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, 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.)

720 Park Boulevard, Suite 200, Boise, Idaho 83712

(208) 331-4300

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

	Name of each exchange
Title of each Class	on which registered

None

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

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, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ¨	Non-accelerated filer ¨

	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 market value of common shares held by non-affiliates of the registrant as of June 30, 2008 was $43,457,242. The market value computation excludes 4,921,246 shares held by affiliates such as directors, officers and holders of more than 5% of the common shares outstanding as of June 30, 2008.

The number of common shares outstanding as of April 10, 2009 was 29,732,742.

Documents Incorporated by Reference

None

Building Materials Holding Corporation

FORM 10-K

For the Fiscal Year Ended December 31, 2008

INDEX

PART I			Page
	Item 1.	Business	3
	Item 1A.	Risk Factors	12
	Item 1B.	Unresolved Staff Comments	20
	Item 2.	Properties	21
	Item 3.	Legal Proceedings	22
	Item 4.	Submission of Matters to a Vote of Security Holders	23


PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
	Item 6.	Selected Financial Data	25
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
	Item 8.	Financial Statements and Supplementary Data	57
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	110
	Item 9A.	Controls and Procedures	111
	Item 9A. (T)	Controls and Procedures	112
	Item 9B.	Other Information	113


PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	114
	Item 11.	Executive Compensation	118
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	128
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	130
	Item 14.	Principal Accounting Fees and Services	131


PART IV
	Item 15.	Exhibits, Financial Statement Schedules	132

		Signatures	140

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 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, 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 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 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 building products and construction services in the United States, with a focus in the western and southern states. We distribute building materials, manufacture building components (millwork, floor and roof trusses and wall panels) and provide construction services to professional builders and contractors through a network of 43 distribution facilities, 29 manufacturing facilities and 5 regional construction services facilities. Based on National Association of Home Builders building permit activity, we provide building products and construction services in 10 of the top 25 single-family construction markets.

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

Our periodic and current reports are filed with the Securities and Exchange Commission at www.sec.gov and are also available on 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 building products and construction services industry is dependent on demand for single-family homes. Housing demand is influenced by many factors 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 factors. The production of single-family homes is therefore variable and cyclical in nature.

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.

Similarly, as of November 2008 annualized single-family permits in our markets fell 46% to 0.2 million from the prior year. Accordingly, we implemented the following significant changes to our operations for 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.

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 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.

Under our SelectBuild brand, we offer integrated construction services to production homebuilders as well as commercial and multi-family builders. These builders generally outsource framing and other construction services. Our services include wood framing, concrete services, plumbing and other services. Construction services include managing labor and construction schedules as well as sourcing materials. We currently offer these services in major metropolitan markets in California, Arizona, Nevada and Illinois.

Restructuring

In response to challenging economic and industry conditions, in May 2008 we initiated a comprehensive analysis of our businesses operations to improve cash flow and profitability as well as rationalize our operations for the current conditions of the homebuilding industry. The plan places a priority on positive cash flow, efficient use of capital and higher returns and focuses on closing or consolidating underperforming business units as well as improving business processes. As a result, we implemented the following changes:

Fourth Quarter

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

closure of a concrete business in Northern California,

relocation of building materials distribution operation in Kent, Washington to our existing operations in the Puget Sound area of Washington,

relocation of millwork operation in Fort Collins, Colorado to our existing operation in Greeley, Colorado,

closure of building materials distribution, millwork and truss operations in Sparks, Nevada and

exit of operating leases for various operating facilities.

Third Quarter

closure of truss operation in Minden, Nevada,

relocation of millwork operation in Boise, Idaho to our existing building distribution and truss operation in Boise, Idaho,

relocation of millwork operation in Salt Lake City, Utah to our existing operation in Orem, Utah and

exit of operating leases for various operating facilities.

Second Quarter

streamlining of our organizational structure by reducing the previous 13 regions to 6 as well as realigning management functions,

integration and centralization of administrative functions at construction services operations to our existing administrative support operations,

closure of the following business units in underperforming markets:

millwork and building materials distribution operations in Merced and Bakersfield, California,

concrete and framing services in Tucson, Arizona,

block masonry, concrete services and truss manufacturing in Florida and

various underperforming trades within our operating regions and

exit of operating leases for various operating facilities.

First Quarter

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 Virginia.

During 2008 we reduced the number of employees 42% for operations and 12% for administrative support compared to a year ago.

We customize our mix of building products and construction services to meet customer needs in each of our markets. The significant housing downturn has changed our sales mix as follows:

Sales Mix

Competitive Strengths

Strategically located in growing and diverse markets. Our strategy focuses on offering building products and construction services in large, rapidly growing markets. According to single-family housing permit data from the U.S. Census Bureau, in 2008 we had operations in 10 of the top 25 U.S. metropolitan statistical areas. Our operations are geographically diverse and principally located in the western and south central states. According to the U.S. Census Bureau, housing starts have favored the western and southern regions, averaging 75% of annual starts over the past three years.

Full 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. We have 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 materials, we are able to help them reduce costs and cycle time.

Superior quality turnkey construction services. We provide superior quality, cost effective and reliable construction service solutions to production homebuilders and other builders in key markets. Certifications from the National Association of Home Builders demonstrate our professional credibility, competence, business integrity and solid record of customer satisfaction.

Long-term vendor relationships. 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.

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 22 years of industry experience.

Focus on service. Our focus on service is a key factor that distinguishes us from our competitors. We employ experienced, service-oriented individuals. Our product knowledge and construction service skills enable customers to rely on our expertise for project implementation and product recommendations. Our quality assurance 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

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 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.

We compete 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 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, averaging 75% of annual starts over the past three years.

We attract customers by consistently providing quality building products and dependable customer service. We also rely on the value and solid reputation of 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.

Cyclicality and Seasonality

Our business is dependent on demand for and supply of single-family homes, which are 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 therefore variable and cyclical in nature.

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.

Operating Strategy

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

	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 6% of purchases in 2008.

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.

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 continue 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 use a project methodology that allows us to efficiently maintain and enhance these information systems for our business units. To eliminate redundant activities and reduce administrative costs, we transferred payroll, accounts payable and general ledger processes to our existing administrative support operations during 2008. As we focus on reducing costs, future implementations will be limited, however we will continue to maintain the effectiveness and stability of our information processes and systems.

We continue to research and recommend new technology solutions to improve information for decision-making, however new technology solutions must have a short-term and positive return to be implemented. Remote information technology functions have been consolidated and moved to Boise, Idaho to lower costs and improve efficiencies. We are also pursuing negotiations with our technology vendors to achieve economies on pricing.

Our 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.

Safety and Risk Management

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 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.

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 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 and other supervisory or management training programs to achieve our goal of being both the employer and supplier of choice.

As of December 2008, we employed approximately 8,200 people of which 98% were in our operations and 2% were in our administrative support functions. Unions represent approximately 400 or less than 5% of our employees. We have not experienced any strikes or other 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	Position and Business Experience

Robert E. Mellor	65	Chairman 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.

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.

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.

Item 1A. Risk Factors

Risks Related to Our Business

We face a number of significant risks and uncertainties in connection with our operations. The factors described below may adversely affect our business, financial position, results of operations or cash flows and could cause future results to differ from past performance or expected results.

While we describe each risk separately, some of these risks are interrelated and certain risks could trigger other risks described below. Also, the risks and uncertainties described below are not the only risks and uncertainties we may face:

There is substantial doubt about our ability to continue as a going concern.

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 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 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. Such actions may have an adverse impact on the holders of our common shares.

Our business is dependent on demand for and supply of single-family homes that 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.

The residential building products and construction services industry is highly dependent on demand for single-family homes, which is influenced by several factors. These factors include economic changes nationally and locally, mortgage and other interest rates, consumer confidence, job formation, demographic trends, tax incentives and availability of credit as well as other factors. The construction of new homes may experience decline due to excess unsold home inventory levels, lack of availability of credit for lenders, builders and homebuyers, lack of available and affordable land in attractive metropolitan areas, shortages of qualified tradespeople, shortages of materials and regulations that impose restrictive zoning and density requirements. Also, changes to housing patterns may occur, such as an increase in consumer demand for urban living rather than single-family suburban neighborhoods.

All of 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 our inability to align our cost structure with these sales trends.

Our ability to maintain 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 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. 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 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. We expect market conditions to be challenging and may apply further pressure to our sales, margins and operating results.

●	Our liquidity is dependent on operating performance, an efficient cash conversion cycle and compliance with financial covenants.

Liquidity is essential to our business. We 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 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 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. 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.

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. 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.

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.

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 building products distribution and construction services. Weak operating results may limit our ability to offer competitive compensation and benefits and may result in shortages of qualified labor and key personnel and in turn, may limit our ability to complete contracts as well as obtain additional contracts with builders. Also, as a result of the downturn in the homebuilding industry, many qualified individuals have and may continue to seek employment in other industries. Additional employment and eligibility requirements as well as enhanced and 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.

Our success is also dependent on our ability to profitably implement evolving employment legislation. For example, potential legislation easing union organizing activities and limiting arbitration options may significantly increase costs and may reduce or eliminate our ability 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 financial condition, results of operations or cash flows.

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 products.

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.

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 claims as well as other legal proceedings.

We are involved in product liability and construction defect claims relating to the products we distribute and manufacture and our various construction trades. We are also exposed to potential claims arising from the conduct of homebuilders and 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.

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 period could delay the delivery of our products and 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 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 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 building products distribution and construction services industry.

§	Our shares may be less attractive as they are not traded on a large, well-known exchange.

Our 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.

ITEM 2. Properties

We lease our headquarters in Boise, Idaho. Principal properties include 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 our operations are 52% owned and 48% leased. Currently, 24% of these properties are vacant or subleased.

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.

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.

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

	2008			2007			2006
	High	Low	Cash Dividends Declared	High	Low	Cash Dividends Declared	High	Low	Cash Dividends Declared

First quarter	$7	$4	$—	$25	$18	$0.10	$40	$32	$0.10
Second quarter	$5	$2	$—	$18	$13	$0.10	$38	$25	$0.10
Third quarter	$3	$0.47	$—	$15	$11	$0.10	$28	$21	$0.10
Fourth quarter	$1	$0.21	$—	$12	$5	$0.10	$28	$24	$0.10

Our credit facility amended in September 2008 prohibits the payment of cash dividends on our common shares. The determination of future dividend payments (cash or shares) will depend on many factors, including credit facility restrictions, financial position, results of operations and cash flows.

As of April 10, 2009, there were approximately 2,291 shareholders of record and the closing price of our shares on April 9, 2009 was $0.28.

Peer Companies

Our peers are composed of companies that provide building products and construction services as follows:

· Avatar Holdings Inc.	· Lennar Corp.	· 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, Inc.
· D.R. Horton Inc.	· NVR Inc.	· USG Corp.
· KB Home	· Ryland Group Inc.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes equity compensation information as of December 31, 2008 (thousands, except per share data):

	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 with the amendment of 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.

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 items provide further information to understand the comparability of selected financial data.

Selected Financial Data

(thousands, except share and permit data)

	Year Ended December 31
	2008		2007		2006		2005		2004
Sales (1) (3)
Building products	$	693,664	$	997,035	$	1,254,056	$	1,291,899	$	1,155,999
Construction services		631,015		1,182,038		1,697,106		1,285,940		656,697
Total sales	$	1,324,679	$	2,179,073	$	2,951,162	$	2,577,839	$	1,812,696

Impairment of assets (2)	$	53,015	$	272,152	$	—	$	508	$	2,274

(Loss) income from continuing operations (3)	$	(192,456)	$	(265,767)	$	81,545	$	104,442	$	44,988

(Loss) income from discontinued operations (1)	$	(22,353)	$	(46,946)	$	20,529	$	25,065	$	8,922

Net (loss) income	$	(214,809)	$	(312,713)	$	102,074	$	129,507	$	53,910

Net (loss) income per diluted share		$(7.39)		$(10.86)		$3.45		$4.41		$1.94

Annual cash dividends declared per share		$—		$0.40		$0.40		$0.24		$0.14

Working capital	$	137,271	$	262,741	$	239,692	$	295,220	$	264,272
Total assets	$	539,715	$	874,844	$	1,328,911	$	1,150,525	$	743,044
Long-term debt, net of current portion	$	287,009	$	343,937	$	348,374	$	276,987	$	204,321
Shareholders’ equity	$	44,262	$	253,742	$	572,629	$	470,061	$	327,678

Cash flows (used) provided by operations	$	(23,126)	$	67,279	$	273,418	$	198,294	$	33,374

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

	2008			2007			2006		2005		2004
(1) Sales from discontinued operations:	$	40,645		$	135,604		$	294,007	$	334,321	$	278,329
Income (loss) from discontinued operations:	$	(22,353	)	$	(46,946	)	$	20,529	$	25,065	$	8,922

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

·	$53.0 million for carrying amount of customer relationships, goodwill and certain property and equipment.

As a result of changes in specific markets, the following impairments were recognized in 2007:

·	$272.2 million for the carrying amount of goodwill and certain customer relationships.


	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

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

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 Business

We are one of the largest providers of residential building products and construction services in the United States. Under the brand names of BMC West and SelectBuild, we serve the homebuilding industry through six regional operations: Texas, California, Intermountain, Southwest, Northwest and Illinois. In each of these regions, we market and sell building products, manufacture building components and provide construction services to professional builders and contractors.

Our operations are 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.

Business Environment and Executive Overview

Annualized Single-Family Housing Starts and Permits

(000s)

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.

·	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.

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.

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.

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.

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, 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.

Insurance Coverage

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.

Upon liquidation of investments held by our captive insurance subsidiary, insurance deductible reserves for claims will no longer be subject to statutory funding requirements. Claims for automobile, general liability and workers’ compensation continue to be insured by third-party insurance carriers. Insurance deductible reserves for claims will be recognized based on the estimated cost of claims as limited by deductibles of the applicable insurance policies.

Performance Measurements

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

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

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.

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):

	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 were as follows (millions):

Sales and Loss from Operations

(miilions)

	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	)%

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.

Loss from operations was $163 million compared to a loss of $256 million a year ago and included the following:

·	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.

·	We recognized $53 million for the impairments of certain customer relationships and covenants not to compete, goodwill, certain property and equipment held for sale and certain leasehold improvements.

Partially offsetting lower gross margins, selling and general administrative expenses decreased 17% or $73 million from a year ago. These expenses were lower due to employee reductions resulting in a decrease of $75 million or 42% in our operations and 12% in our administrative operation as well as $22 million of reductions in occupancy, shipping and handling, travel and other expenses. These reductions were partially offset by:

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

$9 million for exiting various operating leases associated with underperforming business units.

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:

a substantial decline in sales volume, particularly construction services and

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

Interest Expense

Interest expense was 57% or $19 million more than a year ago. The increase was due to:

·	$6.1 million for higher interest rates,

·	$4.2 million for write-off of deferred loan costs,

·	$3.2 million for fees associated with waivers and amendments of our credit facility in September and February 2008 and

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

Income 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.

RESULTS 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

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.

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

Historically, our primary needs for capital resources were to fund working capital and acquisitions as well as finance capital expenditures. In the future we expect to fund working capital requirements and necessary capital expenditures with cash flow from operations and seasonal borrowings under our credit facility.

If we are unable to implement and maintain cost structures, including debt and interest, that align with single-family housing trends 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 we may be forced to seek relief by altering our capital structure or through a bankruptcy filing.

Operations

Operating activities used $23 million of cash for 2008 compared to $67 million provided for 2007. Net loss adjusted for non-cash items increased $121 million from 2007 due to lower sales and reduced profitability as a result of the significant downturn in home construction. Our working capital requirements decreased $48 million in 2008. Cash provided by working capital requirements was $48 million for 2008 compared to cash provided of $36 million for 2007, as our working capital requirements decreased despite a significant increase in our cash conversion cycle as days payable outstanding decreased, inventory turns slowed slightly and there was no significant change in days sales outstanding.

In 2007, cash provided by operating activities was $67 million compared to $273 million for 2006. Net income adjusted for non-cash items decreased $126 million due to a significant contraction in construction activity as homebuilders curtailed production in an effort to align home inventory with demand. Consistent with the contraction of construction activity, our working capital requirements for 2007 were $36 million less than 2006. Inventory turns and days payable outstanding were consistent with the prior year whereas days sales outstanding increased slightly.

Cash provided by operating activities was $273 million for 2006 compared to $198 million for 2005. Net income adjusted for non-cash items decreased $15 million due to slower construction activity as homebuilders curtailed production. Changes in working capital were favorable as requirements were $104 million less than 2005 as the robust pace of housing starts began to deteriorate. Inventory turns and days payable outstanding improved whereas days sales outstanding increased slightly from 2005.

Capital Investment and Acquisitions

Cash provided by investing activities was $29 million for 2008 compared to $53 million used for 2007. Cash provided by investing activities reflected a $72 million reduction in expenditures for the acquisition of businesses. A remaining minority interest in a framing services operation was purchased for $8 million. Cash of $15 million was provided principally from the sale of building materials distribution facilities in Boulder, Colorado and Bakersfield, California as well as the sale of other equipment. Cash used for investing activities also included capital expenditures of $17 million or $16 million less than 2007. Capital expenditures were principally for relocation and expansion of materials distribution and component manufacturing facilities in Texas. Pursuant to our plans to terminate our captive insurance subsidiary, cash of $42 million, net was provided from the liquidation of marketable securities and proceeds were used to reduce net borrowings under the revolver and for operating needs.

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 $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.

Cash used in investing activities was $280 million for 2006 or $18 million more than $262 million used in investing activities for 2005. Cash use included $202 million for eight acquisitions 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 for 2006 of $53 million or $6 million more than $47 million for 2005. Capital expenditures for 2006 were principally for centralization of a millwork facility in Colorado, expansion of distribution facilities in Texas and Idaho, expansion of construction service facilities in Arizona and expansion of our data center as well as construction and human resource information systems. Cash used for investing activities for 2006 also included $25 million for the net purchase of marketable securities pursuant to the statutory funding requirements of our captive insurance subsidiary.

Financing

Cash used by financing activities was $55 million for 2008 compared to $28 million used for 2007. Cash for operating needs, payments on the term note, capital expenditures and financing costs for our amended credit facility were funded by eliminations of the statutory funding requirements of our captive insurance subsidiary, reductions in working capital requirements, existing cash and proceeds from dispositions. In addition to scheduled principal payments, $16 million was paid on the term note as a result of reductions in the statutory funding requirements of our captive insurance subsidiary and proceeds from dispositions.

In 2007, cash used by financing activities was $28 million compared to $51 million provided by financing activities for 2006. Payments for acquisitions made in the prior year, capital expenditures and cash dividends for shareholders were funded with proceeds from the sale of three non-strategic building materials distribution businesses in Western Colorado, proceeds from other dispositions, cash from operations and lower working capital requirements. No additional borrowings were required.

Cash provided by financing activities was $51 million for 2006 compared to $74 million for 2005. After cash provided by operating activities, debt was incurred to complete eight acquisitions and purchase an additional 20% interest in a concrete block masonry and concrete services business as well as expand our facilities and information systems. In November 2006, we amended our revolver and entered into a new $350 million term note. This transaction resulted in proceeds from the $350 million term note which was used to repay our previous term notes and the amount outstanding under the revolver. Remaining borrowings were used to invest in cash equivalents and pay cash dividends for shareholders.

Financing Arrangements

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

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.

· Revolver

The $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.

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

Letters of credit 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.

Total availability under the revolver is subject to a monthly borrowing base calculation that includes:

·	70% of certain accounts receivable,

·	50% of certain inventory,

·	25% of certain other inventory,

·	approximately 75% of the appraised value of certain property and equipment and

·	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):

2009	$	39,443
2010		3,727
2011		283,189
2012		65
2013		70
Thereafter		677
	$	327,171

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

In addition to the amendment to our credit facility in September 2008, we amended our interest rate swap contracts to lower amounts and a maturity matching the credit facility. As of December 2008, the interest rate swap contracts effectively converted $135.1 million of variable rate borrowings to a fixed interest rate of 10.6% plus any difference between minimum LIBOR interest of 3.0% and LIBOR, thus reducing the impact of increases in interest rates on future interest expense. Additionally, the notional amount of the interest rate swap contracts will be ratably reduced to zero through the maturity of November 2011.

Approximately 41% of 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 the interest rate swap contracts was a liability of $7.5 million as of December 31, 2008. To the extent the hedge is effective, the corresponding unrealized loss for the interest rate swap contracts and unrealized tax benefit were recorded in accumulated other comprehensive (loss) income, net a separate component of shareholders’ equity.

In December 2008, we determined the interest rate swap contracts were not an effective hedge of variable interest due to the recent significant reductions in LIBOR interest rates. As a result of the estimated difference between the LIBOR interest of the interest rate swap contracts and the minimum LIBOR interest of 3.0% of the term note, we recognized $3.0 million of interest expense for the ineffective portion of these interest rate swap contracts for 2008. The effective portion of the interest rate swap contracts of $4.5 million was recorded as an unrealized loss and 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

Repurchase Program

In March 2007, our Board of Directors authorized the repurchase of up to $25 million of our common shares through March 2008. The repurchase program expired in March 2008 with no shares 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.

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, 2008, we were not involved in any transactions with unconsolidated entities.

DISCLOSURES OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

	Payments Due by Period
Contractual Obligations	Less than 1 Year	1-3 Years	3-5 Years	More than 5 Years	Total	Fair Value
Long-term debt(1)	$39.4	$286.9	$0.2	$0.7	$327.2	$326.7
Capital lease obligations	—	—	—	—	—	—
Interest on long-term debt and capital leases(2)	24.8	63.4	0.1	0.2	88.5	88.5
Operating leases(3)	24.8	31.5	12.7	3.6	72.6	72.6
Unconditional purchase obligations	—	—	—	—	—	—
Other long-term commitments	—	—	—	—	—	—
	$89.0	$381.8	$13.0	$4.5	$488.3	$487.8

Interest rate swap contracts
Notional principal amount of interest rate exchange agreements					$135.1	$7.5
Variable to fixed
Average pay rate					5.3%
Average receive rate					3.5%
						$495.3

(1)	Long-term debt obligations may differ due to future refinancing of debt.

(2)	Interest obligations may differ due to future refinancing of debt. Interest on our variable rate debt was calculated for all years using the rates in effect as of December 31, 2008.

(3)	Operating lease obligations may differ due to changes in operating plans and sublease arrangements. Operating lease obligations are net of sublease arrangements of $1.8 million for less than 1 year, $1.2 million for 1 – 3 years and $0.2 million for 3 – 5 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.

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 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.

Approximately 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.

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

CRITICAL ACCOUNTING ESTIMATES

Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions include critical accounting estimates which are defined by the Securities and Exchange Commission as those that are the most important to the portrayal of our financial condition, results of operations or cash flows. These estimates require 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 believe 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 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 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 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, 2008, the reserve for these estimated losses was $0.2 million. 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.

· 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.

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.

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 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.

· 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 are insured with third-party insurance carriers. Insurance deductible reserves for claims are recognized based on the estimated costs of these claims as limited by deductibles of the applicable insurance policies. Revisions to insurance deductible reserves for estimated claims are recognized in the period such revisions are known.

At December 31, 2008, the reserve for automobile, general liability and workers’ compensation claims was $43.7 million. The estimated cost of claims is determined by actuarial methods. Actual loss experience may differ substantially from the actuarial assumptions. Future estimates of the cost 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.

At 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.

· 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 meet the fair value measurement objective, we are required to develop estimates regarding expected exercise patterns, share price volatility, forfeiture rates, risk-free interest rate and dividend yield. These assumptions are based principally on historical experience. When circumstances indicate changes in forfeiture rates, revisions to 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 estimates.

RECENT ACCOUNTING PRINCIPLES

In May 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles. This accounting principle identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. This accounting principle was adopted November 2008 and had no impact on our consolidated financial position, results of operations or cash flows.

In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities. This accounting principle enhances disclosure for derivative instruments and hedging activities and their effects on consolidated financial position, results of operations and cash flows. Specifically, enhanced disclosures include objectives and strategies for using derivatives, including underlying risk and accounting designation, as well as fair values, gains and losses. This accounting principle was adopted June 2008 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. 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 Form 10-K. These risks and uncertainties may include, however are not limited to:

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

·	demand for and supply of 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;

·	our ability to maintain adequate liquidity, reduce operating costs and increase market share in an industry that has experienced and continues to experience a significant reduction in average annual housing starts;

our liquidity is dependent on operating performance, an efficient cash conversion cycle and compliance with financial covenants;

our ability to implement and maintain cost structures that align with sales trends and

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;

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

·	weather conditions including natural catastrophic events;

·	exposure to product liability and construction 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;

·	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 this Form 10-K including those related to expectations about homebuilding activity in our markets, demographic trends supporting homebuilding, competition trends, anticipated sales and operating income 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 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 forward-looking statements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Inventory Price Risk

Interest Rate Risk

Derivative financial 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 Operations

(thousands, except per share data)

	Year Ended December 31
	2008			2007			2006
Sales
Building products	$	693,664		$	997,035		$	1,254,056
Construction services		631,015			1,182,038			1,697,106
Total sales		1,324,679			2,179,073			2,951,162

Costs and operating expenses
Cost of goods sold
Building products		514,222			722,786			913,468
Construction services		576,087			1,027,796			1,404,882
Impairment of assets		53,015			272,152			—
Selling, general and administrative expenses		349,417			422,694			473,374
Other expense (income), net		(5,059	)		(9,971	)		(4,159	)
Total costs and operating expenses		1,487,682			2,435,457			2,787,565

(Loss) income from operations		(163,003	)		(256,384	)		163,597

Interest expense		52,925			33,800			29,082

(Loss) income from continuing operations before income taxes and minority interests		(215,928	)		(290,184	)		134,515

Income tax benefit (expense)		23,409			25,670			(44,893	)
Minority interests loss (income)		63			(1,253	)		(8,077	)
(Loss) income from continuing operations		(192,456	)		(265,767	)		81,545

(Loss) income from discontinued operations prior to sale		(12,680	)		2,937			34,680
Impairment of assets		(7,813	)		(64,922	)		(2,237	)
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.

Building Materials Holding Corporation

Consolidated Balance Sheets

(thousands)

	December 31					December 31
	2008		2007			2008		2007
Assets					Liabilities, Minority Interests and Shareholders’ Equity
Cash and cash equivalents	$	11,484	$	60,587
Marketable securities		—		1,872
Receivables, net of allowances					Accounts payable	$	19,021	$	74,025
of $12,091 and $4,656		118,245		200,995	Accrued compensation		17,274		31,537
Inventory		78,676		115,524	Insurance deductible reserves		17,527		27,189
Unbilled receivables		13,112		39,189	Other accrued liabilities		26,981		28,989
Income tax receivable		50,304		9,812	Billings in excess of costs and estimated
Deferred income taxes		—		11,470	earnings		24,054		20,977
Prepaid expenses and other		4,864		8,973	Current portion of long-term debt		39,443		4,923
Assets of discontinued operations		5,659		10,492	Liabilities of discontinued operations		773		8,533
Current assets		282,344		458,914	Current liabilities		145,073		196,173

Property and equipment					Insurance deductible reserves		26,208		27,898
Land		33,996		60,052	Long-term debt		287,009		343,937
Buildings and improvements		120,814		135,009	Other long-term liabilities		37,163		44,503
Equipment		153,843		185,958
Construction in progress		3,440		16,134	Minority interests		—		8,591
Accumulated depreciation		(148,032)		(155,083)
Assets held for sale		46,300		—	Commitments and contingent liabilities		—		—
Marketable securities		—		40,039
Deferred income taxes		—		11,269	Shareholders’ equity
Deferred loan costs		4,485		4,358	Common shares, $0.001 par value:
Other long-term assets		23,303		30,956	authorized 50 million shares; issued and
Other intangibles, net		19,222		58,310	outstanding 29.7 and 29.4 million shares		29		29
Goodwill		—		14,196	Additional paid-in capital		169,146		164,043
Assets of discontinued operations		—		14,732	Deferred compensation common shares obligation		878		1,427
	$	539,715	$	874,844	Deferred compensation common shares		(878)		(1,427)
					(Accumulated deficit) retained earnings		(120,327)		94,482
					Accumulated other comprehensive loss, net		(4,586)		(4,812)
					Shareholders’ equity		44,262		253,742
						$	539,715	$	874,844

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

Building Materials Holding Corporation

Consolidated Statements of Shareholders’ Equity

(thousands)

	Year Ended December 31
	2008			2007			2006
Common shares – beginning balance	$	29		$	29		$	29
Shares issued from Incentive and Performance Plans		—			—			—
Shares issued upon exercise of warrants		—			—			—
Common shares	$	29		$	29		$	29


Additional paid-in capital – beginning balance	$	164,043		$	154,405		$	141,082
Shares issued from Incentive and Performance Plans
Options exercised – Management		9			203			1,292
Tax benefit for share options exercised		—			29			1,457
Restricted shares – Management		(2,119	)		2,614			5,220
Unearned compensation		2,119			(2,614	)		(5,220	)
Tax benefit for dividends on restricted shares		—			63			—
Shares – Directors		402			405			415
Earned compensation
Options – Management		2,780			5,177			5,103
Restricted shares – Management		1,044			3,317			3,107
Tax benefit for vested restricted shares		—			167			—
Shares issued from Employee Stock Purchase Plan		86			277			1,949
Warrants
Fair value of warrants issued		782			—			—
Warrants exercised		—			—			—
Additional paid-in capital	$	169,146		$	164,043		$	154,405


Deferred compensation common shares obligation – beginning balance	$	1,427		$	1,200		$	934
Deferred compensation		292			364			276
Dividends on common shares held		11			38			43
Distributions		(852	)		(175	)		(53	)
Deferred compensation common shares obligation	$	878		$	1,427		$	1,200


Deferred compensation common shares – beginning balance	$	(1,427	)	$	(1,200	)	$	(934	)
Cost of shares purchased with deferred compensation and dividends		(303	)		(402	)		(319	)
Cost of shares distributed		852			175			53
Deferred compensation common shares	$	(878	)	$	(1,427	)	$	(1,200	)


Retained earnings – beginning balance	$	94,482		$	418,927		$	328,463
Net (loss) income		(214,809	)		(312,713	)		102,074
Cash dividends on common shares		—			(11,732	)		(11,610	)
(Accumulated deficit) retained earnings	$	(120,327	)	$	94,482		$	418,927


Accumulated other comprehensive (loss) income, net – beginning balance	$	(4,812	)	$	(732	)	$	487
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
Marketable securities:
Unrealized (loss) gain		(721	)		1,000			127
Tax benefit (taxes) for unrealized (loss) gain		245			(340	)		(62	)
Accumulated other comprehensive (loss) income, net	$	(4,586	)	$	(4,812	)	$	(732	)

Shareholders’ Equity	$	44,262		$	253,742		$	572,629

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

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
	2008			2007			2006
Operating Activities
Net (loss) income	$	(214,809	)	$	(312,713	)	$	102,074
Items in net (loss) income not using (providing) cash:
Minority interests (loss) income, net		(63	)		853			9,493
Depreciation and amortization		37,611			48,781			45,284
Deferred loan cost amortization		1,621			1,123			1,359
Deferred loan cost write off		7,099			—			—
Ineffective portion of interest rate swap contracts		3,022			—			—
Amortization of interest rate swap contracts notional reduction settlement payments		926			—			—
Amortization of warrant discount		62			—			—
Impairment of assets		60,828			337,074			2,237
Share-based compensation		4,276			8,944			8,917
Gain on sale of discontinued operations		—			(20,029	)		—
(Gain) loss on sale of assets, net		(2,225	)		(8,789	)		207
Realized gain on interest rate swap contracts		—			—			(1,459	)
Realized (gain) loss on marketable securities		(542	)		(408	)		206
Deferred income tax benefit (expense)		22,534			(19,452	)		(1,125	)
Accrued loss for acquisition purchase obligation		—			5,500			—
Changes in assets and liabilities, net of effects of acquisitions and divestitures of business units:
Receivables, net		85,424			68,385			128,381
Inventory		38,190			24,599			43,873
Unbilled receivables		26,804			3,610			22,702
Income tax receivable		(40,492	)		(7,304	)		(2,508	)
Prepaid expenses and other current assets		4,298			(454	)		(1,407	)
Accounts payable		(32,836	)		(22,621	)		(43,483	)
Accrued compensation		(14,724	)		(16,536	)		(18,823	)
Insurance deductible reserves		(10,961	)		3,557			3,059
Other accrued liabilities		(8,028	)		(13,033	)		1,483
Billings in excess of costs and estimated earnings		275			(3,843	)		(29,734	)
Other long-term assets and liabilities		8,789			(12,560	)		1,588
Other, net		(205	)		2,595			1,094
Cash flows (used) provided by operating activities		(23,126	)		67,279			273,418

Investing Activities
Purchases of property and equipment		(16,509	)		(32,995	)		(52,873	)
Acquisitions and investments in businesses, net of cash acquired		(8,575	)		(80,961	)		(201,754	)
Proceeds from dispositions of property and equipment		14,871			16,905			2,944
Proceeds from sale of discontinued operations		—			27,176			—
Purchase of marketable securities		(28,589	)		(35,239	)		(54,700	)
Proceeds from sales of marketable securities		70,221			52,650			29,270
Other, net		(2,123	)		(628	)		(3,150	)
Cash flows provided (used) by investing activities		29,296			(53,092	)		(280,263	)

BUILDING MATERIALS HOLDING Corp 10-K