concrete services in Arizona

· window installation services in Phoenix, Arizona

· framing services in Southern California

· concrete services in Northern Arizona

· wall panel and truss manufacturer in Palm Springs, California

· remaining 20% interest in our existing business providing concrete block masonry and concrete services in Florida

· framing services in Palm Springs, California and Reno, Nevada

2005

· framing services in San Diego, California

· concrete and plumbing services in Las Vegas, Nevada and Southern California

· additional 20% interest in our existing business providing concrete block masonry and concrete services in Florida (initial purchase of 60% January 2003)

· 51% interest in concrete services in Arizona

· 73% interest in plumbing services in Phoenix and Tucson, Arizona

· stucco services in Las Vegas, Nevada

· 51% interest in framing services in Chicago, Illinois

2004

· window installation services in Napa, California

· 51% interest in a truss manufacturer in Fort Pierce, Florida

· remaining 49% interest in our existing framing services business in Northern California (initial purchase of 51% July 2002)

· distribution services in Tucson, Arizona

At BMC West, we are expanding our building products, manufactured building components, millwork and construction services to become a full-service provider to homebuilders. To facilitate this expansion in products and services, BMC West acquired:

2006

· building materials distribution and truss manufacturing in Eastern Idaho

· building materials distribution and millwork services in Houston, Texas

2005

· truss manufacturer in McCall, Idaho

~~Table~~ITEM 7. Management's Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations

~~2004~~The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes that appear in Item 8 of this Form 10-K as well as the caption under this item entitled Business Risks and Forward-Looking Statements.

·Our ~~framing services in Denver, Colorado~~Business

AsWe ~~part~~are one of ~~our~~the ~~growth~~largest ~~strategy~~providers of residential building products and construction services in the United States. Under the brand names of BMC West and SelectBuild, we ~~continue~~serve tothe ~~evaluate~~homebuilding ~~acquisition~~industry ~~opportunities~~through six ~~that~~regional ~~strengthen~~operations: Texas, California, Intermountain, Southwest, Northwest and ~~broaden~~Illinois. In ~~our~~each ~~construction~~of ~~services~~these regions, we market and sell building products ~~as well~~, asmanufacture ~~our~~building ~~presence~~components inand ~~attractive~~provide ~~markets~~construction services to professional builders and contractors.

~~Performance~~Our operations are ~~Measurements~~located in metropolitan areas that have historically outpaced U.S. averages for residential building permit activity. We believe we are in homebuilding markets supported by positive long-term population growth, household formation and demographic trends.

We measure our operating performance and financial condition based on several factors including:

● Sales ● Management of working capital ● Income from operations ● Return on investment

We evaluate our results of operations including and excluding acquisitions not present in comparable periods. We believe this approach enhances an understanding of our acquisitions and operating results for the respective reporting periods.

The discussion of our results of operations and financial condition provides information to assist the reader in understanding our financial statements, changes in key items in those financial statements and the primary factors that accounted for those changes. The discussion of our consolidated financial results is followed by a more detailed review of our business segments.

RESULTS OF OPERATIONS

2006 COMPARED WITH 2005

The following table sets forth the amounts and percentage relationship to sales of certain costs, expenses and income items (millions):

	Year Ended December 31
	2006					2005
Sales
Construction services	$	1,926		59.4	%	$	1,586		54.5	%
Building products		1,319		40.6			1,326		45.5
Total sales		3,245		100.0			2,912		100.0
Costs and operating expenses
Cost of goods sold
Construction services		1,557		80.8			1,286		81.1
Building products		961		72.9			968		73.0
Total cost of goods sold		2,518		77.6			2,254		77.4
Impairment of assets		2		—			1		―
Selling, general and administrative expenses		532		16.4			421		14.5
Other income, net		(4	)	(0.1	)		(3	)	(0.1	)
Total costs and operating expenses		3,048		93.9			2,673		91.8
Income from operations		197		6.1			239		8.2
Interest expense		29		0.9			14		0.5
Income taxes		57		1.8			80		2.8
Minority interest income, net of income taxes		(9	)	(0.3	)		(15	)	(0.5	)
Net income	$	102		3.1	%	$	130		4.4	%
Earnings per diluted share		$3.45					$4.41

~~Table of~~Business ~~Contents~~Environment and Executive Overview

~~Consolidated Financial~~Annualized ~~Results~~Single-Family Housing Starts and Permits

~~Selected financial results are as follows~~ (~~millions~~000s):

	2006		2005		$ Change			% Change
Sales
Construction services	$	1,926	$	1,586	$	340			21	%
Building products		1,319		1,326		(7	)		(1	)%
	$	3,245	$	2,912	$	333			11	%
Income from operations	$	197	$	239	$	(42	)		(18	)%

Already under contraction, single-family housing starts declined further in the fourth quarter of 2008 as home foreclosures increased, lending standards tightened and rising unemployment sapped consumer confidence. According to the U.S. Census Bureau as of November 2008, single-family housing starts for the U.S. as a whole fell below an annualized rate of 0.5 million. Excluding the boom years of 2006 through 2003, single-family housing starts for the U.S. as a whole averaged 1.1 million starts per year since 1990.

~~A key~~Similarly, ~~element~~as of November ~~our~~2008 ~~business~~annualized ~~strategy~~single-family ~~for~~permits ~~the~~in ~~past several years entails shifting~~ our ~~sales~~markets ~~mix~~fell 46% to ~~construction services and value added manufactured building~~0.2 ~~components~~million from ~~commodity~~the ~~wood~~prior ~~products~~year. Accordingly, Wewe ~~continue~~implemented tothe following ~~pursue~~significant ~~this~~changes ~~shift~~ to ~~leverage~~ our ~~competitive~~operations ~~advantages~~for ~~and improve our financial performance.~~2008:

~~Sales of~~· ~~$3.2 billion~~closure increased $333 million or 11%. Sales from acquisitions not present in the prior period were $702 million and were partially offset by a decrease in sales from comparable operations of ~~$369~~42 ~~million. The decrease in sales from comparable operations reflects a sharp decline in both housing starts~~ and ~~building~~ ~~permits~~consolidation ~~in the second half~~ of ~~the~~15 ~~year,~~business ~~indicative~~units ~~of a nationwide contraction~~ in ~~homebuilding.~~underperforming ~~According to the U.S. Census Bureau, single-family building permits in our~~ markets ~~were down 20% relative to their historic high in 2005.~~ ,

~~Income from operations~~· ofcentralized ~~$197~~administrative ~~million~~functions ~~decreased~~of ~~$42~~information ~~million~~systems, ~~or 18% from $239 million in the prior year. For comparable operations~~reporting, ~~income~~accounts ~~from~~payable ~~operations~~and ~~declined~~human ~~$97 million~~resources ~~or 41%. The decrease in income from operations was principally due~~ to ~~lower~~ ~~sales~~our ~~from~~existing ~~comparable~~administrative ~~operations~~support asoperation ~~well as higher selling, general~~ and ~~administrative expenses.~~

·	reduced employees 42% in our operations and 12% in our administrative support operation.

Single-family permits in our markets declined 46% for 2008 and 31% for 2007. The decline was widespread across all our markets for both building products and construction services. Lower sales from weakening buyer demand and increased competition for fewer contracts led to declines in our margins, particularly for construction services. As of February 2009, single-family housing starts for the U.S. as a whole fell to an annualized rate below 0.4 million and single-family permits in our markets fell to an annualized rate below 0.2 million.

~~Table~~This suggests 2009 will be more challenging than 2008 as the decline in housing starts will cause competition to sharpen. As a result, we continue to assess the operating performance of ~~Contents~~business units and eliminate cost inefficiencies. We continue to believe our employees’ efforts to maintain our preferred supplier status with our customers and focus on cost efficiencies are distinguishing factors in our ability to weather this unprecedented downturn in the basic necessity of housing.

~~Selling, general and~~Uncertainty ~~administrative expenses increased 26% or $111 million from a year ago. Acquisitions not present in the prior period were $77 million or approximately 70%~~ of ~~the increase. These expenses for comparable operations were higher due~~ to compensation, including the impact of adopting a new accounting principle for share-based compensation, occupancy expenses to support growth and acquisition integration expenses. As a percent of sales, selling, general and administrative expenses were 16.4% from 14.5% a year ago, up 1.9%. The increase in these expenses as a percent of sales, was due to deflation in selling prices, delivery costs to support higher volume and fixed amortization expenses from acquisitions.Liquidity

~~Although~~We ~~gross margins~~have ~~improved~~incurred ~~for~~losses ~~construction~~from ~~services~~operations and ~~building~~costs ~~products,~~to ~~they~~restructure. We managed ~~were~~our liquidity during this time with closure and consolidation of ~~overall~~underperforming ~~22.4%~~business ~~compared~~units toand ~~22.6%~~cost inreduction ~~2005~~initiatives as well as sales of assets. However, ~~The~~the ~~decrease~~downturn in ~~gross~~the ~~margins~~housing ~~was~~industry has been ~~due to~~deepened aby ~~higher~~an ~~portion~~increase ofin ~~sales~~home foreclosures and sapped consumer confidence from tightened ~~construction~~lending ~~services~~standards ~~relative~~and torising ~~building~~unemployment and created a difficult ~~products~~business environment. Our operating performance and liquidity were negatively affected by these economic and industry conditions which are beyond our control.

~~Interest~~These business ~~Expense~~conditions have not improved during the first quarter of 2009. As of February 2009, single-family housing starts for the U.S. as a whole fell to an annualized rate below 0.4 million and single-family permits in our markets fell to an annualized rate below 0.2 million. We do not believe these business conditions will improve significantly during 2009.

~~Interest expense~~Our ofactions to ~~$29~~align ~~million~~our ~~was~~cost upstructure ~~$15~~with ~~million~~anticipated ~~from~~sales ~~the~~may ~~prior~~not ~~year.~~be ~~The~~sufficient, ~~increase~~timely ~~was~~or realized ~~due~~and tomay create additional cash requirements for ~~greater~~operations. We ~~average~~also ~~borrowings~~have significant interest and debt service obligations consisting of ~~$356~~cash ~~million~~payments infor ~~2006~~interest ~~compared~~and principal. With toinsufficient ~~$225~~funds ~~million~~from operations, our primary ~~in 2005~~source ~~and~~for ~~higher~~funding ~~average~~operating ~~interest~~needs ~~rates~~is the revolver portion of 6our credit facility.5% However, inour ~~2006~~revolver ~~compared~~is subject to ~~5.7%~~borrowing inbase ~~2005~~limitations of certain accounts receivable, inventory, property and equipment and real estate and may not provide adequate liquidity.

~~Income~~We are anticipating ~~Taxes~~tax refunds as a result of net operating losses. Our federal tax refund is approximately $56 million and will be used to pay down existing obligations and will help de-lever our capital structure. The timing of anticipated tax refunds for net operating losses is not known.

~~In 2006~~Additionally, our credit ~~combined~~agreement ~~federal~~requires monthly compliance with financial covenants including minimum liquidity and ~~state~~adjusted ~~income~~earnings ~~tax~~before ~~rate~~interest, ~~decreased~~taxes, todepreciation 33and amortization (monthly Adjusted EBITDA) at least through 2010.7% Operating results, particularly income from continuing ~~35.5%~~operations, inare ~~2005.~~a ~~The~~primary ~~reduction~~factor ~~was~~for ~~due~~these covenants and our ability to acomply with ~~refinement~~these ofcovenants ~~the~~depends ~~apportioned~~on ~~taxable~~our operating performance. At ~~income~~December to31, ~~the~~2008, ~~states~~we were in ~~which~~compliance wewith ~~operate.~~the financial covenants of the credit agreement.

~~Business~~Based on financial ~~Segments~~information for February 2009, we were not in compliance with the monthly Adjusted EBITDA requirement of our credit agreement. In March 2009, we obtained a limited waiver through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA requirement and we preserved access to limited liquidity as we may borrow up to $20 million on the revolver portion of our credit facility. Each lender approving the limited waiver was paid a fee of 0.10% of their revolver commitment and their portion of the outstanding principal amount of the term note.

~~Sales~~Previously, we obtained waivers for ~~and~~financial covenants related to our credit agreement due to lower than planned operating performance as of both June 2008 and December ~~income~~2007. In bySeptember ~~business~~2008, ~~segment~~we ~~are~~entered asinto ~~follows~~an ~~(millions):~~amendment to our credit agreement with our lenders. Our amended credit facility provides a $200 million revolver subject to borrowing base limitations and a $340 million term note maturing in November 2011. As of December 31, 2008, no borrowings were outstanding under the revolver and $325.8 million was outstanding under the term note. As of March 31, 2009, there were $2.3 million borrowings outstanding under the revolver and $313.8 million was outstanding under the term note.

	2006					2005
	Sales		Income from Operations			Sales		Income from Operations
SelectBuild	$	1,732	$	148		$	1,394	$	161
BMC West		1,513		124			1,518		151
Corporate		—		(75	)		―		(73	)
	$	3,245	$	197		$	2,912	$	239

SelectBuild

Selected financial results are as follows (millions):

	2006			2005		$ Change			% Change
Sales	$	1,732		$	1,394	$	338			24	%
Less: Acquisitions		(644	)		—		(644	)		—
	$	1,088		$	1,394	$	(306	)		(22	)%
Income from operations	$	148		$	161	$	(13	)		(8	)%
Less: Acquisitions		(54	)		—		(54	)		—
	$	94		$	161	$	(67	)		(42	)%

~~Table~~Lack of compliance with these covenants constitutes an event of ~~Contents~~default under the credit agreement. As a result and absent any waiver, forbearance or modification, the lenders under our credit agreement would have the right to cause all amounts borrowed to become due and payable immediately and cease further borrowings by us under the credit facility.

~~Sales increased~~In ~~24%~~April 2009, we and our lenders agreed to ~~$1.7~~extend ~~billion~~the ~~from~~limited $waiver through June 1, 2009.4 This ~~billion~~waiver continues ato ~~year~~waive ~~ago.~~the ~~The~~monthly ~~increase~~Adjusted ~~was~~EBITDA, ~~due~~forecast toand ~~$644~~projection ~~million~~requirements inof ~~sales~~our ~~from~~credit ~~acquisitions~~agreement. The ~~not~~limited ~~present~~waiver inlimits borrowings under the ~~prior~~revolver ~~period.~~to ~~Sales~~$20 ~~from~~million subject to borrowing base ~~comparable~~limitations ~~operations~~and ~~declined~~limits ~~22%~~capital orexpenditures to $~~306~~0.5 million. This limited ~~and~~waiver ~~were~~also ~~particularly~~requires ~~weak~~we complete timely tax filings for tax refunds as a ~~in our~~result ~~Southwest~~of net operating losses and ~~Pacific~~provide ~~regions~~a revised business plan. The ~~Reflective~~satisfaction of the ~~reduction~~conditions inof ~~homebuilding~~timely tax filings and inrevised business plan are subject to the discretion of our lenders. Each ~~markets,~~lender ~~both~~approving ~~starts~~the waiver for the going concern explanatory paragraph and ~~building~~extending ~~permits~~the ~~were~~limited ~~down~~waiver ~~sharply~~was paid a fee of 0.10% of their revolver commitment and their portion of the outstanding principal amount of the term note.

~~Income~~We ~~from operations~~are ~~decreased~~currently 8%negotiating towith ~~$148~~our ~~million~~lenders ~~from~~to ~~$161~~modify ~~million~~our credit agreement. These ~~For~~negotiations ~~comparable~~may provide us additional time and flexibility to develop a ~~operations,~~capital ~~income~~structure ~~from~~to ~~operations~~support ~~was~~our ~~down~~long-term ~~42%~~strategic orplan ~~$67~~and ~~million~~business objectives.

~~Gross margins~~There ~~were~~is no ~~slightly~~assurance ~~improved~~these atnegotiations ~~19.5%~~will ofresult ~~sales~~in ~~from~~ a ~~year~~credit ~~ago,~~agreement ~~however~~acceptable ~~selling,~~to us ~~general~~ and ~~administrative~~the ~~expenses~~lenders ~~were~~or ~~10.8%~~an ofagreement ~~sales~~that ~~compared~~will toachieve ~~7.7%~~our indesired ~~2005~~goals. ~~These~~We continue to ~~expenses~~pursue ~~were~~alternative ~~higher~~financing ~~due~~arrangements ~~to:~~as well as evaluate all other financing options.

·We may ~~reduced~~not be able to meet near-term working capital and scheduled interest and debt payment requirements if cash flows are inadequate from our suppressed operating ~~leverage~~activities ~~resulting~~or if our access to the revolver portion of our credit facility is restricted due to lack of compliance with financial covenants or revolver borrowing base limitations. Absent any waiver, forbearance or modification to our current credit agreement, we believe our recurring losses from aoperations, ~~22%~~interest ~~decline~~and indebt burden amid declining sales ~~from~~and ~~comparable~~potential inability to generate sufficient cash flow to meet our obligations and sustain our operations, raise substantial doubt about our ability to continue near-term as a going concern.

· compensation and integration expenses associated with a regional operating structure and

· operating expenses and non-cash amortization associated with recent acquisitions.

BMC West

Selected financial results are as follows (millions):

	2006			2005		$ Change			% Change
Sales	$	1,513		$	1,518	$	(5	)	—
Less: Acquisitions		(58	)		—		(58	)	—
	$	1,455		$	1,518	$	(63	)	(4	)%
Income from operations	$	124		$	151	$	(27	)	(18	)%
Less: Acquisitions		(1	)		―		(1	)	—
	$	123		$	151	$	(28	)	(19	)%

Sales of $1.5 billion were approximately the same as 2005. Sales from comparable operations experienced a decrease in commodity wood product prices and were down 4% or $63 million from a year ago. Strong sales in the Intermountain and Texas regions were offset by lower sales in our Southwest, Colorado and Northwest regions. Indicative of slower homebuilding activity, single-family building permits declined in the second half of the year and were down 8% from a year ago.

Income from operations decreased 18% to $124 million from $151 million. As a percent of sales, gross margins were up 30 basis points over the prior year. However, selling, general and administrative expenses as a percent of sales increased 1.9% to 17.8% primary due to year over year deflation in commodity wood product prices. Total dollars spent in selling, general and administrative expenses were up $29 million as a result of:

· compensation expenses for additional personnel to support increased sales volume,

· expenses from acquisitions not present in the prior period and

· higher delivery and occupancy expenses.

Corporate

Corporate represents expenses to support the operations of our business segments, SelectBuild and BMC West. These costs include administrative functions for information systems, reporting, accounts payable and human resources, executive and senior management, professional fees for regulatory compliance and certain incentive compensation as well as actuarial adjustments for insurance and medical claims. These costs are not allocated to our business segments.

~~Table~~Additionally, our long-term future is dependent on more normal levels of ~~Contents~~single-family housing starts and our ability to implement and maintain cost structures, including reduced interest and debt, that align with single-family housing trends. If this fails to transpire or if we cannot obtain a waiver, forbearance or modification to our current credit agreement or other financing options, we may not be able to continue as a going concern and may potentially be forced to seek relief through a bankruptcy filing.

~~Selected financial results~~Insurance ~~are as follows (millions):~~Coverage

		2006				2005				$ Change				% Change
Operating expenses			$75				$73				$2				3	%

In connection with the amendment of our credit facility in September 2008, we were required to liquidate investments related to the statutory funding requirements of our captive insurance subsidiary. The marketable securities were liquidated in September 2008 and proceeds of $33.6 million were used to reduce net borrowings under the revolver and for operating needs.

~~Corporate expenses increased~~Upon 3%liquidation toof investments ~~$75~~held ~~million~~by ~~from~~our ~~$73~~captive ~~million~~insurance asubsidiary, ~~year~~insurance ~~ago. Higher compensation~~deductible ~~including~~reserves ~~the~~for ~~non-cash~~claims ~~impact~~will ofno ~~share-based~~longer ~~compensation~~be ~~from~~subject ~~the~~to ~~adoption of~~statutory afunding ~~new~~requirements. Claims ~~accounting~~for ~~standard~~automobile, ~~was~~general ~~partially~~liability ~~offset~~and byworkers’ compensation ~~lower~~continue ~~performance~~to ~~based incentive~~be ~~compensation~~insured ~~and~~by ~~actuarial~~third-party ~~adjustments~~insurance carriers. Insurance deductible reserves for ~~insurance~~claims ~~expense. Corporate~~will ~~expenses~~be atrecognized based ~~2.3%~~on ofthe ~~sales~~estimated ~~were~~cost ~~lower~~of ~~than~~claims ~~the~~as ~~prior~~limited ~~year~~by deductibles of the 2applicable insurance policies.~~5%.~~

~~2005~~Performance ~~COMPARED WITH 2004~~Measurements

~~The~~We ~~following~~measure ~~table sets~~our ~~forth~~operating ~~the~~performance ~~amounts~~ and ~~percentage~~financial ~~relationship~~condition tobased ~~sales~~on ~~of certain costs,~~several ~~expenses~~factors ~~and income items (millions)~~including:

	Year Ended December 31
	2005					2004
Sales
Construction services	$	1,586		54.5	%	$	904		43.2	%
Building products		1,326		45.5			1,187		56.8
Total sales		2,912		100.0			2,091		100.0
Costs and operating expenses
Cost of goods sold
Construction services		1,286		81.1			768		85.0
Building products		968		73.0			898		75.6
Total cost of goods sold		2,254		77.4			1,666		79.7
Impairment of assets		1		―			2		0.1
Selling, general and administrative expenses		421		14.5			317		15.2
Other income, net		(3	)	(0.1	)		(2	)	(0.1	)
Total costs and operating expenses		2,673		91.8			1,983		94.9
Income from operations		239		8.2			108		5.1
Net income	$	130		4.4	%	$	54		2.6	%
Earnings per diluted share		$4.41					$1.94

	● Sales	● Cash flow
	● Income from operations	● Management of working capital
		● Return on investment

RESULTS OF OPERATIONS

2008 COMPARED TO 2007

The following table sets forth the amounts and percentage relationship to sales of certain costs, expenses and income items (millions, except per share data):

Table of Contents

	Year Ended December 31
	2008					2007
Sales
Building products	$	694		52	%	$	997		46	%
Construction services		631		48	%		1,182		54	%
Total sales		1,325		100	%		2,179		100	%

Costs and operating expenses
Cost of goods sold
Building products		514		74	%		723		73	%
Construction services		576		91	%		1,028		87	%
Impairment of assets		53		4	%		272		13	%
Selling, general and administrative expenses		349		26	%		423		19	%
Other income, net		(5	)	—	%		(10	)	—	%
Total costs and operating expenses		1,487		112	%		2,435		112	%

Loss from operations		(163	)	(12	)%		(256	)	(12	)%

Interest expense		53		4	%		34		1	%

Loss from continuing operations before income taxes and minority interests		(216	)	(16	)%		(290	)	(13	)%

Income tax benefit		23		2	%		26		1	%
Minority interests income, net of income taxes		—		—	%		(1	)	—	%
Loss from continuing operations		(192	)	(14	)%		(266	)	(12	)%

Loss from discontinued operations prior to sale		(13	)	(1	)%		3		—	%
Impairment of assets		(8	)	—	%		(65	)	(3	)%
Gain on sale of discontinued operations		—		—	%		20		1	%
Income tax expense		(2	)	—	%		(5	)	—	%
Loss from discontinued operations		(22	)	(2	)%		(47	)	(2	)%

Net loss	$	(215	)	(16	)%	$	(313	)	(14	)%

Note: Certain amounts and percentages may not sum to totals due to rounding.

Consolidated Financial Results

Selected financial results ~~are~~were as follows (millions):

	2005		2004		$ Change		% Change
Sales
Construction services	$	1,586	$	904	$	682		75	%
Building products		1,326		1,187		139		12	%
	$	2,912	$	2,091	$	821		39	%
Income from operations	$	239	$	108	$	131		121	%

Sales and Loss from Operations

Sales increased $821 million to $2.9 billion due to an increase in construction services and the acquisition of construction services businesses. Sales from acquisitions not present in the prior period were $404 million or approximately half of the increase. Strong homebuilding activity was prevalent in most of our markets, particularly the Southwest region. Building permits and housing starts were also higher in most of our markets relative to the prior year.(miilions)

Income from operations for 2005 increased 121% to $239 million from $108 million in the prior year. Improved margins, particularly from demand for our construction services, were a key factor. Margins as a percent of sales for construction services were up 3.9% while building products also improved 2.7% compared to the prior year. Selling, general and administrative expenses were 14.5% of sales and improved by 70 basis points. These expenses were lower as a percent of sales due to better leveraging of these expenses at our building products operations.

Business Segments

Sales and operating income by business segment are as follows (millions):

	2005					2004
	Sales		Income from Operations			Sales		Income from Operations
SelectBuild	$	1,394	$	161		$	754	$	60
BMC West		1,518		151			1,337		96
Corporate		―		(73	)		―		(48	)
	$	2,912	$	239		$	2,091	$	108

Table of Contents

	2008			2007			% Change
Sales
Building products	$	694		$	997			(30	)%
Construction services		631			1,182			(47	)%
	$	1,325		$	2,179			(39	)%

Loss from operations	$	(163	)	$	(256	)		(36	)%

~~SelectBuild~~Sales decreased 39% to $1.3 billion from $2.2 billion a year ago. Sales were lower in all our regions, particularly sales of construction services. National trends in single-family home construction continue to be at depressed levels as annualized single-family housing starts for the U.S. as a whole were 55% lower or 0.5 million starts for 2008 compared to an average of 1.1 million starts per year since 1990 excluding the boom years of 2006 through 2003. Increased home foreclosures, tightening lending standards and rising unemployment have driven housing starts to their lowest level in the 50 years of available housing data. Similarly, single-family permits in our markets fell 46% for 2008 and 31% for 2007. The depth and duration of the current housing downturn remains uncertain.

~~Selected~~Loss from ~~financial results~~operations ~~are~~was as$163 ~~follows~~million ~~(millions)~~compared to a loss of $256 million a year ago and included the following:

	2005			2004		$ Change			% Change
Sales	$	1,394		$	754	$	640			85	%
Less: Acquisitions		(385	)		―		(385	)		―
	$	1,009		$	754	$	255			34	%
Income from operations	$	161		$	60	$	101			168	%
Less: Acquisitions		(31	)		―		(31	)		―
	$	130		$	60	$	70			117	%

·	Gross margins declined to 18% from 20% a year ago. Margins declined 1.6% for building products and 4.3% for construction services. Lower margins resulted from intensified competition for building products and construction services for fewer housing starts.

~~Sales increased $640~~· ~~million~~We inrecognized ~~2005.~~$53 ~~Acquisitions~~million offor ~~construction services businesses not present in~~ the ~~same~~impairments ~~periods represented 60%~~ of ~~this~~certain ~~increase.~~customer ~~Home~~relationships ~~construction activity was strong in Las Vegas~~ and ~~Phoenix~~covenants asnot ~~well~~to ascompete, ~~most of our other markets. In addition~~goodwill, ~~housing~~certain ~~starts~~property inand ~~our~~equipment ~~markets~~held ~~compared~~for ~~favorably~~sale toand ~~the prior~~certain ~~year~~leasehold improvements.

~~Income from operations~~· ~~for~~Partially ~~2005~~offsetting ~~improved~~lower ~~over~~gross ~~$100~~margins, ~~million~~selling ~~compared~~and togeneral ~~the~~administrative ~~prior~~expenses ~~year. Margin~~decreased ~~improvement~~17% ~~was~~or a$73 ~~key~~million ~~factor,~~from ~~improving~~a 4year ago.6% asThese aexpenses ~~percent~~were oflower ~~sales~~due to ~~19.3%~~ ~~compared~~employee toreductions ~~14.7%~~resulting in ~~the~~a ~~prior~~decrease ~~year.~~of ~~Further~~$75 ~~market~~million ~~acceptance~~or of42% ~~the value~~in of our ~~construction~~operations ~~services,~~and ~~particularly~~12% in ~~the~~our ~~Las~~administrative ~~Vegas~~operation ~~and Phoenix markets~~ as well as ~~improved~~$22 ~~management~~million of ~~contracts,~~reductions ~~most notably~~ in ~~our Florida operations~~occupancy, ~~contributed~~shipping toand ~~the improvement. Acquisitions also contributed approximately 30% or $31 million to the increase in operating income. Selling~~handling, ~~general~~ travel and ~~administrative~~other expenses ~~specific to the business segment were $56 million higher with more than half of the increase due to acquisitions completed during the year~~. AsThese areductions ~~percent of sales, these expenses~~ were ~~7.7%~~partially ~~compared~~offset ~~to 6.8% in the prior year.~~ by:

~~BMC West~~§ $14 million increase in the allowance for doubtful accounts receivable as our customers struggle with fewer construction projects and financing and

~~Selected financial results~~§ ~~are~~$9 asmillion ~~follows~~for ~~(millions):~~exiting various operating leases associated with underperforming business units.

	2005			2004		$ Change			% Change
Sales	$	1,518		$	1,337	$	181			14	%
Less: Acquisitions		(19	)		―		(19	)		―
	$	1,499		$	1,337	$	162			12	%
Income from operations	$	151		$	96	$	55			57	%
Less: Acquisitions		―			―		―			―
	$	151		$	96	$	55			57	%

Nonrecurring expenses associated with closure and consolidation of underperforming business units classified in selling, general and administrative expenses included $19 million of payroll and related expenses and other administrative operating expenses. As a percent of sales, selling, general and administrative expenses increased to 26% from 19%. In addition to the nonrecurring expenses, the increase was the result of:

~~Sales increased $181~~§ ~~million~~a insubstantial ~~2005~~decline ~~as we experienced strong housing construction across all our regions. Building permit activity for single-family homes~~ in ~~our~~sales ~~markets was up 13% and compared favorably to the U.S. average of 4%. In particular~~volume, ~~our Texas,~~particularly ~~Northwest~~construction and Intermountain regions reported strong increases in sales compared to a year ago. Our continued focus on a regional business model that provides customers with expanded choices for building products and services ~~from multiple~~ ~~locations also contributed to our sales growth.~~and

a shift in sales mix to building products from construction services.

~~Table of~~Interest ~~Contents~~Expense

~~Income~~Interest expense ~~from operations~~was ~~for~~57% ~~2005~~or ~~increased~~ $5519 million ~~due~~more tothan ~~improved margins. Margins as~~ a ~~percent~~ ofyear ~~sales were 2~~ago.1% The ~~higher~~increase ~~and were 25.7% compared to 23.6% in the prior year. Inventory~~ was ~~effectively managed despite fluctuations during the year~~due ~~in commodity wood product prices. Selling, general and administrative expenses specific~~ to the business segment were approximately $21 million higher than the preceding year. However, these expenses were effectively leveraged as they represented 15.9% of sales compared to 16.5% in the prior year.:

~~Corporate~~· $6.1 million for higher interest rates,

~~Corporate represents~~· ~~expenses to support the operations of our business segments, SelectBuild and BMC West~~$4.2 ~~These~~million ~~costs include administrative functions~~ for ~~information~~ ~~systems,~~write-off ~~reporting,~~of ~~accounts~~deferred ~~payable~~loan and human resources, professional fees for regulatory compliance, executive and senior management, certain incentive compensation as well as actuarial adjustments for insurance and medical claims. These costs ~~are not allocated to our business segments.~~,

~~Selected financial results~~· ~~are~~$3.2 asmillion ~~follows~~for ~~(millions):~~fees associated with waivers and amendments of our credit facility in September and February 2008 and

		2005				2004				$ Change				% Change
Operating expenses			$73				$48				$25				52	%

·	$3.0 million for the ineffective portion of interest rate swap contracts.

~~Corporate and~~Income other expenses were $25 million higher in 2005 due to incentive compensation from improved operating performance, professional fees for regulatory compliance and additional personnel to support our expanding business. These expenses were 2.5% of sales compared to 2.3% in 2004. Taxes

Operating losses and impairments from continuing operations resulted in an income tax benefit of $23 million. Our effective income tax rate increased slightly to 10.8% and is lower than statutory federal and state tax rates due to uncertainty in our ability to realize deferred tax assets resulting from operating losses and impairments. To the extent taxable income is generated in future periods, these tax benefits may be realized and reduce our effective tax rate in future periods.

Discontinued Operations

In June 2008 and as a consequence of the significant and ongoing correction in single-family home construction, we discontinued our concrete block masonry and concrete services business as well as our truss manufacturing business in Florida. We incurred a loss from these operations of $12 million and recognized impairments of $8 million for customer relationships and assets held for sale. These operations represented approximately 6% of sales.

In March 2008, we discontinued framing services in Virginia. These operations represented less than 1% of sales.

~~Table of~~RESULTS ~~Contents~~OF OPERATIONS

2007 COMPARED TO 2006

The following table sets forth the amounts and percentage relationship to sales of certain costs, expenses and income items (millions, except per share data):

	Year Ended December 31
	2007					2006
Sales
Building products	$	997		46	%	$	1,254		42	%
Construction services		1,182		54	%		1,697		58	%
Total sales		2,179		100	%		2,951		100	%

Costs and operating expenses
Cost of goods sold
Building products		723		73	%		913		73	%
Construction services		1,028		87	%		1,405		83	%
Impairment of assets		272		13	%		—		—	%
Selling, general and administrative expenses		423		19	%		473		16	%
Other income, net		(10	)	—	%		(4	)	—	%
Total costs and operating expenses		2,435		112	%		2,788		95	%

(Loss) income from operations		(256	)	(12	)%		164		5	%

Interest expense		34		1	%		29		1	%

(Loss) income from continuing operations before income taxes and minority interests		(290	)	(13	)%		135		4	%

Income tax benefit (expense)		26		1	%		(45	)	(2	)%
Minority interests income, net of income taxes		(1	)	—	%		(8	)	—	%
(Loss) income from continuing operations		(266	)	(12	)%		82		2	%

Income from discontinued operations prior to sale		3		—	%		35		1	%
Impairment of assets		(65	)	(3	)%		(2	)	—	%
Gain on sale of discontinued operations		20		1	%		—		—	%
Income tax expense		(5	)	—	%		(12	)	—	%
(Loss) income from discontinued operations		(47	)	(2	)%		21		1	%

Net (loss) income	$	(313	)	(14	)%	$	102		3	%

Note: Certain amounts and percentages may not sum to totals due to rounding.

Consolidated Financial Results

Selected financial results were as follows (millions):

Sales and (Loss) Income from Operations

(millions)

	2007			2006		% Change
Sales
Building products	$	997		$	1,254		(20	)%
Construction services		1,182			1,697		(30	)%
	$	2,179		$	2,951		(26	)%

(Loss) income from operations	$	(256	)	$	164		n/m

Sales decreased 26% or $772 million to $2.2 billion. A sharp contraction in new home construction consistent with the national downturn in homebuilding was responsible for the decline. Single-family building permits in our markets were down 35% whereas the U.S. overall was down 29% compared to 2006. Weak buyer demand and an excess inventory of unsold homes curtailed new home starts by homebuilders. Sales of construction services were particularly lower since these sales are from production homebuilders who significantly reduced new home construction.

Gross margins declined to 20% of sales from 21% in 2006. Bidding for construction contracts was more competitive as fewer opportunities were available for builders. As a result, margins for construction services were sharply lower, while margins for building products improved due to a shift in sales mix to manufactured building components.

Intangibles and Goodwill Impairment

Consistent with the overall housing industry, our operations suffered from the effects of the sharp contraction in single-family home construction. The reporting units of our construction services operations and Colorado building distribution facilities demonstrated significant declines in operating performance in the later portion of the fourth quarter of 2007.

During the later portion of the fourth quarter of 2007, the leading sources of economic and housing data forecasted sharper reductions in housing starts. The rapid deterioration in housing forecasts and our operating performance resulted in significant revisions of our operating expectations underpinning the assumptions of recoverability of the carrying amount of customer relationships and goodwill. Additionally, our enterprise value reflected a significant reduction as investors considered overly negative perceptions of the future of the housing market and depressed the share values of housing related companies. For impairment testing, the fair values were determined based on estimates of enterprise value as well as the present value of estimated future operating cash flows. As a result, we determined the carrying amount of certain customer relationships and goodwill exceeded their respective estimated fair values and recognized the following impairments:

·	$30.0 million for certain customer relationships,

·	$242.0 million for goodwill and

·	$0.2 million for certain equipment.

In addition, the related tax benefit for these impairments was limited to $26 million based on the estimated realization of tax benefits for current and prior periods. To the extent taxable income is generated in future periods, additional tax benefits related to these impairments may be realized and reduce our future effective tax rate.

Continued deterioration in our markets could result in additional impairments of the carrying amount of intangibles and goodwill.

Loss from operations was $256 million compared to income of $164 million in 2006. Excluding impairments, income from operations was $16 million. Our results from operations declined due to a sharp reduction in sales volume and lower gross margins for construction services.

Selling, general and administrative expenses decreased 11% or $51 million from 2006 due to reductions in the number of employees and related expenses as well as incentive compensation based on operating performance.

As a percent of sales, selling, general and administrative expenses increased to 19% from 16%. These expenses as a percent of sales were higher as a result of the decline in construction services sales volume as well as:

·	a shift in sales mix to building products from construction services,

·	decreases in commodity wood product prices and

·	the relatively fixed portion of these expenses.

Interest Expense

Interest expense of $34 million increased $5 million from 2006. The increase was due to a rise in interest rates and higher average borrowings. Borrowings were higher to complete payments for acquisitions made in the prior year and fund seasonal working capital requirements.

Income Taxes

The impairment of goodwill and certain customer relationships for continuing operations resulted in a limited income tax benefit of $26 million. Our effective income tax rate was a benefit of 8.8% and was lower than statutory federal and state tax rates due to uncertainty in our ability to realize deferred tax assets resulting from these impairments. To the extent taxable income is generated in future periods, the tax benefit derived from the impairments may be realized and reduce our effective tax rate in future periods.

Discontinued Operations

In September 2007, we sold three building materials distribution businesses in Western Colorado. Gain on the sale of these discontinued operations was $20 million, principally from the December 2007 sale of remaining real estate in Aspen, Colorado. These business units represented approximately 1% of sales.

LIQUIDITY AND CAPITAL RESOURCES

Uncertainty of Liquidity

We have incurred losses from operations and costs to restructure. We managed our liquidity during this time with closure and consolidation of underperforming business units and cost reduction initiatives as well as sales of assets. However, the downturn in the housing industry has been deepened by an increase in home foreclosures and sapped consumer confidence from tightened lending standards and rising unemployment and created a difficult business environment. Our operating performance and liquidity were negatively affected by these economic and industry conditions which are beyond our control.

These business conditions have not improved during the first quarter of 2009. As of February 2009, single-family housing starts for the U.S. as a whole fell to an annualized rate below 0.4 million and single-family permits in our markets fell to an annualized rate below 0.2 million. We do not believe these business conditions will improve significantly during 2009.

Our actions to align our cost structure with anticipated sales may not be sufficient, timely or realized and may create additional cash requirements for operations. We also have significant interest and debt service obligations consisting of cash payments for interest and principal. With insufficient funds from operations, our primary source for funding operating needs is the revolver portion of our credit facility. However, our revolver is subject to borrowing base limitations of certain accounts receivable, inventory, property and equipment and real estate and may not provide adequate liquidity.

We are anticipating tax refunds as a result of net operating losses. Our federal tax refund is approximately $56 million and will be used to pay down existing obligations and will help de-lever our capital structure. The timing of anticipated tax refunds for net operating losses is not known.

Additionally, our credit agreement requires monthly compliance with financial covenants including minimum liquidity and adjusted earnings before interest, taxes, depreciation and amortization (monthly Adjusted EBITDA) at least through 2010. Operating results, particularly income from continuing operations, are a primary factor for these covenants and our ability to comply with these covenants depends on our operating performance. At December 31, 2008, we were in compliance with the financial covenants of the credit agreement.

Based on financial information for February 2009, we were not in compliance with the monthly Adjusted EBITDA requirement of our credit agreement. In March 2009, we obtained a limited waiver through April 15, 2009 for lack of compliance with the monthly Adjusted EBITDA requirement and we preserved access to limited liquidity as we may borrow up to $20 million on the revolver portion of our credit facility.

Previously, we obtained waivers for financial covenants related to our credit agreement due to lower than planned operating performance as of both June 2008 and December 2007. In September 2008, we entered into an amendment to our credit agreement with our lenders. Our amended credit facility provides a $200 million revolver subject to borrowing base limitations and a $340 million term note maturing in November 2011. As of December 31, 2008, no borrowings were outstanding under the revolver and $325.8 million was outstanding under the term note. As of March 31, 2009, there were $2.3 million borrowings outstanding under the revolver and $313.8 million was outstanding under the term note.

Lack of compliance with these covenants constitutes an event of default under the credit agreement. As a result and absent any waiver, forbearance or modification, the lenders under our credit agreement would have the right to cause all amounts borrowed to become due and payable immediately and cease further borrowings by us under the credit facility.

We may not be able to meet near-term working capital and scheduled interest and debt payment requirements if cash flows are inadequate from our suppressed operating activities or if our access to the revolver portion of our credit facility is restricted due to lack of compliance with financial covenants or revolver borrowing base limitations. Absent any waiver, forbearance or modification to our current credit agreement or other financing options, we believe our recurring losses from operations, interest and debt burden amid declining sales and potential inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue near-term as a going concern.

Additionally, our long-term future is dependent on more normal levels of single-family housing starts and our ability to implement and maintain cost structures, including reduced interest and debt, that align with single-family housing trends. If this fails to transpire or if we cannot obtain a waiver, forbearance or modification to our current credit agreement, we may not be able to continue as a going concern and may potentially be forced to seek relief through a bankruptcy filing.

Cash Flows

~~Our~~Historically, our primary ~~need~~ needs for capital resources iswere to fund working capital and acquisitions as well as finance capital expenditures. In Wethe future we expect to fund ~~these~~working capital requirements ~~through~~and necessary capital ~~a combination~~expenditures ofwith cash flow from operations and seasonal borrowings under our credit facility.

~~For~~If ~~2006~~we are unable to implement and maintain cost structures, ~~cash~~including debt and ~~provided~~interest, bythat ~~operations~~align ~~was~~with ~~$273.4~~single-family ~~million~~housing ~~and~~trends ~~funded~~or ~~the~~if ~~majority~~we ofcannot obtain a ~~acquisitions~~waiver, ~~capital~~forbearance ~~expenditures~~or ~~and~~modification ~~investments~~to inour ~~marketable~~current ~~securities.~~credit agreement or other financing ~~The sections~~options, ~~that~~we ~~follow~~may ~~discuss~~not inbe ~~more~~able ~~detail~~to ~~our~~continue ~~operating,~~as ~~investing~~a going concern and we may be ~~financing~~forced ~~activities~~to asseek ~~well~~relief asby altering our ~~financing~~capital ~~arrangements~~structure or through a bankruptcy filing.

Operations

~~Cash~~Operating ~~provided by operating~~ activities ~~was~~used $~~273.4~~23 million inof ~~2006~~cash for 2008 compared to $~~198.3~~67 million provided ~~a year~~for ~~ago~~2007. Net ~~income~~loss adjusted for non-cash items ~~decreased~~increased $~~14.5~~121 million from 2007 due to ~~slower~~ ~~construction~~lower ~~activity~~sales asand ~~homebuilders~~reduced ~~curtailed~~profitability ~~production~~as ina anresult ~~effort~~of the tosignificant ~~align~~downturn in home ~~inventory~~construction. Our ~~levels~~working ~~with~~capital requirements decreased ~~demand.~~$48 ~~However,~~million in ~~changes~~2008. Cash inprovided by working capital ~~were~~ ~~favorable as~~ requirements ~~were~~was $~~104.4~~48 million ~~less~~for ~~than~~2008 acompared ~~year~~to ~~ago as~~ cash provided ~~from~~of ~~accounts~~$36 ~~receivable~~million ~~and~~for ~~unbilled~~2007, ~~receivables~~ as ~~well~~our asworking ~~improved~~capital requirements decreased ~~inventory~~despite ~~turns~~a ~~were~~significant ~~partially~~increase ~~offset~~in byour cash ~~used~~conversion ~~for~~cycle ~~compensation,~~as ~~accounts~~ days payable outstanding decreased, inventory turns slowed slightly and ~~billings~~there inwas ~~excess~~no significant ofchange ~~costs~~in ~~and~~days ~~estimated~~sales ~~earnings~~outstanding.

In ~~2005~~2007, cash provided by operating activities was $~~198.3~~67 million, acompared ~~significant increase~~to ~~from~~ $~~33.4~~ 273 million infor ~~2004~~2006. Net ~~Strong~~income ~~home~~adjusted ~~construction~~for ~~activity~~non-cash ~~and~~items decreased ~~improved~~$126 ~~margins~~million indue ~~both~~to ~~our~~a ~~construction~~significant ~~services~~contraction ~~and~~in ~~building~~construction ~~products~~activity as ~~segments~~homebuilders ~~resulted~~curtailed production in ~~higher~~an ~~net~~effort ~~income,~~to ~~providing~~align ~~$75.6~~home ~~million~~inventory ~~of additional~~with ~~operating~~demand. Consistent ~~cash~~with ~~flow~~the ~~over~~contraction ~~2004.~~of ~~Also~~construction activity, our working capital requirements ~~were~~for ~~lower in 2005~~2007 ~~than~~were ~~2004~~$36 ~~due~~million toless ~~lower commodity wood product prices as well as improved~~than ~~inventory~~2006. Inventory turns and days ~~sales~~payable outstanding. ~~This~~were ~~improved management of working~~consistent ~~capital~~with ~~resulted~~the inprior ~~cash~~year ~~used~~whereas ofdays ~~$0.8~~sales ~~million~~outstanding ~~compared to $61.3 million of~~increased ~~cash used in 2004~~slightly.

Cash provided by operating activities was $~~33.4~~273 million infor ~~2004,~~2006 upcompared ~~significantly~~to ~~from~~ $~~12.5~~ 198 million ~~in 2003~~for 2005. Net ~~Strong~~income ~~home~~adjusted ~~construction~~for ~~activity~~non-cash ~~and~~items ~~our~~decreased ~~strategy~~$15 million due to ~~provide additional~~slower construction ~~services~~activity ~~resulted~~as homebuilders curtailed production. Changes in ~~higher~~working ~~net~~capital ~~income,~~were ~~providing~~favorable ~~$34.0~~as requirements were $104 million ofless ~~additional~~than ~~operating~~2005 ~~cash~~as ~~flow.~~the ~~Net~~robust ~~income~~pace ~~adjusted~~of ~~for~~housing ~~non-cash items~~starts ~~was~~began ~~$80~~to deteriorate.4 Inventory ~~million~~turns ~~however,~~and ~~changes~~days inpayable ~~working~~outstanding ~~capital~~improved whereas ~~requirements~~days ~~used $61.3~~sales ~~million~~outstanding ofincreased ~~this~~slightly ~~cash~~from ~~flow~~2005.

Capital Investment and Acquisitions

Cash ~~used~~ inprovided by investing activities was $~~280.3~~29 million infor ~~2006~~2008 orcompared to $~~18.7~~53 million ~~more~~used ~~than~~for ~~$261~~2007.6 Cash ~~million~~provided ~~used~~by in investing activities reflected a ~~year~~$72 ~~ago~~million reduction in expenditures for the acquisition of businesses. A remaining ~~Cash~~minority ~~use~~interest ~~included~~in a framing services operation was purchased for $~~201.~~8 million. Cash ~~for seven~~of ~~acquisitions~~$15 ~~and~~million ~~purchase~~was ofprovided anprincipally ~~additional~~from ~~20%~~the ~~interest~~sale inof ~~concrete~~building ~~block~~materials ~~masonry~~distribution facilities in Boulder, Colorado and Bakersfield, ~~concrete~~California ~~services~~as ~~business.~~well ~~Cash~~as the sale of other equipment. Cash used for investing activities also included capital expenditures ~~in 2006~~ of $~~52.9~~17 million or $~~6.4~~16 million ~~more~~less than ~~$46~~2007.~~5 million a year ago.~~ Capital expenditures ~~in 2006~~ were principally for ~~centralization~~relocation ofand ~~a millwork facility in Colorado,~~ expansion of materials distribution ~~facilities in Texas~~ and ~~Idaho and expansion of~~component ~~construction~~manufacturing ~~service~~ facilities in ~~Arizona~~Texas. Pursuant asto ~~well~~our asplans ~~expansion~~to of terminate our ~~data center~~captive ~~and~~insurance ~~construction~~subsidiary, ~~and~~cash ~~human~~of ~~resource~~$42 ~~information~~million, ~~systems.~~net ~~Cash~~was ~~used~~provided ~~for~~from the ~~investing~~liquidation ~~activities~~of inmarketable ~~2006~~securities ~~also~~and ~~included~~proceeds ~~$25.4~~were ~~million~~used ~~for~~to ~~the~~reduce net ~~purchase~~ ~~of marketable~~borrowings ~~securities~~under ~~pursuant to~~ the ~~statutory~~revolver ~~funding~~and ~~requirements~~for ofoperating ~~our captive insurance subsidiary~~needs.

3440

~~Table~~In 2007, cash used in investing activities was $53 million or $227 million less than $280 million for 2006. Cash used for investing activities reflected a $121 million reduction in acquisition expenditures. Cash used for acquisitions of ~~Contents~~$81 million was principally for payments on acquisitions made in 2006. Cash of $27 million was provided by the sale of three building material distribution businesses in Western Colorado and relocation of a building materials distribution business in Texas. Cash used for investing activities also included capital expenditures of $33 million or $20 million less than 2006. Capital expenditures were principally for relocation and expansion of materials distribution and component manufacturing facilities as well as routine replacement of operating equipment. Cash of $17 million was provided from the sale of marketable securities pursuant to the statutory funding requirements of our captive insurance subsidiary.

~~In 2005,~~Cash ~~cash~~ used in investing activities was $~~261.6~~280 million ~~compared~~for to2006 or $~~58.0~~18 million more than $262 million used in ~~2004.~~investing activities for 2005. Cash use included $~~203.2~~ 202 million for ~~seven~~eight acquisitions~~, including~~ ~~the purchase of interests in three businesses,~~ and purchase of an additional 20% interest in a concrete block masonry and concrete services business. Cash used for investing activities also included capital expenditures ~~was~~for 2006 of $~~46.5~~53 million or $~~18.9~~6 million more than $~~27.6~~47 million infor ~~2004~~2005. Capital expenditures for 2006 were principally for centralization of a millwork facility in Colorado, expansion of distribution facilities in Texas and ~~Montana~~Idaho, ~~construction~~expansion ~~services~~of construction service facilities in ~~Las~~Arizona ~~Vegas~~ and ~~Florida~~expansion ~~and~~of ~~implement~~our data center as well as construction and ~~distribution~~ human resource information systems. Cash used for investing activities for 2006 also included $~~14.1~~ 25 million for the net purchase of marketable securities pursuant to the statutory funding requirements of our captive insurance subsidiary.

Cash used in investing activities was $58.0 million in 2004. Cash use included $27.7 million for property and equipment and $22.7 million for the remaining interest in a framing business, interest in a truss manufacturing business as well as the acquisition of a distribution business, windows installation business and framing business. Cash use for investing activities also included $19.0 million invested in marketable securities at our captive insurance subsidiary. The cash use was partially offset by proceeds of $12.3 million from the disposition of properties in Montana, Texas and Utah.

Financing

Cash ~~provided~~ used by financing activities ~~in 2006~~ was $~~51.0~~55 million for 2008 compared to $~~73.9~~28 million aused for ~~year ago~~2007. Cash ~~After~~for ~~cash provided by~~ operating ~~activities~~needs, ~~debt~~payments ~~was~~on ~~borrowed~~the toterm ~~complete~~note, capital ~~eight~~expenditures ~~acquisitions~~ and ~~purchase~~financing ancosts ~~additional~~for ~~20%~~our ~~interest~~amended incredit ~~concrete~~facility ~~block masonry~~were ~~and~~funded ~~concrete~~by eliminations ~~services~~of ~~business~~the asstatutory ~~well~~funding asrequirements ~~expand~~of our ~~facilities~~captive ~~and~~insurance ~~information~~subsidiary, ~~systems.~~reductions Inin ~~November~~working ~~2006~~capital requirements, weexisting ~~amended~~cash ~~our revolver~~ and ~~entered~~ ~~into a~~proceeds ~~new~~from ~~$350~~dispositions. In ~~million~~addition ~~term~~to ~~note.~~scheduled ~~This~~principal payments, ~~transaction~~$16 ~~resulted~~million inwas ~~proceeds~~paid ~~from~~on the ~~$350~~ ~~million~~ term note ~~which~~as ~~was~~a ~~used~~result toof ~~repay~~reductions ~~our~~in ~~previous term notes and~~ the ~~amount~~statutory ~~outstanding~~funding ~~under~~requirements ~~the~~of ~~revolver.~~our ~~Remaining~~captive ~~borrowings~~insurance ~~were~~subsidiary ~~used~~and ~~to pay~~proceeds ~~dividends~~from ~~and invest in cash equivalents~~dispositions.

In ~~2005~~2007, cash ~~provided~~used by financing activities was $~~73.9~~28 million compared to $~~24.6~~ 51 million provided inby ~~2004.~~financing ~~The~~activities ~~primary~~for ~~sources of cash were a $75~~2006.0 Payments ~~million~~for ~~term note~~acquisitions ~~and an~~made ~~increase~~ in ~~book~~the ~~overdrafts.~~prior Inyear, ~~addition~~capital toexpenditures ~~strong~~and ~~operating~~ cash ~~flows, debt was~~dividends ~~borrowed~~for toshareholders were ~~complete seven~~funded ~~acquisitions,~~with ~~including~~proceeds from the ~~purchase~~ sale of ~~interests~~ in three non-strategic building materials distribution businesses, ~~and~~in ~~purchase~~Western ofColorado, anproceeds ~~additional~~from ~~20%~~other ~~interest~~dispositions, incash ~~concrete~~from ~~block~~operations ~~masonry~~ and ~~concrete~~lower ~~services~~working ~~business as well~~capital asrequirements. No ~~expand~~additional ~~facilities~~borrowings ~~and~~were ~~implement construction information systems~~required.

Cash provided by financing activities was $~~24.6~~51 million infor ~~2004.~~2006 ~~The~~compared ~~primary~~to ~~sources~~$74 ofmillion ~~cash~~for ~~were $20~~2005.8 After ~~million~~cash ofprovided ~~net~~by ~~borrowings~~operating ~~from~~activities, ~~the~~debt ~~revolver~~was incurred to complete eight acquisitions and purchase an ~~increase~~additional 20% interest in ~~book~~a ~~overdrafts~~concrete ~~and~~block ~~stock~~masonry ~~options~~and ~~exercised~~concrete ~~net~~services ofbusiness ~~tax~~as ~~benefit.~~well ~~After~~as ~~cash~~expand ~~provided~~our byfacilities ~~operations,~~and ~~debt~~information ~~was~~systems. In ~~borrowed~~November to2006, ~~purchase~~we ~~property~~amended our revolver and ~~equipment,~~entered ~~purchase~~into a new $350 million term note. This transaction resulted in proceeds from the ~~remaining~~$350 ~~interest~~million interm anote ~~framing~~which ~~business,~~was anused to ~~interest~~repay inour aprevious ~~truss~~term notes and the amount outstanding under the ~~manufacturing~~revolver. Remaining ~~business,~~borrowings were used to invest in cash equivalents and ~~complete~~pay ~~three~~cash ~~acquisitions~~dividends for shareholders.

Financing Arrangements

Our debt structure consists of a revolver, term note and other borrowings.

~~Revolver~~We obtained waivers for financial covenants related to our credit agreement due to lower than planned operating performance as of both June 2008 and December 2007. In September 2008, we entered into an amendment to our credit agreement with our lenders. The amended credit facility continues to provide a $200 million revolver subject to borrowing base limitations and a $340 million term note maturing in November 2011.

In November 2006, we entered into an amended $500 million revolver with a group of lenders. The revolver matures in November 2011. The revolver consists of both LIBOR and Prime based borrowings. These variable interest rates are subject to quarterly adjustment based on operating performance and range from LIBOR plus 1.00% to 2.00%, or Prime plus 0.00% to 0.75%. Interest is paid quarterly. As of December 31, 2006, no amount was outstanding under the revolver.· Revolver

35The $200 million revolver is subject to borrowing base limitations and matures in November 2011. The revolver may consist of both LIBOR and Prime based borrowings. In the September 2008 amendment, the variable interest rate for the revolver was increased to LIBOR plus 5.25% or Prime plus 3.25%. Minimum LIBOR interest is 3.0%. Additionally, a commitment fee for the unused portion is 0.50%. LIBOR interest is paid quarterly and Prime interest is paid monthly. As of December 31, 2008, no borrowings were outstanding under the revolver.

~~Table~~The effective interest rate is based on interest rates for the period as well as the commitment fee for the unused portion of ~~Contents~~the revolver.

~~Term~~Letters of credit ~~Note~~outstanding that guaranteed performance or payment to third parties were $110.6 million as of December 31, 2008. These letters of credit reduce the $200 million revolver commitment.

~~In November~~Total ~~2006, we entered into a $350 million term note with a group of lenders.~~availability ~~The~~under ~~term~~the ~~note~~revolver ~~matures in November 2013 and~~ is ~~payable~~subject ~~in quarterly installments for the first seven years in amounts equal~~ to 1%a ofmonthly ~~the~~borrowing ~~initial~~base ~~principal~~calculation ~~per~~that year and the remaining principal due November 2013. The variable interest rate for the term note is LIBOR plus 2.50%, or Prime plus 1.25%. Interest is paid quarterly. As of December 31, 2006, $349.1 million was outstanding under this term note.includes:

~~Other~~· 70% of certain accounts receivable,

~~Other long-term debt~~· of50% ~~$8.2 million consists~~ of ~~term~~certain ~~notes~~inventory, ~~equipment notes and capital leases for equipment. Interest rates vary and dates of maturity are through March 2021.~~

~~Expansion of~~· ~~Credit~~25% ~~Facility,~~of ~~Covenants~~certain ~~and~~other ~~Maturities~~inventory,

~~The credit~~· ~~facility consists~~approximately 75% of the ~~revolver~~appraised ~~and~~value ~~term note. The credit facility may be increased an aggregate amount~~ of upcertain ~~to $250 million. The credit facility is collateralized by tangible and intangible~~ property ~~of our wholly-owned subsidiaries, except the assets of our captive insurance subsidiary. The credit facility contains covenants~~ and ~~conditions~~equipment ~~requiring the maintenance of certain financial ratios. At December 31, 2006, we were in compliance with these covenants~~ and ~~conditions.~~

·	50% of the appraised value of real estate.

As of December 31, 2008, the unused borrowing base available under the revolver was $66.7 million.

· Term Note

The term note matures in November 2011 and is payable in quarterly installments of $0.9 million with the remaining principal of $280.5 million payable in November 2011. In the September 2008 amendment, the variable interest rate for the term note was increased to LIBOR plus 5.25% or Prime plus 3.25%. Minimum LIBOR interest is 3.0%. LIBOR interest is paid quarterly and Prime interest is paid monthly. In addition to the LIBOR and Prime interest rates, the term note includes an additional annual payment-in-kind interest or fee of 2.75% that is payable on the earlier of payoff or maturity. As of December 31, 2008, $325.8 million was outstanding under this term note.

· Other

Other long-term debt consists of term notes, equipment notes and capital leases for equipment. Interest rates vary and dates of maturity are through March 2021. As of December 31, 2008, other long-term debt was $1.4 million.

Covenants and Maturities

Our amended credit facility requires monthly compliance with financial covenants including minimum liquidity and adjusted earnings before interest, taxes, depreciation and amortization (monthly Adjusted EBITDA) at least through 2010. At December 31, 2008, we were in compliance with the financial covenants of the credit agreement.

If our leverage ratio is at or above a certain maximum as of September 30, 2010, the monthly Adjusted EBITDA may be replaced with quarterly compliance with a leverage ratio and interest coverage ratio. Operating results, particularly income from continuing operations, are a primary factor for these covenants and our ability to comply with these covenants depends on our operating performance. The significant downturn in single-family housing starts has negatively impacted and may continue to negatively impact our operating performance.

The credit agreement requires certain proceeds and cash flows be applied to the credit facility as follows:

Revolver

proceeds from the liquidation of statutory funding requirements of our captive insurance subsidiary,

30% of tax refunds and

cash in excess of $25 million.

Term Note

proceeds from certain dispositions,

70% of tax refunds and

75% of excess cash flow as defined beginning in 2010.

Due to requirements to apply tax refunds to the credit facility, 70% of the tax refund expected to be received in 2009 or $35.6 million has been classified as a current portion of long-term debt.

Proceeds from the liquidation of our captive insurance subsidiary, tax refunds and certain dispositions are retained in a separate cash account. Cash in excess of $25 million in this separate cash account is to be applied to the revolver or term note. Cash in this account was $9.2 million as of December 31, 2008. In the event of default, this cash is restricted and not available for our operating needs.

The amended credit facility continues to restrict our ability to incur additional indebtedness, pay dividends, repurchase shares, enter into mergers or acquisitions, use proceeds from equity offerings, make capital expenditures and sell assets. The amended credit facility is secured by all assets of our wholly-owned subsidiaries.

In connection with the September 2008 amendment, 100% or $2.8 million of unamortized deferred loan costs related to the term note were recognized as interest expense in the third quarter of 2008. We also incurred $3.8 million of costs in connection with the amendment and $2.0 million of these costs will be amortized over the remaining term of the credit facility whereas $1.8 million of these costs were recognized as interest expense in the third quarter of 2008.

In connection with the February 2008 amendment, 60% or $2.4 million of unamortized deferred loan costs related to the previous revolver were recognized as interest expense in the first quarter of 2008. We also incurred $4.9 million of fees in connection with the amendment and these costs were to be amortized over the remaining term of our credit facility. However, in connection with the September 2008 amendment, the remaining $2.6 million of these unamortized costs were recognized as interest expense in the third quarter of 2008.

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

2007	$	8,143
2009	$	39,443
2008		4,894
2010		3,727
2009		4,208
2011		283,189
2010		3,898
2012		65
2011		3,716
2013		70
Thereafter		~~332,445~~677
	$	~~357~~327,~~304~~171

As of December 31, 2006 and December 31, 2005 there were $95.8 million and $75.9 million, respectively of letters of credit outstanding that guaranteed performance or payment to third parties. These letters of credit reduce borrowing availability under the revolver.Warrants

In connection with the amendment of our credit facility in September 2008, we issued warrants that entitle the lenders to purchase approximately 8.75% or 2.8 million of our common shares at a purchase price of $0.47 per common share, the closing price on the NYSE on September 30, 2008. These warrants may be exercised through September 2015.

The fair value of the warrants of $0.8 million was recorded as a discount on the term note. Amortization of the discount will be recognized ratably through November 2011, the remaining term of our credit facility.

Hedging Activities

~~Derivative~~In ~~and hedging~~addition ~~activities~~to ~~are recorded on~~ the ~~balance~~amendment ~~sheet~~to atour ~~their~~credit ~~fair~~facility ~~values. In November~~in ~~2006~~September 2008, we ~~entered~~amended our ~~into~~ interest rate swap contracts ~~that~~to ~~effectively convert~~lower ~~$200~~amounts ~~million~~and a maturity matching the credit facility. As of December 2008, the ~~variable~~interest rate ~~borrowings~~swap contracts ofeffectively ~~the~~converted $~~349~~135.1 million ~~term note~~ of variable rate borrowings to a fixed interest rate of 710.596% ~~through~~plus ~~November~~any ~~2012~~difference between minimum LIBOR interest of 3.0% and LIBOR, thus reducing the impact of increases in interest rates on future interest expense. Additionally, ~~Approximately 57% of~~ the ~~outstanding~~notional ~~variable~~amount ~~rate borrowings~~ of the ~~term note as of December~~ ~~31, 2006 have been hedged through the designation of~~ interest rate swap contracts ~~accounted~~will ~~for~~be asratably ~~cash~~reduced ~~flow~~to ~~hedges.~~zero ~~After~~through ~~giving effect to~~ the ~~interest~~ ~~rate~~maturity ~~swap~~of ~~contracts,~~November ~~total borrowings were 58% fixed and 42% variable~~2011.

3645

~~Table~~Approximately 41% of ~~Contents~~the outstanding variable rate borrowings have been hedged through the designation of interest rate swap contracts accounted for as cash flow hedges through December 2008. After giving effect to the interest rate swap contracts, total borrowings were 58% variable and 42% fixed. Management may choose not to swap variable rates to fixed rates or may terminate a previously executed swap if the variable rate positions are more beneficial.

The ~~fair~~ ~~value of derivative instruments is based on pricing models using current market rates. The~~ fair value of the interest rate swap contracts was a ~~long-term~~ liability of $07.95 million as of December 31, ~~2006~~2008. To ~~The~~the ~~effective~~extent ~~portion~~the ~~was~~hedge ~~recorded in accumulated other comprehensive income, net, a separate component of shareholders’ equity, and~~ is ~~subsequently reclassified into earnings in the same financial statement line item~~effective, ~~interest expense, in~~ the ~~same period during which the hedged transaction is recognized in earnings. A~~ corresponding ~~deferred~~ ~~tax asset~~unrealized ofloss ~~$0.3 million was also recorded in accumulated other comprehensive income, net~~ for the ~~income tax related to the estimated fair value of the~~ interest rate swap contracts. ~~The~~and ~~ineffective~~unrealized ~~portion~~tax ofbenefit were ~~the~~recorded ~~change~~ in ~~the value of~~accumulated ~~the~~other ~~interest~~comprehensive ~~rate~~(loss) ~~swap~~income, ~~contracts~~net ~~is immediately recognized as~~ a ~~component~~separate component of ~~interest~~ ~~expense.~~shareholders’ ~~Hedge ineffectiveness for the period ended December 31, 2006 was not significant~~equity. ~~Management may choose not to swap variable rates to fixed rates or may terminate a previously executed swap if the variable rate positions are more beneficial.~~

In ~~June~~December ~~2004~~2008, we ~~entered~~determined ~~into~~the interest rate swap contracts ~~that~~were ~~effectively~~not an ~~converted~~effective ~~$100~~hedge ~~million~~ of variable ~~rate~~interest ~~borrowings~~due to athe ~~fixed~~recent significant reductions in LIBOR interest ~~rate~~rates. As a result of the estimated difference between ~~These~~the ~~swaps~~LIBOR ~~were~~interest ~~settled~~of inthe ~~November~~interest ~~2006~~rate swap contracts and the minimum LIBOR interest of 3.0% of the term note, we recognized $13.50 million ~~gain~~of ~~recognized~~interest expense for ~~this~~the ~~settlement~~ineffective portion of these interest rate swap contracts for 2008. The effective portion of the interest rate swap contracts of $4.5 million was ~~reclassified~~recorded toas ~~other~~an ~~income,~~unrealized ~~net~~loss ~~from~~and ~~accumulated~~an unrealized tax benefit of $1.7 million in accumulated other comprehensive (loss) income, net a separate component of shareholders’ equity. A corresponding deferred tax asset for the unrealized tax benefit was eliminated with a valuation allowance as there may be an inability to utilize this deferred tax asset.

Hedge accounting was discontinued in January 2009, as it is not probable future LIBOR interest rates for the remaining term of the interest rate swap contracts will be at or above the minimum LIBOR interest of 3.0% of the term note. As a result, changes in the fair value of the interest rate swap contracts will be recognized as interest expense rather than recorded in accumulated other comprehensive (loss) income, net a separate component of shareholders’ equity. The unrealized loss of $4.5 million in accumulated other comprehensive (loss) income, net as of December 31, 2008 will be subsequently amortized to interest expense over the remaining term of our term note.

In September 2008, we amended our interest rate swap contracts. Monthly settlements are made to ratably reduce the notional amount of the interest rate swap contracts through November 2011. Payments of $3.8 million have been made to settle a portion of the interest rate swap contracts liability and reduce the notional amount of the interest rate swap contracts. The related unrealized loss of $2.9 million and unrealized tax benefit of $1.1 million are recorded in accumulated other comprehensive (loss) income, net a separate component of shareholders’ equity. A corresponding deferred tax asset for the unrealized tax benefit was eliminated with a valuation allowance as there may be an inability to utilize this deferred tax asset. The unrealized loss of $2.9 million will be subsequently amortized to interest expense over the remaining term of our term note. Amortization to interest expense for this unrealized loss was $0.9 million for 2008.

Equity

~~On February~~Repurchase 14, 2006, our Board of Directors approved a two for one split of our outstanding common shares. Shareholders of record as of February 28, 2006 received a stock dividend of one additional common share for every common share they owned. All share and per share information for all periods presented has been adjusted to reflect this share split. Program

AtIn ~~the~~March ~~annual meeting of shareholders on May 3~~2007, ~~2005,~~ our ~~shareholders~~Board ~~voted~~of ~~to increase~~Directors authorized the ~~number~~repurchase of ~~authorized~~up ~~common shares~~ to 50 $25 million ~~from~~of 20our ~~million. These~~common ~~additional~~ shares ~~may~~through beMarch ~~issued~~2008. The ~~for reasons including but not limited~~repurchase ~~to stock~~program ~~splits,~~expired ~~financing~~in ~~acquisitions,~~March ~~establishing~~2008 ~~strategic relationships~~ with ~~corporate~~ ~~partners~~no ~~and~~shares ~~providing equity incentives~~repurchased.

Our credit facility amended in September 2008 prohibits the repurchase of our common shares. The determination of future share repurchases will depend on many factors, including credit facility restrictions, financial position, results of operations and cash flows.

Shelf Registration

In the third quarter of 1998, we filed a shelf registration with the Securities and Exchange Commission to register 4 million common shares. We may issue these shares in connection with future business acquisitions, combinations or mergers. Shares have been issued from this registration statement for a portion of the purchase price for acquisitions. There are approximately 3.7 million shares remaining and available under this shelf registration.

Based on our historical ability to generate cash flows from operations, borrowing capacity under the credit facility and access to debt and equity markets, management believes it will have sufficient capital to meet anticipated needs.47

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships often referred to as structured finance or special purpose entities which might be established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, ~~2006~~2008, we were ~~are~~ not involved in any transactions with unconsolidated entities.

Table of Contents

DISCLOSURES OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Contractual obligations as of December 31, ~~2006~~2008 (millions):

	Payments Due by Period
Contractual Obligations	Less than 1 Year		1-3 Years	~~1-3 Years~~	3-5 Years	3-More than 5 Years		Total	~~More than 5 Years~~	Fair Value	~~Total~~		~~Fair Value~~
Long-term debt		$7.9			$8.9		$7.6			$332.4		$356.8		$355.8
Long-term debt(1)	$39.4		$286.9		$0.2	$0.7		$327.2		$326.7
Capital lease obligations	—	~~0.2~~	—		~~0.3~~—	—	—	—		—		~~0.5~~		~~0.4~~
Operating leases		26.4			43.9		24.2			15.4		109.9		109.9
Interest on long-term debt and capital leases(2)	24.8		63.4		0.1	0.2		88.5		88.5
Unconditional purchase obligations		—			—		—			—		—		—
Operating leases(3)	24.8		31.5		12.7	3.6		72.6		72.6
Other long-term commitments		—			—		—			—		—		—
Unconditional purchase obligations	—		—		—	—		—		—
		$34.5			$53.1		$31.8			$347.8		$467.2		$466.1
Other long-term commitments	—		—		—	—		—		—
Interest rate swap contracts
	$89.0		$381.8		$13.0	$4.5		$488.3		$487.8
Notional principal amount of interest rate exchange agreements maturing
Interest rate swap contracts
Variable to fixed												$200.0		0.9
Notional principal amount of interest rate exchange agreements								$135.1		$7.5
Average pay rate												5.09%
Variable to fixed
Average receive rate												5.12%
Average pay rate								5.3%
														$467.0
Average receive rate								3.5%
										$495.3

~~Accelerated repayment~~(1) ~~of our revolver and~~ Long-term ~~note~~debt obligations may ~~occur~~differ ifdue ~~certain~~to ~~financial conditions~~future orrefinancing ~~warranties and representations are not met. The credit facility consists~~ of ~~the revolver and term note~~debt. The credit facility is collateralized by all tangible and intangible property, except assets of the captive insurance subsidiary. The credit facility contains covenants and conditions requiring the maintenance of certain financial ratios. At December 31, 2006, we were in compliance with these covenants and conditions.

~~We have~~(2) ~~potential~~Interest ~~put~~ obligations ~~and~~may ~~call~~differ ~~rights~~due ~~associated with the interests in Riggs Plumbing, RCI Construction, A-1 Truss and WBC Mid-Atlantic that we do not currently own. Under the purchase agreements, we have the right~~ to ~~purchase the remaining~~future ~~portions~~refinancing ~~during~~of ~~certain periods or if certain conditions are met~~debt. ~~Likewise,~~ ~~the~~Interest ~~other~~on ~~owners~~our ~~have~~variable ~~the~~rate ~~option~~debt towas ~~require~~calculated usfor toall ~~purchase~~years ~~the remaining~~using ~~portions during certain periods. The purchase price for~~ the ~~remaining portions~~rates ~~will~~in beeffect ~~based~~as ~~generally~~of onDecember a31, ~~multiple of historical earnings~~2008.

~~As part~~(3) ofOperating ~~our~~lease ~~revolver,~~obligations wemay ~~have~~differ ~~$95.8~~due ~~million~~to changes in ~~letters~~operating ofplans ~~credit~~and ~~outstanding principally~~sublease ~~for~~arrangements. ~~the~~Operating ~~deductible~~lease ~~portion~~obligations ofare ~~automobile,~~net ~~general~~of ~~liability~~sublease ~~and workers’~~arrangements ~~compensation~~of ~~claims~~$1.8 ~~These~~million ~~obligations~~for ~~are~~less ~~not~~than ~~required~~1 toyear, be$1.2 ~~recorded on~~million ~~our~~for ~~balance~~1 ~~sheet~~– ~~and~~3 ~~renew~~years ~~automatically~~and on$0.2 ~~their~~million ~~various~~for ~~anniversary~~3 ~~dates or~~– ~~until~~5 ~~released by their respective beneficiaries~~years.

Our credit facility consists of the revolver and term note. Accelerated repayment of our revolver and term note may occur if certain financial conditions or warranties and representations are not met. The credit facility is secured by all the assets of our wholly-owned subsidiaries.

We have $110.6 million in letters of credit outstanding principally for the deductible portion of automobile, general liability and workers’ compensation claims. These obligations are not required to be recorded as liabilities on our balance sheet and renew automatically on their various anniversary dates or until released by their respective beneficiaries.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inventory Price Risk

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

38Interest Rate Risk

~~Table~~Changes in interest expense occur when market interest rates change. Changes in the amount of ~~Contents~~debt could also increase interest rate risks. We currently utilize interest rate swap contracts to hedge variable interest rates. As of December 2008, the interest rate swap contracts effectively converted $135.1 million of variable rate debt to a fixed interest rate of 10.6% plus any difference between minimum LIBOR interest of 3.0% and LIBOR. The notional amount of the interest rate swap contracts will be ratably reduced to zero through the maturity of November 2011.

Changes in interest expense occur when market interest rates change. Changes in the amount of debt could also increase interest rate risks. We use interest rate swap contracts to hedge interest rate risks. Approximately 5741% of the outstanding variable rate borrowings ~~of the $349.1 million term note as of December 31, 2006~~ have been hedged ~~through~~with ~~the designation of~~ interest rate swap contracts ~~accounted for as cash flow hedges~~. After giving effect to the interest rate swap contracts, total borrowings are 58% ~~fixed~~variable and 42% ~~variable~~fixed. Based on debt outstanding as of December 31, ~~2006~~2008, a 0.25% increase in interest rates would result in approximately $0.45 million of additional interest expense annually.

Derivative financial instruments are not utilized to hedge other risks or for speculative or trading purposes.

CRITICAL ACCOUNTING ESTIMATES

Preparing financial statements requires ~~management~~us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These ~~estimates~~ estimates and assumptions include critical accounting estimates which are defined by the Securities and Exchange Commission as those that are the most important to the portrayal of our financial condition, results of operations or cash flows. These estimates require ~~management’s~~our subjective and complex judgments often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection and disclosure of these estimates with our Audit Committee. We ~~Management~~believe ~~believes~~ the estimates utilized are reasonable under the circumstances, however actual results could differ from these estimates and may require adjustment in future periods. Our critical accounting estimates are:

· Revenue Recognition for Construction Services

The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of our progress towards completion are made based on a comparison of labor costs incurred to date with total estimated ~~contract~~ contract costs for labor. The percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, labor productivity and other cost estimates. We have a history of making reasonable estimates of the extent of progress towards completion, contract revenues and contract completion costs. However, due to ~~uncertainties~~ uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates. Revisions of contract revenues and cost estimates as well as provisions for estimated losses on ~~uncompleted~~ uncompleted contracts are recognized in the period such revisions are known.

· Estimated Losses on Uncompleted Contracts and Changes in Contract Estimates

Estimated losses on uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted contracts. Revisions of estimated losses are recognized in the period such revisions are known.

At December 31, ~~2006~~2008, the reserve for these estimated losses was $0.~~1 million~~2 ~~for SelectBuild and less than $0.1~~ million ~~for BMC West~~. These reserves are established by assessing estimated costs to complete, change orders and claims. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently uncertain and therefore it is possible that actual completion costs may vary from these estimates. We have a history of making reasonable estimates of the extent of progress towards completion, contract revenue and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.

39· Realizability of Net Deferred Tax Asset

~~Table~~Deferred tax assets and liabilities are recognized for tax credits and for the future tax consequences attributable to differences between the financial statement carrying amounts of ~~Contents~~existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized to reduce the carrying amount of deferred tax assets to the amount that is more likely than not to be realized. If it is later determined it is more likely than not that deferred tax assets will be realized, the valuation allowance will be adjusted. Revisions of the valuation allowance are recognized in the period such revisions are known.

At December 31, 2008, the valuation allowance was $160.5 million. The valuation allowance was recognized due to the potential inability to realize these deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The scheduled reversal of deferred tax liabilities, loss carryback and carryforward abilities, projected future taxable income, tax planning strategies, cumulative earnings and our industry are considered in making this assessment. Our ability to realize the deferred tax assets could change if estimates of future taxable income change. To the extent taxable income is generated in future periods, these tax benefits may be realized and reduce our effective tax rate in future periods.

· Goodwill

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

~~At December 31, 2006, goodwill was $287.1 million for SelectBuild and $20.9 million for BMC West.~~ The impairment assessment includes determining the estimated fair value of reporting units based on discounting the future operating cash flows using a discount rate reflecting our estimated average cost of funds. Future operating cash flows are derived from our ~~budget~~annual plan and forecast information, which includes assumptions of future volumes, pricing of commodity products and labor costs. Prices for commodity products are inherently volatile. Due to the variables associated with prices of commodity products and the effects of changes in circumstances, both the precision and reliability of the estimates of future operating cash flows are subject to uncertainty. As additional information becomes known, we may change our estimates.

Due to the variables associated with prices of commodity products and the effects of changes in circumstances, both the precision and reliability of the estimates of future operating cash flows are subject to uncertainty. As additional information becomes known, we may change our estimates.

· Insurance Deductible Reserves

The estimated cost of automobile liability, general liability and workers’ compensation claims is determined by actuarial methods. Claims in excess of insurance ~~deductibles~~ deductibles are insured with third-party insurance carriers. Insurance ~~Reserves~~deductible reserves for claims are recognized based on the estimated costs of these claims as limited by deductibles of the applicable insurance policies. Revisions ofto insurance deductible reserves for estimated claims are recognized in the period such revisions are known.

At December 31, ~~2006~~2008, the reserve for automobile, general liability and workers’ compensation claims was $5043.87 million. The ~~actuarial assessment includes determining the~~ estimated cost of claims~~. The reserve for these claims is~~ ~~susceptible~~is todetermined ~~change~~by ~~based~~actuarial ~~on the estimated cost of the claims~~methods. Actual loss experience may differ substantially ~~different~~from ~~than~~ the actuarial assumptions. Future ~~may~~estimates ~~occur.~~of the ~~Future~~cost ~~reserves~~of claims are subject to the nature and frequency of claims, medical cost inflation and changes in the insurance deductibles of the applicable insurance policies.

· Warranties

The estimated cost of warranties for certain construction services is based on the nature and frequency of claims, anticipated claims and cost per claim. Claims in excess of insurance deductibles are insured with third-party insurance carriers. Estimated costs for warranties are recognized when the revenue associated with the service is recognized. Revisions of estimated warranties are recognized in the period such revisions are known.

40At December 31, 2008, the reserve for warranties was $5.7 million. Specific terms and conditions for warranties vary from one year to ten years and are based on geographic market and state regulations. The reserve for these claims is susceptible to change based on the estimated cost of the claim. We have a history of making reasonable estimates of warranties. However, due to uncertainties inherent in the estimation process, it is possible that actual warranty costs may vary from estimates.

Table of Contents

At December 31, 2006, the reserve for warranties was $7.2 million. Specific terms and conditions for warranties vary from one year to ten years and are based on geographic market and state regulations. The reserve for these claims is susceptible to change based on the estimated cost of the claim. We have a history of making reasonable estimates of warranties. However, due to uncertainties inherent in the estimation process, it is possible that actual warranty costs may vary from estimates. Revisions of estimated warranties are recognized in the period such revisions are known.

· Share-based Compensation

Our estimates of the fair values of our share-based payment transactions are based on the modified Black-Scholes-Merton model. To ~~In order to~~ meet the fair value ~~measurement~~ measurement objective, we are required to develop estimates regarding expected ~~exercise~~ exercise patterns, share price volatility, forfeiture rates, risk-free interest ~~rate~~ rate and dividend yield. These assumptions are based principally on ~~historical~~ historical experience. When circumstances indicate ~~the~~changes ~~availability of new or different~~in ~~information~~forfeiture ~~that would be useful in estimating these assumptions~~rates, revisions ~~will be~~ ~~made~~to ~~and~~forfeiture rates are recognized in the periods such revisions are known. Due to uncertainties inherent in these assumptions, it is possible that actual share-based compensation may vary from these ~~this estimate~~estimates.

RECENT ACCOUNTING PRINCIPLES

In ~~September~~May ~~2006~~2008, the ~~Securities~~Financial ~~Exchange~~Accounting ~~Commission~~Standards Board issued ~~Staff~~Statement ~~Accounting~~of Financial ~~Bulletin~~Accounting Standards No. ~~108~~162, ~~Considering the Effect~~The Hierarchy of ~~Prior~~Generally ~~Year~~Accepted Accounting ~~Misstatements~~Principles. This ~~when~~accounting ~~Quantifying~~principle ~~Misstatements~~identifies ~~in Current~~a ~~Year~~consistent ~~Financial~~framework, ~~Statements. This~~or hierarchy, for selecting accounting principles to be ~~principle~~used ~~provides~~in ~~specific~~preparing ~~guidance~~financial ~~for~~statements ~~considering~~that ~~the~~are ~~effects~~presented ofin ~~prior~~conformity ~~year~~with ~~misstatements~~U.S. ingenerally ~~quantifying~~accepted ~~current~~accounting ~~year~~principles ~~misstatements.~~(GAAP) for nongovernmental entities. This accounting principle was adopted ~~effective~~November ~~January~~2008 ~~2006~~ and had no impact on our consolidated financial position, results of operations or cash flows.

In ~~June~~March ~~2006~~2008, the Financial Accounting Standards Board issued ~~Interpretation~~Statement of Financial Accounting Standards No. 48 161, ~~Accounting~~Disclosures about Derivative ~~for Uncertainty~~Instruments inand ~~Income~~Hedging ~~Taxes~~Activities. This accounting principle enhances ~~provides~~disclosure ~~specific~~for ~~guidance~~derivative ~~for~~instruments ~~measurement,~~and ~~recognition~~hedging activities and ~~disclosure~~their effects on consolidated financial position, results of ~~uncertain~~operations ~~tax~~and ~~positions~~cash flows. Specifically, ~~This~~enhanced ~~accounting~~disclosures ~~principle~~include ~~was~~objectives ~~adopted~~and strategies ~~January~~for ~~2007~~using derivatives, including underlying risk and accounting designation, as well as fair values, gains and islosses. This accounting ~~not~~principle ~~expected~~was toadopted ~~have~~June a2008 ~~significant~~and had no impact on ~~consolidated~~our ~~financial~~consolidated financial position, results of operations or cash flows.

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements. This accounting principle eliminates noncomparable accounting for minority interests. Specifically, minority interests are presented as a component of shareholders’ equity; consolidated net income includes amounts attributable to both the parent and minority interest and is disclosed on the face of the income statement; changes in the ownership interest are accounted for as equity transactions if ownership remains controlling; purchase accounting for acquisitions of noncontrolling interests and acquisitions of additional interests is eliminated; and deconsolidated controlling interests are recognized based on fair value consistent with Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations. The accounting requirements were adopted January 2009 and had no impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations. This accounting principle requires acquisition accounting (purchase accounting) be applied to all business combinations in which control is obtained regardless of consideration and for an acquirer to be identified for each business combination. Additionally, this accounting principle requires acquisition-related costs and restructuring costs at the date of acquisition to be expensed rather than allocated to the assets acquired and the liabilities assumed; noncontrolling interests, including goodwill, to be recorded at fair value at the acquisition date; recognition of the fair value of assets and liabilities arising from contractual contingencies and contingent consideration (payments conditioned on the outcome of future events) at the acquisition date; recognition of bargain purchase (acquisition-date fair value exceeds consideration plus any noncontrolling interest) as a gain; and recognition of changes in deferred taxes. This accounting principle was adopted January 2009 and had no impact on our consolidated financial position, results of operations or cash flows.

BUSINESS RISKS AND FORWARD-LOOKING STATEMENTS

There are a number of business risks and uncertainties that affect our operations and therefore could cause future results to differ from past performance or expected results. Additional information regarding business risks and uncertainties is contained in Part I Item 1A of ~~this~~ Form 10-K. These risks and uncertainties may include, however are not limited to:

41· substantial doubt about our ability to continue as a going concern;

~~Table~~ · demand for and supply of ~~Contents~~single-family homes which are influenced by changes in the overall condition of the U.S. economy, including interest rates, consumer confidence, job formation, availability of credit and other important factors;

· ~~demand~~our ~~for~~ability ~~and~~to ~~supply~~maintain ofadequate ~~single-family~~liquidity, ~~homes~~reduce ~~which~~operating iscosts ~~influenced~~and byincrease ~~changes~~market share in ~~the~~an ~~overall~~industry ~~condition~~that ofhas ~~the~~experienced ~~U.S.~~and ~~economy,~~continues ~~including~~to ~~interest~~experience ~~rates,~~a ~~job~~significant ~~formation,~~reduction ~~consumer~~in ~~confidence~~average ~~and~~annual ~~other~~housing ~~important factors~~starts;

·§ our ~~business~~liquidity ~~model~~is dependent on operating performance, an efficient cash conversion cycle and compliance with financial covenants;

·§ ~~the~~our ~~integration~~ability ofto ~~acquired~~implement ~~businesses~~and ~~may~~maintain ~~not result in anticipated~~ cost ~~savings~~structures ~~and~~that ~~revenue~~align ~~synergies~~with ~~being~~sales ~~fully~~trends ~~realized or may take longer to realize than expected;~~and

~~· our ability to identify suitable acquisition candidates;~~54

loss of customers as well as changes in the business models of our customers may limit our ability to provide building products and construction services;

·	additional impairment charges and costs to close or consolidate additional business units in underperforming markets;

·	intense competition;

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

· our ability to implement and maintain cost structures that align with revenue growth;

· changes in the business models of our customers may limit our ability to provide construction services and building products required by our customers;

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

· intense competition;

·	weather conditions including natural catastrophic events;

· exposure to ~~construction~~product ~~defect~~liability and ~~product~~construction ~~liability~~defect claims as well as other legal proceedings;

·	disruptions in our information systems;

· actual and perceived vulnerabilities as a result of widespread credit and liquidity concerns, terrorist activities and armed conflict;

·	costs and/or restrictions associated with federal, state and other regulations; and

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

Risks related to our shares may include, however are not limited to:

· price for our shares may fluctuate significantly; ~~and~~

·	our shares may be less attractive as they are not traded on a large, more well-known exchange and

·	anti-takeover defenses and certain provisions could prevent an acquisition of our company or limit share price.

Certain statements in ~~the~~this ~~Annual~~Form ~~Report~~10-K ~~to Shareholders~~ including those related to expectations about homebuilding activity in our markets, demographic trends supporting homebuilding, ~~and~~competition trends, anticipated sales and operating income ~~are~~and negotiations with lenders are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results and future business prospects are forward-looking statements. While these statements represent our current judgment on what the future may hold and we believe these judgments are reasonable, these statements involve risks and uncertainties that are important factors that could cause our actual results to differ materially from those in forward-looking statements. These factors include, however are not limited to ~~the~~ the risks and uncertainties cited in the above paragraph., as well as our ability to timely and successfully implement our restructuring program and achieve the benefits that the program is designed to provide, including preserving value, enhancing our liquidity, generating tax refunds, reducing expenses and generating cash proceeds. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date of the filing of this Form 10-K. We undertake no obligation to ~~update~~ update forward-looking statements.

4255

Table of Contents

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Inventory Price Risk

Interest Rate Risk

Changes in interest expense occur when market interest rates change. Changes in the amount of debt could also increase interest rate risks. We ~~Interest~~currently utilize interest rate swap contracts ~~are currently utilized~~ to hedge ~~interest~~variable ~~rate risks~~interest rates. As ~~Approximately~~of ~~57%~~December of2008, the ~~outstanding~~ ~~variable~~interest rate ~~borrowings~~swap ofcontracts effectively ~~the~~converted $~~349~~135.1 million ~~term note as~~ of ~~December~~ ~~31,~~variable ~~2006~~rate ~~have~~debt ~~been~~to ~~hedged~~a ~~through~~fixed ~~the designation of~~ interest ~~rate~~ ~~swap contracts~~rate ~~accounted~~of ~~for as cash flow hedges~~10.6% ~~After~~plus ~~giving~~any ~~effect~~difference tobetween ~~the~~minimum LIBOR interest ~~rate~~ ~~swap~~of ~~contracts, total borrowings are 58~~3.0% ~~fixed~~ and ~~42% variable~~ LIBOR. The ~~Based on debt~~notional ~~outstanding~~amount as of ~~December~~the ~~31,~~interest ~~2006,~~rate aswap ~~0.25%~~contracts ~~increase~~will be inratably ~~interest~~reduced ~~rates would~~to ~~result~~zero inthrough ~~approximately~~the ~~$0.4~~maturity ~~million~~ of ~~additional~~November ~~interest expense annually~~2011.

43Approximately 41% of the outstanding variable rate borrowings have been hedged with interest rate swap contracts. After giving effect to the interest rate swap contracts, total borrowings are 58% variable and 42% fixed. Based on debt outstanding as of December 31, 2008, a 0.25% increase in interest rates would result in approximately $0.5 million of additional interest expense annually.

~~Table~~Derivative offinancial ~~Contents~~instruments are not utilized to hedge other risks or for speculative or trading purposes.

ITEM 8. Financial Statements and Supplementary Data

Building Materials Holding Corporation

Consolidated Statements of ~~Income~~Operations

(thousands, except per share data)

	Year Ended December 31
	2006			2005			2004
	2008				2007				2006
Sales
Construction services	$	1,926,077		$	1,586,509		$	904,362
Building products	$	693,664			$	997,035			$	1,254,056
Building products		1,319,092			1,325,651			1,186,663
Construction services		631,015				1,182,038				1,697,106
Total sales		31,~~245~~324,~~169~~679			~~2,912,160~~	2,179,073		~~2,091,025~~		2,951,162
Costs and operating expenses
Cost of goods sold
Construction services		1,557,324			1,285,949			768,407
Building products		514,222				722,786				913,468
Building products		960,565			967,877			897,725
Construction services		576,087				1,027,796				1,404,882
Impairment of assets		253,~~237~~015			~~1,320~~	272,152		~~2,274~~		—
Selling, general and administrative expenses		~~531~~349,~~958~~417			~~420,862~~	422,694		~~317,002~~		473,374
Other income, net		(4,370	)		(3,204	)		(2,491	)
Other expense (income), net		(5,059	)			(9,971	)			(4,159	)
Total costs and operating expenses		31,~~047~~487,~~714~~682			~~2,672,804~~	2,435,457		~~1,982,917~~		2,787,565
Income from operations		197,455			239,356			108,108
(Loss) income from operations		(163,003	)			(256,384	)			163,597
Interest expense		2952,~~082~~925			~~14,420~~	33,800		~~13,560~~		29,082
Income before income taxes and minority interests		168,373			224,936			94,548
(Loss) income from continuing operations before income taxes and minority interests		(215,928	)			(290,184	)			134,515
Income taxes		56,806			79,915			35,198
Income tax benefit (expense)		23,409				25,670				(44,893	)
Minority interests income, net of income taxes		(9,493	)		(15,514	)		(5,440	)
Minority interests loss (income)		63				(1,253	)			(8,077	)
Net income	$	102,074		$	129,507		$	53,910
(Loss) income from continuing operations		(192,456	)			(265,767	)			81,545
Net income per share:
(Loss) income from discontinued operations prior to sale		(12,680	)			2,937				34,680
Basic		$3.57			$4.61			$2.00
Impairment of assets		(7,813	)			(64,922	)			(2,237	)
Diluted		$3.45			$4.41			$1.94
Gain on sale of discontinued operations		—				20,029				—
Income tax expense		(1,860	)			(4,990	)			(11,914	)
(Loss) income from discontinued operations		(22,353	)			(46,946	)			20,529
Net (loss) income	$	(214,809	)		$	(312,713	)		$	102,074
Net (loss) income per share:
Continuing operations	$	(6.62	)		$	(9.23	)		$	2.85
Discontinued operations		(0.77	)			(1.63	)			0.72
Basic	$	(7.39	)		$	(10.86	)		$	3.57
Continuing operations	$	(6.62	)		$	(9.23	)		$	2.76
Discontinued operations		(0.77	)			(1.63	)			0.69
Diluted	$	(7.39	)		$	(10.86	)		$	3.45

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

4457

Table of Contents

Building Materials Holding Corporation

Consolidated Balance Sheets

(thousands~~, except share data~~)

	December 31	~~December 31~~				December 31	~~December 31~~
		2006	2005				2006	2005
	2008		2007			2008		2007
ASSETS					LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY
Assets					Liabilities, Minority Interests and Shareholders’ Equity
Cash and cash equivalents	$	7411,~~272~~484	$	3060,~~078~~587
Marketable securities		~~4,337~~—		31,~~645~~872	~~Accounts payable~~	$	~~110,961~~	$	~~146,627~~
Receivables, net of allowances					~~Accrued~~Accounts ~~compensation~~payable	$	4819,~~552~~021	$	6574,~~928~~025
of $4,487 and $3,756		279,829		363,527	Insurance deductible reserves		24,931		21,872
of $12,091 and $4,656		118,245		200,995	Accrued compensation		17,274		31,537
Inventory		~~144~~78,~~366~~676		~~168~~115,~~282~~524	~~Other~~Insurance ~~accrued~~deductible ~~liabilities~~reserves		~~103~~17,~~402~~527		5127,~~579~~189
Unbilled receivables		4313,~~527~~112		5639,~~128~~189	~~Billings~~Other inaccrued ~~excess of costs and estimated~~liabilities		26,981		28,989
Deferred income taxes		8,914		5,768	earnings		27,622		33,799
Income tax receivable		50,304		9,812	Billings in excess of costs and estimated
Prepaid expenses and other		11,166		6,967	Current portion of long-term debt		8,143		10,131
Deferred income taxes		—		11,470	earnings		24,054		20,977
Total current assets		566,411		634,395	Total current liabilities		323,611		329,936
Prepaid expenses and other		4,864		8,973	Current portion of long-term debt		39,443		4,923
Property and equipment					Deferred income taxes		9,138		6,911
Assets of discontinued operations		5,659		10,492	Liabilities of discontinued operations		773		8,533
Land		62,367		47,328	Insurance deductible reserves		25,841		20,753
Current assets		282,344		458,914	Current liabilities		145,073		196,173
Buildings and improvements		139,602		118,556	Long-term debt		349,161		278,169
Property and equipment					Insurance deductible reserves		26,208		27,898
Equipment		188,285		166,633	Other long-term liabilities		41,390		30,689
Land		33,996		60,052	Long-term debt		287,009		343,937
Construction in progress		8,579		9,485	Total liabilities		749,141		666,458
Buildings and improvements		120,814		135,009	Other long-term liabilities		37,163		44,503
Accumulated depreciation		(139,342)		(121,525)
Equipment		153,843		185,958
Marketable securities		53,513		28,875	Minority interests		7,141		14,006
Construction in progress		3,440		16,134	Minority interests		—		8,591
Deferred loan costs		5,481		3,616
Accumulated depreciation		(148,032)		(155,083)
Other long-term assets		27,223		20,465	Commitments and contingent liabilities		—		―
Assets held for sale		46,300		—	Commitments and contingent liabilities		—		—
Other intangibles, net		108,792		55,227
Marketable securities		—		40,039
Goodwill		308,000		187,470	Shareholders’ equity
Deferred income taxes		—		11,269	Shareholders’ equity
Total assets	$	1,328,911	$	1,150,525	Common shares, $0.001 par value:
Deferred loan costs		4,485		4,358	Common shares, $0.001 par value:
					authorized 50 million; issued and
Other long-term assets		23,303		30,956	authorized 50 million shares; issued and
					outstanding 29,153,331 and 28,758,580
Other intangibles, net		19,222		58,310	outstanding 29.7 and 29.4 million shares		29		29
					shares		29		29
Goodwill		—		14,196	Additional paid-in capital		169,146		164,043
					Additional paid-in capital		154,405		143,780
Assets of discontinued operations		—		14,732	Deferred compensation common shares obligation		878		1,427
					Unearned compensation		—		(2,698)
	$	539,715	$	874,844	Deferred compensation common shares		(878)		(1,427)
					Retained earnings		418,927		328,463
					(Accumulated deficit) retained earnings		(120,327)		94,482
					Accumulated other comprehensive
					Accumulated other comprehensive loss, net		(4,586)		(4,812)
					(loss) income, net		(732)		487
					Shareholders’ equity		44,262		253,742
					Total shareholders’ equity		572,629		470,061
						$	539,715	$	874,844
					Total liabilities, minority interests andshareholders’ equity	$	1,328,911	$	1,150,525

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

4558

Table of Contents

Building Materials Holding Corporation

Consolidated Statements of Shareholders’ Equity

(thousands)

																Accumulated Other Comprehensive Income (Loss)
	Year Ended December 31
																Net Unrealized Gain (Loss) From
	2008				2007				2006
	Common Shares						Additional Paid-In			Unearned			Retained			Interest Rate Swap			Marketable
Common shares – beginning balance	$	29			$	29			$	29
	Shares			Amount			Capital			Compensation			Earnings			Contracts			Securities			Total
Shares issued from Incentive and Performance Plans		—				—				—
Balance at December 31, 2003		26,667		$	27		$	115,268		$	―		$	155,715		$	―		$	―		$	271,010
Shares issued upon exercise of warrants		—				—				—
Net income		—			—			—			—			53,910			—			—			53,910
Common shares	$	29			$	29			$	29
Unrealized loss		—			—			—			—			—			(2,215	)		—			(2,215	)
Additional paid-in capital – beginning balance	$	164,043			$	154,405			$	141,082
Tax benefit for unrealized loss		—			—			—			—			—			853			—			853
Shares issued from Incentive and Performance Plans
Unrealized gain		—			—			—			—			—			—			5			5
Options exercised – Management		9				203				1,292
Taxes for unrealized gain		—			—			—			—			—			—			(2	)		(2	)
Tax benefit for share options exercised		—				29				1,457
Comprehensive income																							52,551
Restricted shares – Management		(2,119	)			2,614				5,220
Share options exercised		825			1			5,008			—			—			—			—			5,009
Unearned compensation		2,119				(2,614	)			(5,220	)
Tax benefit for share options exercised		—			—			2,041			—			—			—			—			2,041
Tax benefit for dividends on restricted shares		—				63				—
Shares issued from Director Plan		33			—			285			—			—			—			—			285
Shares – Directors		402				405				415
Shares issued from Employee Plan		31			—			356			—			—			—			—			356
Earned compensation
Issuance of restricted shares		149			—			1,622			(1,622	)		—			—			—			―
Options – Management		2,780				5,177				5,103
Earned compensation expense		—			—			—			239			—			—			—			239
Restricted shares – Management		1,044				3,317				3,107
Cash dividends on common shares		—			—			—			—			(3,813	)		—			—			(3,813	)
Tax benefit for vested restricted shares		—				167				—
Balance at December 31, 2004		27,705			28			124,580			(1,383	)		205,812			(1,362	)		3			327,678
Shares issued from Employee Stock Purchase Plan		86				277				1,949
Net income		—			—			—			—			129,507			—			—			129,507
Warrants
Unrealized gain		—			—			—			—			—			3,412			—			3,412
Fair value of warrants issued		782				—				—
Taxes for unrealized gain		—			—			—			—			—			(1,314	)		—			(1,314	)
Warrants exercised		—				—				—
Unrealized loss		—			—			—			—			—			—			(410	)		(410	)
Additional paid-in capital	$	169,146			$	164,043			$	154,405
Tax benefit for unrealized loss		—			—			—			—			—			—			158			158
Deferred compensation common shares obligation – beginning balance	$	1,427			$	1,200			$	934
Comprehensive income																							131,353
Deferred compensation		292				364				276
Share options exercised		861			1			4,904			—			—			—			—			4,905
Dividends on common shares held		11				38				43
Tax benefit for share options exercised		—			—			9,140			—			—			—			—			9,140
Distributions		(852	)			(175	)			(53	)
Shares issued from Director Plan		14			—			380			—			—			—			—			380
Deferred compensation common shares obligation	$	878			$	1,427			$	1,200
Shares issued from Employee Plan		36			—			1,160			—			—			—			—			1,160
Deferred compensation common shares – beginning balance	$	(1,427	)		$	(1,200	)		$	(934	)
Shares issued for acquisition		34			—			1,000			—			—			—			—			1,000
Cost of shares purchased with deferred compensation and dividends		(303	)			(402	)			(319	)
Issuance of restricted shares		109			—			2,616			(2,616	)		—			—			—			―
Cost of shares distributed		852				175				53
Earned compensation expense		—			—			—			1,301			—			—			—			1,301
Deferred compensation common shares	$	(878	)		$	(1,427	)		$	(1,200	)
Cash dividends on common shares		—			—			—						(6,856	)		—			—			(6,856	)
Retained earnings – beginning balance	$	94,482			$	418,927			$	328,463
Balance at December 31, 2005		28,759			29			143,780			(2,698	)		328,463			736			(249	)		470,061
Net (loss) income		(214,809	)			(312,713	)			102,074
Net income		—			—			—			—			102,074			—			—			102,074
Cash dividends on common shares		—				(11,732	)			(11,610	)
Unrealized loss		—			—			—			—			—			(880	)		—			(880	)
(Accumulated deficit) retained earnings	$	(120,327	)		$	94,482			$	418,927
Tax benefit for unrealized loss		—			—			—			—			—			332			—			332
Accumulated other comprehensive (loss) income, net – beginning balance	$	(4,812	)		$	(732	)		$	487
Unrealized gain		—			—			—			—			—			262			—			262
Interest rate swap contracts – active:
Taxes for unrealized gain		—			—			—			—			—			(101	)		—			(101	)
Unrealized gain (loss)		226				(7,673	)			(618	)
Realized gain		—			—			—			—			—			(1,459	)		—			(1,459	)
Notional reduction settlement payments		3,835				—				—
Taxes for realized gain		—			—			—			—			—			562			—			562
(Taxes) tax benefit for unrealized gain (loss)		(1,556	)			2,933				231
Unrealized loss		—			—			—			—			—			—			127			127
Interest rate swap contracts – terminated:
Tax benefit for unrealized loss		—			—			—			—			—			—			(62	)		(62	)
Notional reduction settlement payments		(3,835	)			—				—
Comprehensive income																							100,855
Amortization of payments		926				—				—
Reclassify unearned compensation - restricted shares		—			—			(2,698	)		2,698			—			—			—			—
Tax benefit for unamortized payments		1,106				—				—
Earned compensation - options		—			—			5,103			—			—			—			—			5,103
Realized gain		—				—				(1,459	)
Earned compensation - restricted shares		—			—			3,107			—			—			—			—			3,107
Taxes for realized gain		—				—				562
Issuance of restricted shares		138			—			—			—			—			—			—			—
Marketable securities:
Share options exercised		176			—			1,292			—			—			—			—			1,292
Unrealized (loss) gain		(721	)			1,000				127
Tax benefit for share options exercised		—			—			1,457			—			—			—			—			1,457
Tax benefit (taxes) for unrealized (loss) gain		245				(340	)			(62	)
Shares issued from Director Plan		12			—			415			—			—			—			—			415
Accumulated other comprehensive (loss) income, net	$	(4,586	)		$	(4,812	)		$	(732	)
Shares issued from Employee Plan		68			—			1,949			—			—			—			—			1,949
Shareholders’ Equity	$	44,262			$	253,742			$	572,629
Cash dividends on common shares		—			—			—			—			(11,610	)		—			—			(11,610	)
Balance at December 31, 2006		29,153		$	29		$	154,405		$	—		$	418,927		$	(548	)	$	(184	)	$	572,629

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

4659

Table of Contents

Building Materials Holding Corporation

Consolidated Statements of Comprehensive (Loss) Income

(thousands)

	Year Ended December 31
	2008			2007			2006

Net (loss) income	$	(214,809	)	$	(312,713	)	$	102,074

Unrealized gain (loss) on interest rate swap contracts:
Interest rate swap contracts – active:
Unrealized gain (loss)	$	226		$	(7,673	)	$	(618	)
Notional reduction settlement payments		3,835			—			—
(Taxes) tax benefit for unrealized gain (loss)		(1,556	)		2,933			231
Interest rate swap contracts – terminated:
Notional reduction settlement payments		(3,835	)		—			—
Amortization of payments		926			—			—
Tax benefit for unamortized payments		1,106			—			—
Realized gain		—			—			(1,459	)
Taxes for realized gain		—			—			562
	$	702		$	(4,740	)	$	(1,284	)
Unrealized (loss) gain on marketable securities:
Unrealized (loss) gain	$	(721	)	$	1,000		$	127
Tax benefit (taxes) for unrealized (loss) gain		245			(340	)		(62	)
	$	(476	)	$	660		$	65

Comprehensive (loss) income	$	(214,583	)	$	(316,793	)	$	100,855

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

Building Materials Holding Corporation

Consolidated Statements of Cash Flows

(thousands)

	Year Ended December 31
	2006			2005			2004
	2008				2007				2006
Operating Activities
Net income	$	102,074		$	129,507		$	53,910
Net (loss) income	$	(214,809	)		$	(312,713	)		$	102,074
Items in net income not using (providing) cash:
Items in net (loss) income not using (providing) cash:
Minority interests, net		9,493			15,514			5,440
Minority interests (loss) income, net		(63	)			853				9,493
Depreciation and amortization		4537,~~284~~611			~~27,363~~	48,781		~~22,815~~		45,284
Deferred loan cost amortization		1,~~359~~621			~~704~~	1,123		~~497~~		1,359
Impairment of assets		2,237			1,320			2,274
Deferred loan cost write off		7,099				—				—
Share-based compensation		8,917			1,855			577
Ineffective portion of interest rate swap contracts		3,022				—				—
Loss (gain) on sale of assets, net		207			(194	)		334
Amortization of interest rate swap contracts notional reduction settlement payments		926				—				—
Realized gain on interest rate swap contracts		(1,459	)		—			—
Amortization of warrant discount		62				—				—
Realized loss on marketable securities		206			—			—
Impairment of assets		60,828				337,074				2,237
Deferred income taxes		(1,125	)		(3,473	)		(7,490	)
Share-based compensation		4,276				8,944				8,917
Tax benefit for share options		—			9,140			2,041
Gain on sale of discontinued operations		—				(20,029	)			—
Changes in assets and liabilities, net of effects of acquisitions and sales of business units:
(Gain) loss on sale of assets, net		(2,225	)			(8,789	)			207
Receivables, net		128,381			(19,049	)		(45,687	)
Realized gain on interest rate swap contracts		—				—				(1,459	)
Inventory		43,873			(3,332	)		(40,258	)
Realized (gain) loss on marketable securities		(542	)			(408	)			206
Unbilled receivables		22,702			(8,378	)		(8,571	)
Deferred income tax benefit (expense)		22,534				(19,452	)			(1,125	)
Prepaid expenses and other current assets		(3,915	)		4,340			(1,895	)
Accrued loss for acquisition purchase obligation		—				5,500				—
Accounts payable		(43,483	)		1,852			11,413
Changes in assets and liabilities, net of effects of acquisitions and divestitures of business units:
Accrued compensation		(18,823	)		24,465			15,643
Receivables, net		85,424				68,385				128,381
Insurance deductible reserves		3,059			5,777			3,045
Inventory		38,190				24,599				43,873
Other accrued liabilities		1,483			(4,611	)		5,777
Unbilled receivables		26,804				3,610				22,702
Billings in excess of costs and estimated earnings		(29,734	)		(1,911	)		(795	)
Income tax receivable		(40,492	)			(7,304	)			(2,508	)
Other long-term assets and liabilities		1,588			18,181			13,057
Prepaid expenses and other current assets		4,298				(454	)			(1,407	)
Other, net		1,094			(776	)		1,247
Accounts payable		(32,836	)			(22,621	)			(43,483	)
Cash flows provided by operating activities		273,418			198,294			33,374
Accrued compensation		(14,724	)			(16,536	)			(18,823	)
Investing Activities
Insurance deductible reserves		(10,961	)			3,557				3,059
Purchases of property and equipment		(52,873	)		(46,540	)		(27,652	)
Other accrued liabilities		(8,028	)			(13,033	)			1,483
Acquisitions and investments in businesses, net of cash acquired		(201,754	)		(203,201	)		(22,738	)
Billings in excess of costs and estimated earnings		275				(3,843	)			(29,734	)
Proceeds from dispositions of property and equipment		2,944			1,358			12,278
Other long-term assets and liabilities		8,789				(12,560	)			1,588
Purchase of marketable securities		(54,700	)		(20,623	)		(19,375	)
Other, net		(205	)			2,595				1,094
Proceeds from sales of marketable securities		29,270			6,546			349
Cash flows (used) provided by operating activities		(23,126	)			67,279				273,418
Other, net		(3,150	)		892			(871	)
Investing Activities
Cash flows used by investing activities		(280,263	)		(261,568	)		(58,009	)
Purchases of property and equipment		(16,509	)			(32,995	)			(52,873	)
Financing Activities
Acquisitions and investments in businesses, net of cash acquired		(8,575	)			(80,961	)			(201,754	)
Net (payments) borrowings under revolver		(77,500	)		(3,700	)		20,800
Proceeds from dispositions of property and equipment		14,871				16,905				2,944
Borrowings under term note		350,000			75,000			―
Proceeds from sale of discontinued operations		—				27,176				—
Principal payments on term notes		(197,750	)		(1,251	)		(1,250	)
Purchase of marketable securities		(28,589	)			(35,239	)			(54,700	)
Net payments on other notes		(6,109	)		(7,605	)		(932	)
Proceeds from sales of marketable securities		70,221				52,650				29,270
(Decrease) increase in book overdrafts		(2,902	)		17,404			5,411
Other, net		(2,123	)			(628	)			(3,150	)
Proceeds from share options exercised		1,292			4,905			5,008
Cash flows provided (used) by investing activities		29,296				(53,092	)			(280,263	)
Tax benefit for share options		1,457			—			—
Financing Activities
Dividends paid		(10,853	)		(5,807	)		(3,505	)
Net borrowings (payments) under revolver		—				—				(77,500	)
Deferred financing costs		(3,224	)		(2,236	)		(175	)
Principal payments on term notes		(19,866	)			(3,500	)			(197,750	)
Distributions to minority interests		(5,731	)		(2,792	)		(728	)
Borrowings under term note		—				—				350,000
Other, net		2,359			(62	)		(4	)
Interest rate swap contracts notional reduction settlement payments		(3,835	)			—				—
Cash flows provided by financing activities		51,039			73,856			24,625
Net payments on other notes		(2,261	)			(4,505	)			(6,109	)
Increase (Decrease) in Cash and Cash Equivalents		44,194			10,582			(10	)
Decrease in book overdrafts		(17,616	)			(7,609	)			(2,902	)
Cash and cash equivalents, beginning of year		30,078			19,496			19,506
Proceeds from share options exercised		8				203				1,292
Cash and cash equivalents, end of year	$	74,272		$	30,078		$	19,496
Income tax benefit for share-based compensation		—				259				1,457
Supplemental Disclosure of Cash Flow Information
Dividends paid		(2,938	)			(11,709	)			(10,853	)
Accrued but unpaid dividends	$	2,915		$	2,158		$	1,108
Deferred financing costs		(8,847	)			—				(3,224	)
Cash paid for interest	$	28,185		$	13,682		$	12,902
Distributions to minority interests		—				(1,223	)			(5,731	)
Cash paid for income taxes	$	69,568		$	70,553		$	37,777
Other, net		82				212				2,359
Supplemental Schedule of Non-cash Investing Activities
Cash flows (used) provided by financing activities		(55,273	)			(27,872	)			51,039
Fair value of assets acquired	$	285,957		$	337,924		$	25,353
(Decrease) Increase in Cash and Cash Equivalents		(49,103	)			(13,685	)			44,194
Liabilities assumed	$	84,203		$	132,114		$	2,615
Cash and cash equivalents, beginning of period		60,587				74,272				30,078
Cash paid	$	201,754		$	203,201		$	22,738
Cash and cash equivalents, end of period	$	11,484			$	60,587			$	74,272
Supplemental Disclosure of Cash Flow Information
Accrued but unpaid dividends	$	—			$	2,938			$	2,915
Cash paid for interest	$	41,863			$	32,827			$	28,185
Cash paid for income taxes	$	3,141			$	7,233			$	69,568
Supplemental Schedule of Investing Activities
Fair value of assets acquired	$	—			$	12,999			$	265,105
Liabilities of acquisitions (extinguished)	$	(8,525	)		$	(3,680	)		$	82,414
Cash paid for acquisitions made this period	$	8,525			$	16,679			$	182,691
Cash paid for acquisitions made in prior period	$	50			$	64,282			$	19,063
Supplemental Schedule of Financing Activities
Fair value of warrants issued	$	782			$	—			$	—
Discount on warrants issued	$	(782	)		$	—			$	—

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

4761

Table of Contents

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Nature of Operations

Building Materials Holding Corporation (BMHC) provides ~~construction~~building ~~services~~products and ~~building~~construction ~~products~~services to professional homebuilders and contractors in western and southern regions of the United States. We ~~operate~~distribute ~~through~~building ~~two~~products, ~~separately managed and reportable~~manufacture ~~business~~building ~~segments:~~components ~~SelectBuild~~(millwork, floor and ~~BMC~~roof ~~West.~~trusses ~~SelectBuild~~and ~~provides~~wall ~~framing~~panels) and ~~other~~provide construction services to ~~high-volume~~professional ~~homebuilders~~builders inand 16contractors through a network of ~~the~~43 ~~top~~distribution 25facilities, 29 manufacturing facilities and 5 ~~single-family~~regional construction ~~markets~~services facilities. Based ~~BMC~~on ~~West~~National Association ~~distributes~~of ~~building~~Home ~~materials, manufactures~~Builders building ~~components~~permit ~~(millwork~~activity, ~~floor~~we ~~and~~provide ~~roof trusses and wall~~building ~~panels)~~products and ~~provides~~ construction services toin ~~professional~~10 ~~builders and contractors through a network~~ of 41the ~~distribution~~top ~~facilities~~25 ~~and 60 manufacturing~~single-family ~~facilities.~~construction markets.

Principles of Consolidation

The consolidated financial statements include the accounts of BMHC and its subsidiaries. All significant intercompany balances and transactions are eliminated.

Basis of Presentation

· Uncertainty regarding Liquidity and Going Concern

Our consolidated financial statements were prepared assuming we will continue as a going concern which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.

· Discontinued operations

These consolidated financial statements present separately the financial information for discontinued operations as follows:

·	concrete block masonry, concrete services and truss manufacturing in Florida (June 2008),

·	framing services in Virginia (March 2008) and

·	three building materials distribution businesses in Western Colorado (September 2007).

As a result of these transactions:

·	the operating results of these operations are presented separately from continuing operations within the caption of discontinued operations and

·	related assets and liabilities are separately classified in the consolidated balance sheet.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities atas of the date of the financial statements as well as the reported amounts of sales and expenses during the reporting period. Actual amounts may differ materially from those estimates. The following critical accounting estimates often require our subjective and complex judgment ~~often~~ as a result of the need to estimate matters that are inherently uncertain:

· Revenue Recognition for Construction Services

· Estimated Losses on Uncompleted Contracts and Changes in Contract Estimates

· Realizability of Net Deferred Tax Asset

Deferred tax assets and liabilities are recognized for tax credits and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized to reduce the carrying amount of deferred tax assets to the amount that is more likely than not to be realized. If it is later determined it is more likely than not that deferred tax assets will be realized, the valuation allowance will be adjusted. Revisions of the valuation allowance are recognized in the period such revisions are known.

· Goodwill

Table of Contents

· Insurance Deductible Reserves

The estimated cost of automobile, general liability and workers’ compensation claims is determined by actuarial methods. Claims in excess of insurance deductibles are ~~insured~~ insured with third-party insurance carriers. Insurance ~~Reserves~~deductible reserves for claims are recognized based on the estimated costs of these claims as limited by the deductibles of the applicable ~~insurance~~ insurance policies. Revisions ofto ~~estimated~~insurance deductible reserves for estimated claims are recognized in the period such revisions are known.

· Warranties

· Share-based Compensation

Our estimates of the fair values of our share-based payment transactions are based on the modified Black-Scholes-Merton model. To ~~In order to~~ meet the fair value ~~measurement~~ measurement objective, we are required to develop estimates regarding expected ~~exercise~~ exercise patterns, share price volatility, forfeiture rates, risk-free interest ~~rate~~ rate and dividend yield. These assumptions are based principally on ~~historical~~ historical experience. When circumstances indicate ~~the~~changes ~~availability of new or different~~in ~~information~~forfeiture ~~that would be useful in estimating these assumptions~~rates, revisions ~~will be~~ ~~made~~to ~~and~~forfeiture rates are recognized in the period such revisions are known. Due to uncertainties inherent in these assumptions, it is possible that actual share-based compensation may vary from these ~~this estimate~~estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of short-term investments that have a maturity of three months or less at the date of purchase. ~~Cash and cash equivalents were $74.3 million at December 31, 2006 and $30.1 million at December 31, 2005.~~

Receivables

Receivables consist primarily of amounts due from customers and are net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience and other available evidence.

Inventory Valuation

Inventory consists principally of building materials purchased for resale and is valued at the lower of average cost or market. We participate in vendor rebate programs under which rebates are earned by attaining certain purchase volumes. Volume rebates are accrued as earned. These volume rebates are recorded as a reduction in inventory and recognized in cost of goods sold when the related product is sold.

Table of Contents

Unbilled Receivables and Billings in Excess of Costs and Estimated Earnings

The percentage-of-completion method results in recognizing costs incurred and estimated revenues on uncompleted contracts. Unbilled receivables represent revenues recognized for construction services performed, however not yet billed. Billings in excess of costs and estimated earnings represent billings made in excess of estimated revenues recognized. These billings are deferred until the actual progress towards completion indicates recognition is appropriate. Costs include ~~direct~~ labor and materials as well as equipment costs related to ~~contract~~ contract performance.

Property and Equipment

Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements that extend useful life. Certain costs of software are capitalized provided those costs are not research and development and certain other criteria are met. Capitalized interest was $0.19 million infor ~~2006~~2008, $0.23 million infor ~~2005~~2007 and $0.1 million infor ~~2004~~2006. Expenditures for other maintenance and repairs are expensed as incurred. Gains and losses from sales and retirements are included in Other expense (income), net as they occur. Depreciation is calculated using the straight-line method over the economic useful lives of the assets. The estimated useful lives of depreciable assets are generally:

~~· ten to thirty years for buildings and improvements~~ 66

· ~~seven~~ to ten ~~years~~to thirty years for ~~machinery~~buildings and ~~fixtures~~improvements,

· ~~three~~ seven to ten years for ~~handling~~machinery and ~~delivery equipment~~ fixtures,

· three to ten years for ~~software~~handling ~~development~~and ~~costs~~delivery equipment and

~~In order~~· three to ~~improve~~ten ~~financial returns, we periodically evaluate our investments~~years ~~in property~~for ~~and~~software ~~equipment.~~development ~~As a result, property and equipment may be consolidated, leased or sold~~costs. ~~We recognized a loss of $0.2 million in 2006, a gain of $0.2 million in 2005 and a loss of $0.3 million in 2004 from the sales of property and equipment.~~

To improve financial returns, we periodically evaluate our investments in property and equipment. As a result, property and equipment may be consolidated, leased or sold. For continuing operations, we recognized a gain of $3.2 million for 2008, a gain of $8.4 million for 2007 and a loss of $0.3 million for 2006 from the sales of property and equipment.

Assets Held for Sale

Assets held for sale are measured at the lower of carrying amount or fair value less costs to sell and are no longer depreciated. These assets are being actively marketed for sale at a price that is reasonable in relation to their carrying amounts. Any gain or loss arising from the sale of these assets is included in Other expense (income), net. Assets held for sale are as follows (thousands):

	December 31
	2008
Property and equipment
Land	$	26,211
Buildings and improvements		20,089
	$	46,300

Long-lived Assets

Long-lived assets such as property, equipment and intangibles with useful lives are evaluated for impairment whenever events orand ~~changes in~~ circumstances indicate the carrying amount may not be recoverable. An impairment is recognized if the carrying amount exceeds its fair value and when the carrying amount is not recoverable based on the estimated future operating cash flows on an undiscounted basis.

Derivative Instruments and Hedging Activities

We are exposed to certain risks related to business operations, some of which we may seek to manage with derivative instruments and hedging activities. The primary risk managed with derivative instruments is interest rate risk. Interest rate swap contracts are entered into to manage interest rate risk associated with variable-rate borrowings. These interest rate swap contracts are accounted for as cash flow hedges unless effectiveness is not probable.

The fair value of derivative instruments is based on pricing models using current market rates. The fair value of interest rate swap contracts is recorded as an asset or liability and the effective portion of the gain or loss is recorded as a component of Accumulated other comprehensive (loss) income, net, a separate component of shareholders’ equity, and is subsequently reclassified into Interest expense as interest expense is recognized on the term note. The ineffective portion, if any, of the change in the value of the interest rate swap contracts is immediately recognized as a component of interest expense.

Derivative financial instruments are not utilized to hedge other risks or for speculative or trading purposes.

Revenue Recognition

~~Taxes assessed~~Revenues byfor ~~governmental~~building ~~authorities~~products ~~that~~ are ~~directly~~recognized ~~imposed~~when ontitle ~~our~~to ~~revenue-producing~~the goods and risk of loss pass ~~transactions~~to ~~are~~the ~~excluded~~buyer, ~~from~~which ~~sales.~~is ~~The~~at the time of delivery. The percentage-of-completion method is used to recognize revenue for construction services. Taxes ~~Revenues~~assessed ~~for~~by ~~building products~~governmental ~~are~~authorities ~~recognized~~that ~~when~~are directly ~~title~~imposed toon ~~the~~our ~~goods~~revenue-producing ~~and~~transactions ~~risk~~are ofexcluded ~~loss pass to the~~from ~~buyer, which is at the time of delivery~~sales.

Shipping and Handling

Shipping and handling costs for manufactured building components and construction services are included as a component of cost of goods sold. Shipping and handling costs for building products are included as a component of selling, general and administrative expenses and were $7858.81 million infor ~~2006~~2008, $6469.5 7 million infor ~~2005~~ 2007 and $5576.71 million infor ~~2004~~2006.

Reclassifications

50Certain reclassifications, none of which affected previously reported consolidated results of operations, cash flows or shareholders’ equity, have been made to amounts reported in prior periods to conform to the current period presentation.

Table of Contents

Certain reclassifications, none of which affected previously reported consolidated results of operations, cash flows or shareholders’ equity, have been made to amounts reported in prior periods to conform to the current year presentation.

Common Share Split

On February 14, 2006, our Board of Directors approved a two for one split of our outstanding common shares. Shareholders as of February 28, 2006 received a stock dividend of one additional common share for every common share they owned. All share and per share information for all prior periods presented has been retroactively adjusted to reflect this share split.

Recent Accounting Principles

51In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements. This accounting principle eliminates noncomparable accounting for minority interests. Specifically, minority interests are presented as a component of shareholders’ equity; consolidated net income includes amounts attributable to both the parent and minority interest and is disclosed on the face of the income statement; changes in the ownership interest are accounted for as equity transactions if ownership remains controlling; purchase accounting for acquisitions of noncontrolling interests and acquisitions of additional interests is eliminated; and deconsolidated controlling interests are recognized based on fair value consistent with Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations. The accounting requirements were adopted January 2009 and had no impact on our consolidated financial position, results of operations or cash flows.

~~Table of Contents~~68

2In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. ~~Net~~ 141 (revised 2007), Business Combinations. This ~~Income~~accounting ~~Per~~principle ~~Share~~requires acquisition accounting (purchase accounting) be applied to all business combinations in which control is obtained regardless of consideration and for an acquirer to be identified for each business combination. Additionally, this accounting principle requires acquisition-related costs and restructuring costs at the date of acquisition to be expensed rather than allocated to the assets acquired and the liabilities assumed; noncontrolling interests, including goodwill, to be recorded at fair value at the acquisition date; recognition of the fair value of assets and liabilities arising from contractual contingencies and contingent consideration (payments conditioned on the outcome of future events) at the acquisition date; recognition of bargain purchase (acquisition-date fair value exceeds consideration plus any noncontrolling interest) as a gain; and recognition of changes in deferred taxes. This accounting principle was adopted January 2009 and had no impact on our consolidated financial position, results of operations or cash flows.

~~Net income per share was determined using the following information (thousands, except per share data):~~69

	Year Ended December 31
	2006		2005		2004
Net income	$	102,074	$	129,507	$	53,910
Weighted average shares used to determine basic net income per share		28,603		28,101		26,988
Net effect of dilutive stock options and restricted stock		986		1,261		859
Weighted average shares used to determine diluted net income per share		29,589		29,362		27,847
Net income per share:
Basic		$3.57		$4.61		$2.00
Diluted		$3.45		$4.41		$1.94
Annual cash dividends declared per share		$0.40		$0.24		$0.14

2. Restructuring

~~Share~~In ~~options considered~~May ~~not~~2008, ~~dilutive~~we ~~are~~initiated ~~those~~a ~~with~~comprehensive ~~exercise~~analysis ~~prices~~of ~~greater~~our ~~than~~businesses ~~the~~operations ~~average~~to ~~market~~improve ~~value~~cash offlow and profitability as well as rationalize our operations for the ~~common~~current ~~shares~~conditions inof the ~~periods~~homebuilding ~~presented~~industry. The ~~Share~~plan ~~options that~~places ~~are~~a ~~not~~priority ~~dilutive~~on ~~and~~positive ~~therefore~~cash ~~excluded~~flow, ~~from~~efficient ~~the~~use ~~computation~~ of ~~diluted~~capital ~~net~~and higher returns ~~income~~and ~~per~~focuses ~~share~~on ~~were~~closing or consolidating business units in underperforming markets as ~~follows~~well as improving business processes. As a result of the plan, we:

· ~~403,100~~closed ~~shares~~42 inbusiness ~~2006~~units,

· noconsolidated ~~shares~~15 inbusiness ~~2005~~units with other business units and

· noconsolidated ~~shares~~administrative infunctions ~~2004~~of information systems, reporting, accounts payable and human resources.

52Our restructuring plans do not include formal severance plans for employees affected by the closures and consolidations of business units or enhancements to administrative functions.

~~Table~~As of ~~Contents~~December 31, 2008, the estimated charges expected to be incurred and recognized in (loss) from continuing operations were as follows (thousands):

3. Accounting for Share-Based Compensation

				Recognized
				Twelve Months
				Ended
	Estimated			December 31			Total
	Charges			2008			Remaining
Impairment of assets		$	8,602		$	8,602		$	—
Operating lease obligations			11,387			11,387			—
		$	19,989		$	19,989		$	—

~~On January~~Impairments ~~1, 2006, we adopted the fair value recognition provisions~~ of ~~Statement~~ ofassets ~~Financial~~were ~~Accounting~~determined ~~Standards~~based ~~No.~~on ~~123~~available ~~(Revised~~market ~~2004),~~data ~~Share-Based Payment. This statement required the measurement~~ and ~~recognition~~are ofrecognized ~~share-based payments to employees~~in ~~at fair~~Impairment ~~value. Compensation cost is based on the fair value~~ of ~~those shares on the grant date~~assets. Operating ~~Compensation~~lease ~~cost~~obligations ~~for~~represent ~~share-based awards is recognized as~~ the ~~requisite~~present ~~service~~value isof ~~rendered~~contractual inrental ~~the~~payments ~~same~~offset ~~financial~~by ~~statement~~estimated ~~line~~sublease ~~as cash~~income ~~compensation.~~and ~~Additionally, tax benefits for share-based compensation payments~~ are ~~reported~~recognized asin ~~a financing activity~~Selling, ~~rather~~general ~~than~~and asadministrative ~~an operating cash flow~~expenses.

~~Previously, we~~Activity ~~did not~~related ~~recognize expense for grants of share options if the exercise price was at least equal~~ to ~~the fair value of the shares on the date of grant. In accordance~~ ~~with~~restructuring ~~the~~plans ~~modified~~for ~~prospective method of transition, compensation expense is recognized over~~ the ~~requisite service~~ period ~~for~~ended ~~all~~December ~~share-based~~31, ~~compensation granted~~2008 ~~after~~was ~~the date of adoption~~ as ~~well as awards unvested on the date of~~follows adoption. Prior periods are not revised for comparative purposes. Share-based compensation expense previously included restricted shares and share awards and will now include the fair value of share options. (thousands):

The fair value of share-based compensation expense recognized for options for the requisite service period was $5.1 million, including $0.3 million for options vested due to early retirement eligibility, for 2006. As this compensation does not require the payment of cash, this is reflected as a non-cash item in the statement of cash flows.

	Recognized									Liability
	Twelve Months Ended									Balance at
	December 31			Cash			Non-cash			December 31
	2008			Payments			Charges			2008
Impairment of assets		$	8,602		$	—		$	8,602		$	—
Operating lease obligations			11,387			390			1,353			9,644
		$	19,989		$	390		$	9,955		$	9,644

~~Share-based~~Due to ~~compensation~~uncertaint

Filing Compare · BUILDING MATERIALS HOLDING Corp