BOISE CASCADE Co 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Understanding Our Financial Information This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Form 10-K. The following discussion includes statements that are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled "Cautionary Statement Concerning Forward-Looking Statements" and in Item 1A. "Risk Factors." References to "fiscal year" or "fiscal" refer to our fiscal year ending on December 31 in each calendar year. Overview Company Background Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor with widespread operations throughout the United States (U.S.) and one manufacturing facility in Canada. We completed an initial public offering of our common stock on February 11, 2013. We have two reportable segments: (i) Wood Products, which primarily manufactures engineered wood products (EWP) and plywood; and (ii) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. For more information, see Note 3, Revenues, and Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" and "Item 1. Business" of this Form 10-K. Our products are used in the construction of new residential housing, including single-family, multi-family, and manufactured homes, the repair-and-remodeling of existing housing, the construction of light industrial and commercial buildings, and industrial applications. We have a broad base of customers, which includes a diverse mix of retail lumberyards, home improvement centers, leading wholesalers, specialty distributors, and industrial converters. Our Wood Products and BMD segments are vertically-integrated from wood fiber procurement through distribution. During 2020, approximately 61% of our Wood Products segment sales, or approximately 80% and 24% of our Wood Product segment's EWP and plywood sales volumes, respectively, were to our BMD segment. Executive Summary We recorded income from operations of $335.0 million during the year ended December 31, 2020, compared with $136.5 million during the same period in the prior year. In our Wood Products segment, income increased by $73.5 million to $127.7 million for the year ended December 31, 2020, from $54.2 million in 2019. The increase in segment income was due primarily to higher plywood sales prices, as well as higher I-joist sales volumes and lower manufacturing costs. These improvements were offset partially by accelerated depreciation of $15.0 million and other closure-related costs at our Roxboro, North Carolina facility, as well as lower EWP prices and higher wood fiber costs, particularly OSB (used in the manufacture of I-joists). In our BMD segment, income improved $131.3 million to $247.5 million for the year ended December 31, 2020, from $116.2 million for the year ended December 31, 2019, driven by a gross margin increase of $173.0 million, resulting primarily from improved gross margins on commodity products, as well as higher sales of general line products compared with 2019. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $35.7 million and $4.2 million, respectively. These changes are discussed further in "Our Operating Results" below. We ended 2020 with $405.4 million of cash and cash equivalents and $443.8 million of debt. At December 31, 2020, we had $345.2 million of unused committed bank line availability. We generated $120.1 million of cash during the year ended December 31, 2020, as cash provided by operations and issuances of long-term debt was offset partially by debt payments, capital spending, and dividends paid on our common stock. A further description of our cash sources and uses for the comparative periods are discussed in "Liquidity and Capital Resources" below. As both a manufacturer and a distributor, our 2020 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in 2019. During 2020, our business experienced rapidly evolving market conditions and economic uncertainties surrounding the impact of COVID-19, and various restrictions that limited residential construction activity. In response to COVID-19 uncertainties, early in the second quarter, our Wood Products segment and many other producers in our industry reduced production levels. In addition, many companies involved in the manufacture and distribution 34 Table of Contents of building materials dramatically reduced inventory levels in late first quarter and early second quarter in response to falling commodity wood products prices and future demand uncertainty. As restrictions were loosened or rescinded, construction activity resumed mid-second quarter and continued at a robust pace throughout the remainder of 2020. Across commodity product lines, product demand in the third quarter exceeded supply, and producers struggled to restore capacity because of COVID-19 related disruptions and natural disasters, causing significant increases in commodity products prices. In the fourth quarter, composite lumber and panel prices fell sharply during October and November 2020 before a strong pricing rebound in December 2020. Our BMD warehouse sales were strong throughout the third and fourth quarters as our retail lumberyard customers relied on our broad base of inventory and high service levels to minimize their working capital investment given COVID-19 related uncertainties and historically high commodity product prices. In addition, we have had strong demand from our home center customers in response to elevated repair and remodel and "do-it-yourself" activity as people are spending more time at home during the pandemic. As we begin 2021, Wood Products continues to experience periodic short-term disruptions at many locations due to COVID-19 as we continue to make efforts to restore production rates to pre-COVID-19 levels in response to strong end-product demand, particularly for our EWP. In addition, we have experienced COVID-19 related short-term disruptions at our BMD locations and our activity levels across our distribution network continue to vary widely as COVID-19 impacts geographies across the U.S. to differing degrees, and federal, state, or local restrictions are implemented or rescinded. To date, we have not experienced significant supply chain disruptions that would limit our ability to meet customer delivery commitments or source the necessary raw materials and finished goods needed by our operations. We continue to conduct business with modifications to mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. In addition, we continue to actively monitor evolving developments and may take actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, communities, and stockholders. While there continues to be a heightened level of economic uncertainty due to the pandemic, low mortgage rates, continuation of work-from-home practices by many in the economy, and demographics in the U.S. have created a favorable demand environment for new residential construction, particularly single-family housing starts, which we expect to continue in 2021. Furthermore, with homeowners spending more time at home, repair and remodel spending may remain elevated as homeowners invest in existing homes. As of February 2021, the Blue Chip Economic Indicators consensus forecast for 2021 single- and multi-family housing starts in the U.S. was 1.51 million units, compared with actual housing starts of 1.38 million in 2020 and 1.29 million in 2019, as reported by the U.S. Census Bureau. Although we believe that current U.S. demographics support the higher level of forecasted housing starts, and many national home builders are reporting strong near-term backlogs, the impacts of COVID-19 on residential construction and repair-and-remodeling activity are uncertain. Strong demand when coupled with capacity constraints in late fourth quarter 2020 and early first quarter 2021 created supply/demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. As a wholesale distributor of a broad mix of commodity products and a manufacturer of certain commodity products, our sales and profitability are influenced by changes in commodity product prices. Factors That Affect Our Operating Results and Trends Our results of operations and financial performance are influenced by a variety of factors, including: (i) the commodity nature of the products we manufacture and distribute; (ii) general economic and industry conditions affecting demand; and (iii) cost and availability of raw materials, including wood fiber and glues and resins. These factors have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods. 35 Table of Contents Commodity Nature of Our Products Many of the building products we manufacture or distribute, including OSB, plywood, and lumber, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently in an auction market based on participants' perceptions of short-term supply and demand factors. At times, the price for any one or more of the products we produce or distribute may fall below our cash production or purchase costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. Therefore, our profitability with respect to these commodity products depends, in significant part, on effective facilities maintenance programs, and on managing our cost structure, particularly raw materials and labor, which represent the largest components of our operating costs. Composite structural panel and lumber prices have been volatile historically. The following table provides changes in the average composite panel, including certain panel subcategories, and average composite lumber prices as reflected by Random Lengths, an industry publication, for the periods noted below. In addition to the year-over-year average price changes, 2020 and 2018 were years of exceptional price volatility when compared to historical results. Year Ended December 31 2020 versus 2019 2019 versus 2018 2018 versus 2017 Increase (decrease) in composite panel prices 54% (27)% 10% Increase (decrease) in Western Fir plywood prices 22% (16)% 19% Increase (decrease) in Southern Pine plywood prices 29% (18)% 14% Increase (decrease) in OSB prices 99% (38)% —% Increase (decrease) in composite lumber prices 57% (23)% 12% In our Wood Products segment, we manufacture plywood, but not OSB, and therefore our reported prices may not trend with the overall composite panel price index. Our BMD segment purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments may result in declines in sales and profitability. For further discussion of the impact of commodity prices on historical periods, see "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations. General Economic and Industry Conditions Affecting Demand The level of housing starts is especially important to our results of operations. New residential construction activity has historically been volatile with demand influenced by several economic conditions, including domestic population growth, immigration rates, residential vacancy and foreclosure rates, demand for second homes, and existing home prices. The pace of household formation rates and residential repair-and-remodeling activity will also be affected by the economic impact of COVID-19, employment levels, wage growth, housing affordability, availability of construction labor, materials, and building lots, prospective home buyers' access to financing, consumer confidence, as well as other factors. Improved household formation rates in turn will help stimulate new construction. In addition, the size of new single-family residences as well as the mix of single and multi-family starts will influence product consumption. Increases in EWP demand will be highly influenced by single-family housing starts. Industry supply for the products we produce and distribute is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies, capacity additions and closures, restart of idled capacity, and log availability. The balance of supply and demand in the U.S. is also heavily influenced by imported products, principally from Canada and South America. We believe that our product line diversification provides us some protection from declines in new residential construction. Our products are used not only in new residential construction, but also in residential repair-and-remodeling projects. We believe the overall age of the U.S. housing stock, resales of existing homes, increased focus on making homes more energy efficient, rising home prices, and availability of consumer loans at low interest rates will continue to support long-term growth in repair-and-remodeling expenditures and increased demand through home improvement centers and our other customers that service professional contractors. 36 Table of Contents Cost and Availability of Raw Materials Our principal raw material is wood fiber, which accounted for approximately 42% of the aggregate amount of materials, labor, and other operating expenses (excluding depreciation), for our Wood Products segment in 2020. Logs comprised approximately 73% of our wood fiber costs during 2020, and we satisfy our log requirements through a combination of purchases under supply agreements, open-market purchases, and purchases pursuant to contracts awarded under public auctions. The following table provides changes in our average per-unit log costs for the periods noted below: Year Ended December 31 2020 versus 2019 2019 versus 2018 2018 versus 2017 Increase (decrease) in per-unit log costs 1% (10)% 13% Our log requirements and our access to supply, as well as the cost of obtaining logs, are subject to change based on, among other things, the availability of logs in each of our operating areas, our operating schedules, competition from other manufacturers, the effect of governmental laws and regulations, impacts of weather or fire on log availability, and the status of environmental appeals. Per-unit log costs in the western U.S. are higher than per-unit log costs in the southern U.S. due to higher harvest and delivery costs, as well as various supply-side constraints, including seasonal weather-related restrictions, slower growth cycles, and a higher proportion of federal and state timberland ownership. Our aggregate cost of obtaining logs is also affected by fuel costs and the distance of the log source from our facilities, as we are often required to arrange for harvesting and delivery of the logs we purchase from the source to our facilities. We also purchase OSB, which is used as the vertical web to assemble I-joists, from a supplier with multiple locations throughout North America. OSB accounted for approximately 7% of the aggregate amount of materials, labor, and other operating expenses (excluding depreciation) for our Wood Products segment in 2020. OSB is a commodity, and prices have been historically volatile in response to industry capacity and operating rates, inventory levels in various distribution channels, and seasonal demand patterns. Sustained periods of high OSB costs lead to higher costs of our I-joist production. Wood fiber also includes, to a lesser extent than OSB, lumber purchased from third parties for I-joist production at our Canadian EWP facility and for production at our laminated beam plant in Idaho. Lumber input costs are subject to similar commodity-based volatility characteristics noted above for OSB. We also use various resins and glues in our manufacturing processes, which accounted for approximately 5% of the aggregate amount of materials, labor, and other operating expenses (excluding depreciation) for our Wood Products segment in 2020. The costs of resins and glues are influenced by changes in the prices of raw material input costs, primarily fossil fuel products. We purchase many of our raw materials through long-term contracts that contain price adjustment mechanisms that take into account changes in market prices. Therefore, although our long-term contracts provide us with supplies of raw materials and energy that are more stable than open-market purchases, in many cases, they may not alleviate fluctuations in market prices. 37 Table of Contents Our Operating Results The following tables set forth our operating results in dollars and as a percentage of sales for the years ended December 31, 2020, 2019, and 2018: Year Ended December 31 2020 2019 2018 (millions) Sales $ 5,474.8 $ 4,643.4 $ 4,995.3 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 4,536.1 3,965.8 4,307.6 Depreciation and amortization 95.2 80.1 146.8 Selling and distribution expenses 428.3 390.7 363.1 General and administrative expenses 78.6 71.1 68.8 Loss on sale and curtailment of facilities 1.7 — 38.3 Other (income) expense, net — (0.8) (1.4) 5,139.8 4,506.9 4,923.3 Income from operations $ 335.0 $ 136.5 $ 72.0 (percentage of sales) Sales 100.0 % 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 82.9 % 85.4 % 86.2 % Depreciation and amortization 1.7 1.7 2.9 Selling and distribution expenses 7.8 8.4 7.3 General and administrative expenses 1.4 1.5 1.4 Loss on sale and curtailment of facilities — — 0.8 Other (income) expense, net — — — 93.9 % 97.1 % 98.6 % Income from operations 6.1 % 2.9 % 1.4 % 38 Table of Contents Sales Volumes and Prices Set forth below are historical U.S. housing starts data, segment sales volumes and average net selling prices for the principal products sold by our Wood Products segment, and sales mix and gross margin information for our Building Materials Distribution segment for the years ended December 31, 2020, 2019, and 2018. Year Ended December 31 2020 2019 2018 (thousands) U.S. Housing Starts (a) Single-family 990.1 887.7 875.8 Multi-family 389.9 402.3 374.1 1,380.0 1,290.0 1,249.9 (millions) Segment Sales Wood Products $ 1,323.9 $ 1,275.2 $ 1,533.3 Building Materials Distribution 4,952.0 4,137.7 $ 4,287.7 Intersegment eliminations (801.1) (769.5) (825.7) $ 5,474.8 $ 4,643.4 $ 4,995.3 (millions) Wood Products Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 17.3 17.9 17.7 I-joists (equivalent lineal feet) 241 227 237 Plywood (sq. ft.) (3/8" basis) 1,253 1,337 1,423 Lumber (board feet) 86 85 153 (dollars per unit) Wood Products Average Net Selling Prices LVL (cubic foot) $ 18.26 $ 18.66 $ 18.11 I-joists (1,000 equivalent lineal feet) 1,244 1,270 1,218 Plywood (1,000 sq. ft.) (3/8" basis) 347 266 351 Lumber (1,000 board feet) 612 611 588 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 46.6 % 41.7 % 48.3 % General line 35.6 % 38.2 % 33.1 % Engineered wood products 17.8 % 20.1 % 18.6 % Gross margin percentage (b) 14.0 % 12.6 % 11.3 % _______________________________________ (a) Actual U.S. housing starts as reported by the U.S. Census Bureau. (b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our Building Materials Distribution segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales. 39 Table of Contents 2020 Compared With 2019 Sales For the year ended December 31, 2020, total sales increased $831.4 million, or 18%, to $5,474.8 million from $4,643.4 million during the year ended December 31, 2019. As described below, the increase in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute. During 2020, U.S. housing starts increased 7%, with single-family starts up 12%, compared with 2019. Single-family housing starts are the primary driver of our sales volumes and typically result in higher building product utilization per start than multi-family units. For the year ended December 31, 2020, average composite lumber and average composite panel prices were 57% and 54% higher, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing. These increases in composite commodity pricing resulted in higher sales in both of our segments, as noted below. Wood Products. During the year ended December 31, 2020, sales, including sales to our BMD segment, increased $48.7 million, or 4%, to $1,323.9 million from $1,275.2 million in 2019. The increase in sales was driven primarily by higher plywood prices of 30%, resulting in increased sales of $101.0 million. In addition, higher sales volumes for I-joists of 6% resulted in increased sales of $18.1 million. These increases were offset partially by lower sales volumes for plywood and LVL of 6% and 3%, respectively, resulting in decreased sales of $22.4 million and $10.4 million, respectively. The lower volume for plywood sales reflects our continued work to optimize veneer into EWP production, as well as periodic short-term disruptions related to COVID-19. Net sales prices for LVL and I-joists each decreased 2%, resulting in decreased sales of $6.9 million and $6.2 million, respectively. In addition, other sales, including by-products, freight, and logs, decreased compared with the prior year period. Building Materials Distribution. During the year ended December 31, 2020, sales increased $814.3 million, or 20%, to $4,952.0 million from $4,137.7 million in 2019. Compared with the prior year, the overall increase in sales was driven by sales price and sales volume increases of 13% and 7%, respectively. By product line, commodity sales increased 34%, or $584.4 million, general line product sales increased 11%, or $181.7 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 6%, or $48.2 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) increased $570.3 million, or 14%, to $4,536.1 million for the year ended December 31, 2020, compared with $3,965.8 million during the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased, due to lower sales volumes, offset partially by higher per-unit costs of OSB (used in the manufacture of I-joists) of 36%, compared with 2019. Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 640 basis points, which was primarily due to higher plywood sales prices, resulting in improved leveraging of manufacturing costs, including labor and wood fiber costs. In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher commodity prices and higher sales volumes, compared with 2019. However, the BMD segment MLO rate improved 140 basis points compared with 2019 due primarily to improved gross margin percentages for our commodity product sales, driven by an increasing commodity price environment during the majority of 2020. Depreciation and amortization expenses increased $15.0 million, or 19%, to $95.2 million for the year ended December 31, 2020, compared with $80.1 million during the prior year. The increase was due primarily to recording accelerated depreciation of $15.0 million in first quarter 2020 to fully depreciate the curtailed I-joist production assets at our Roxboro, North Carolina facility. For additional information, see Note 6, Curtailment of Manufacturing Facilities, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Selling and distribution expenses increased $37.5 million, or 10%, to $428.3 million for the year ended December 31, 2020, compared with $390.7 million for the prior year. The increase was due primarily to higher employee-related expenses, mostly incentive compensation, of $34.0 million, as well as higher shipping and handling costs of $3.3 million. These increases were offset partially by lower travel and entertainment expenses of $5.7 million. General and administrative expenses increased $7.6 million, or 11%, to $78.6 million for the year ended December 31, 2020, compared with $71.1 million for the prior year. The increase was due primarily to higher employee-related expenses, mostly incentive compensation, of $11.8 million, offset partially by lower travel and entertainment expenses of $2.2 million and other discretionary expenses. 40 Table of Contents Loss on sale and curtailment of facilities of $1.7 million for the year ended December 31, 2020, represents various closure-related costs due to the permanent curtailment of I-joist production at our Roxboro, North Carolina, facility. For additional information, see Note 6, Curtailment of Manufacturing Facilities, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Income From Operations Income from operations increased $198.6 million to $335.0 million for the year ended December 31, 2020, compared with $136.5 million for the year ended December 31, 2019. Wood Products. For the year ended December 31, 2020, segment income increased $73.5 million to $127.7 million from $54.2 million for the year ended December 31, 2019. The increase in segment income was due primarily to higher plywood sales prices, as well as higher I-joist sales volumes and lower manufacturing costs. These improvements were offset partially by accelerated depreciation of $15.0 million and other closure-related costs of $1.7 million at our Roxboro, North Carolina facility, as well as lower EWP prices and higher wood fiber costs. In addition, selling and distribution expenses and general and administrative expenses increased $1.9 million and $0.6 million, respectively. Building Materials Distribution. For the year ended December 31, 2020, segment income increased $131.3 million to $247.5 million from $116.2 million for the year ended December 31, 2019. The increase in segment income was driven by a gross margin increase of $173.0 million, resulting primarily from improved gross margins on commodity products, as well as higher sales of general line products compared with 2019. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $35.7 million and $4.2 million, respectively. Corporate. Unallocated corporate expenses increased $6.2 million to $40.2 million for the year ended December 31, 2020, from $34.0 million for the year ended December 31, 2019. The increase was due primarily to higher incentive compensation and business interruption losses. As part of our self-insured risk retention program, corporate absorbed approximately $3.5 million of estimated business interruption losses at Wood Products facilities in 2020. The losses resulted from downtime at our Louisiana manufacturing facilities due to hurricanes and from a fire-related production disruption at our Chester, South Carolina, plywood plant. Other Pension expense (excluding service costs). In December 2020, we eliminated our qualified defined benefit pension plan (Pension Plan). The process of eliminating the Pension Plan included lump-sum payments made to eligible plan participants at their election and the purchase of a buy-out group annuity contract (Buy-Out) from The Prudential Insurance Company of America (Prudential), which was funded with plan assets. When the Buy-Out became effective on December 31, 2020, we irrevocably transferred to Prudential the future benefit obligations and annuity administration for all remaining plan participants (or their beneficiaries) in the Pension Plan. These transactions fully eliminated the liabilities of our Pension Plan, resulting in a non-cash settlement charge of $6.2 million in fourth quarter 2020. On September 30, 2019, we transferred $19.8 million of our Pension Plan assets to Prudential for the purchase of a group annuity contract. Under the arrangement, Prudential assumed ongoing responsibility for administration and benefit payments for approximately 10% of our U.S. qualified pension plan projected benefit obligations at the time of the transaction. As a result of the transaction, we recognized a non-cash settlement charge of $1.3 million in third quarter 2019. For additional information related to our Pension Plan, see Note 12, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Change in fair value of interest rate swaps. For information related to our interest rate swaps, see the discussion under "Disclosures of Financial Market Risks" and "Financial Instruments" included in this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K. Loss on extinguishment of debt. In connection with the issuance of the $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes), we commenced a tender offer to purchase any and all of our $350 million aggregate principal amount of 5.625% senior notes due September 1, 2024 (2024 Notes) then outstanding. On July 27, 2020, we accepted for purchase an aggregate principal amount of $212.5 million of the 2024 Notes that were tendered. On September 1, 2020, we redeemed the remaining $137.5 million in aggregate principal amount of the 2024 Notes outstanding. In connection with these transactions, we recognized a pre-tax loss on the extinguishment of debt of $14.0 million during 2020. The loss includes $10.8 million in debt extinguishment premium payments and $3.2 million for the write-off of unamortized deferred financing costs. For more 41 Table of Contents information related to our indebtedness, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. 2019 Compared With 2018 Sales For the year ended December 31, 2019, total sales decreased $351.9 million, or 7%, to $4,643.4 million from $4,995.3 million during the year ended December 31, 2018. As described below, the decline in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute. During 2019, U.S. housing starts increased 3%, with single- family starts up 1%, compared with 2018. Single-family housing starts are the primary driver of our sales volumes and typically result in higher building product utilization per start than multi-family units. For the year ended December 31, 2019, average composite panel and average composite lumber prices were 27% and 23% lower, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing. These declines in composite commodity pricing resulted in lower sales in both of our segments, as noted below. Wood Products. During the year ended December 31, 2019, sales, including sales to our BMD segment, decreased $258.1 million, or 17%, to $1,275.2 million from $1,533.3 million in 2018. The decrease in sales was driven primarily by lower sales prices and sales volumes for plywood of 24% and 6%, respectively, resulting in decreased sales of $113.1 million and $30.0 million, respectively. The lower sales volume for plywood was mostly due to weaker market conditions and downtime for facility capital improvements, as well as the sale of the Moncure plywood facility on March 1, 2019. In addition, sales volumes for I-joists decreased 4% resulting in decreased sales of $12.7 million. The decrease in sales was also attributable to lower sales volumes of lumber and particleboard of $39.5 million and $35.6 million, respectively, due to the sale or closure of three lumber mills and our particleboard plant during 2018. The remaining decreases were due primarily to lower sales volumes of byproducts and other. These decreases were offset partially by an increase in I-joists sales prices of 4% resulting in increased sales of $11.7 million. Net sales prices and sales volumes for LVL also increased 3% and 1%, respectively, resulting in increased sales of $9.8 million and $4.3 million. Building Materials Distribution. During the year ended December 31, 2019, sales decreased $150.0 million, or 3%, to $4,137.7 million from $4,287.7 million in 2018. Compared with the prior year, the overall decrease in sales was driven by a sales price decrease of 9%, offset partially by a sales volume increase of 6%. Excluding the impact of the acquisition of wholesale building material distribution locations in Nashville, Tennessee, Medford, Oregon, and Cincinnati, Ohio during 2018, and the Birmingham, Alabama acquisition in 2019 (the "BMD Acquisitions"), BMD sales would have decreased 6%. By product line, commodity sales decreased 17%, or $344.8 million, general line product sales increased 11%, or $159.1 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 4%, or $35.7 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) decreased $341.8 million, or 8%, to $3,965.8 million for the year ended December 31, 2019, compared with $4,307.6 million during the prior year. In our Wood Products segment, the decrease in materials, labor, and other operating expenses was primarily driven by lower sales volumes, as well as lower per-unit costs of OSB (used in the manufacture of I-joists) and logs of 33% and 10%, respectively, compared with 2018. However, the MLO rate in our Wood Products segment increased by 100 basis points, which was primarily due to lower plywood sales prices, resulting in decreased leveraging of labor and other manufacturing costs, offset partially by lower wood fiber costs. In BMD, the decrease in materials, labor, and other operating expenses was driven by lower purchased materials costs as a result of lower commodity prices, compared with 2018. However, the BMD segment MLO rate improved 130 basis points compared with 2018 driven primarily by a greater mix of general line sales, which have higher margins than commodity products. In addition, margin percentages for our commodity product sales improved because of a generally stable commodity pricing environment in 2019. Depreciation and amortization expenses decreased $66.7 million, or 45%, to $80.1 million for the year ended December 31, 2019, compared with $146.8 million during the prior year. The decrease was due primarily to recording accelerated depreciation of $55.0 million in fourth quarter 2018 to fully depreciate the curtailed LVL production assets at our Roxboro, North Carolina, facility. In addition, the decrease was attributed to discontinued depreciation on certain manufacturing facilities curtailed and sold in 2018, offset partially by incremental depreciation on capital expenditures. For more information on the curtailed and sold assets, see Note 6, Curtailment of Manufacturing Facilities and Note 7, Sale of Manufacturing Facilities, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. 42 Table of Contents Selling and distribution expenses increased $27.6 million, or 8%, to $390.7 million for the year ended December 31, 2019, compared with $363.1 million for the prior year. The increase was due mostly to higher employee-related expenses and shipping and handling costs of $17.9 million and $5.0 million, respectively, driven by increased sales volumes in our BMD segment, which includes the impact of the BMD Acquisitions. General and administrative expenses increased $2.3 million, or 3%, to $71.1 million for the year ended December 31, 2019, compared with $68.8 million for the prior year. The increase was due primarily to higher base compensation expenses and information technology related expenses of $2.6 million and $0.4 million, respectively, offset partially by lower professional service related expenses of $1.1 million. Loss on sale and curtailment of facilities of $38.3 million for the year ended December 31, 2018, relates to the following: • Impairment and sale related losses of $24.0 million upon classifying the Wood Products facility in Moncure, North Carolina, as held for sale (Moncure Impairment Loss) and a loss of $11.5 million related to the sale of Wood Products facilities in Northeast Oregon (NEO Impairment Loss). For additional information, related to the sale of our manufacturing facilities, see Note 7, Sale of Manufacturing Facilities, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. • Construction in progress and spare parts write-offs of $2.6 million, as well as $0.2 million of severance-related expenses, due to the permanent curtailment of LVL production at our Roxboro, North Carolina, facility. For additional information, see Note 6, Curtailment of Manufacturing Facilities, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. For the year ended December 31, 2019, other (income) expense, net, was $0.8 million of income, which primarily relates to gains on various sales of property and equipment. For the year ended December 31, 2018, other (income) expense, net, was $1.4 million of income, which primarily included a gain on the sale of property in our Wood Products segment. Income From Operations Income from operations increased $64.5 million to $136.5 million for the year ended December 31, 2019, compared with $72.0 million for the year ended December 31, 2018. Wood Products. For the year ended December 31, 2019, segment income was $54.2 million compared to a segment loss of $10.0 million for the year ended December 31, 2018. The segment loss in 2018 included $55.0 million of accelerated depreciation and $38.3 million of facility sale and curtailment related losses, discussed above. Excluding these losses, segment income decreased approximately $29 million due to lower sales prices of plywood, offset partially by lower wood fiber costs, particularly OSB (used in the manufacture of I-joists) and logs, as well as higher EWP prices. In addition, general and administrative expenses also decreased $3.6 million. Excluding the accelerated depreciation in 2018, depreciation and amortization expense decreased $14.3 million due primarily to discontinued depreciation on manufacturing facilities curtailed and sold in 2018. Building Materials Distribution. For the year ended December 31, 2019, segment income increased $3.7 million to $116.2 million from $112.5 million for the year ended December 31, 2018. The increase in segment income was driven primarily by a gross margin increase of $37.0 million, resulting from higher sales of general line products and improved gross margins on commodity products compared with 2018. The majority of the improvement in gross margins was offset by increased selling and distribution expenses and depreciation and amortization of $29.3 million and $2.5 million, respectively. Corporate. Unallocated corporate expenses increased $3.5 million to $34.0 million for the year ended December 31, 2019, from $30.5 million for the year ended December 31, 2018. The increase was primarily due to higher employee-related expenses and other professional service expenses of $2.3 million and $1.0 million, respectively. Other Pension expense (excluding service costs). On September 30, 2019, April 25, 2018, and August 10, 2018, we transferred $19.8 million, $151.8 million, and $124.8 million, respectively, of our Pension Plan assets to Prudential for the purchase of group annuity contracts. Under the arrangements, Prudential assumed ongoing responsibility for administration and benefit payments of the related transferred Pension Plan obligations. As a result of the transactions, we recognized non-cash pension settlement charges of $1.3 million and $23.3 million, respectively, for the years ended December 31, 2019 and 2018. 43 Table of Contents For additional information related to the transfer of pension plan assets, see Note 12, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Income Tax Provision For the years ended December 31, 2020, 2019, and 2018, we recorded $111.3 million, $27.3 million, and $1.6 million, respectively, of income tax expense and had an effective rate of 38.9%, 25.2%, and 7.4%, respectively. Our rate is affected by recurring items, such as state income taxes, and discrete items that may occur in any given year but are not consistent from year to year. During the year ended December 31, 2020, the primary reasons for the difference between the federal statutory income tax rate of 21% and the effective tax rate were the effect of the following: • A $38.8 million increase in income tax expense, or an effect of 13.5%, from the required release of stranded tax effects upon elimination of our Pension Plan in December 2020 (Plan Termination). For additional information related to the Plan Termination and the related release of stranded tax effects, see Note 4, Income Taxes, and Note 12, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. • A $12.3 million increase in income tax expense, or an effect of 4.3%, from state income taxes. During the year ended December 31, 2019, the primary reasons for the difference between the federal statutory income tax rate of 21% and the effective tax rate were the effect of the following: • A $4.4 million increase in income tax expense, or an effect of 4.1%, from state income taxes. • A $1.7 million increase in income tax expense, or an effect of 1.6%, from permanent differences, including meals and entertainment and nondeductible executive compensation. • A $1.3 million reduction in income tax expense, or an effect of 1.2%, from tax credits and excess tax benefits of share-based payment awards. During the year ended December 31, 2018, the primary reasons for the difference between the federal statutory income tax rate of 21% and the effective tax rate were the effect of the following: • A $3.8 million reduction in income tax expense, or an effect of 17.2%, resulting from the remeasurement of deferred income taxes to the new federal statutory rate of 21%, which mostly relates to a $20.0 million discretionary pension contribution made during 2018, for which we received a tax deduction at the 2017 federal income tax rate of 35%. • A $1.7 million reduction in income tax expense, or an effect of 7.8%, from excess tax benefits of share-based payment awards. • A $0.7 million increase in income tax expense, or an effect of 3.4%, from state income taxes. • A $1.5 million increase in income tax expense, or an effect of 6.9%, from permanent differences, including meals and entertainment and nondeductible executive compensation. Industry Mergers and Acquisitions On November 19, 2020, West Fraser Timber Co. Ltd. (West Fraser) and Norbord Inc. (Norbord) announced a definitive agreement pursuant to which West Fraser will acquire all of the shares of Norbord. The acquisition closed during the first quarter of 2021. West Fraser supplies product to our BMD segment, and Norbord is a supplier to both our Wood Products and BMD segments. We believe we have good relationships with these vendors and we do not expect the transaction to have a material impact on our future results of operations. On August 27, 2020, Builders FirstSource, Inc. (BFS) and BMC Stock Holdings (BMC) announced a definitive merger agreement. The merger closed in early January 2021. BFS and BMC are both customers of ours. We believe we have good relationships with these customers. Because this transaction closed recently, we cannot yet assess the impact, if any, this customer combination may have on our future results of operations. 44 Table of Contents Liquidity and Capital Resources We ended 2020 with $405.4 million of cash and cash equivalents and $443.8 million of long-term debt. At December 31, 2020, we had $750.6 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). Our cash and cash equivalents increased by $120.1 million during the year ended December 31, 2020, as cash provided by operations and issuances of long-term debt were offset partially by debt payments, capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards, as further discussed below. At December 31, 2020, our cash was invested in high-quality, short-term investments, which we record in "Cash and cash equivalents." The majority of our cash and cash equivalents is invested in money market funds that are broadly diversified and invested in high-quality, short-duration securities, including commercial paper, certificates of deposit, U.S. government agency securities, and similar instruments. We have significant amounts of cash and cash equivalents that are in excess of federally insured limits. Though we have not experienced any losses on our cash and cash equivalents to date and we do not anticipate incurring any losses, we cannot be assured that we will not experience losses on our short-term investments. We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, funding of acquisitions, lease obligations, working capital, and to pay cash dividends to holders of our common stock over the next 12 months. We expect to fund our seasonal and intra-month working capital requirements in 2021 from cash on hand and, if necessary, borrowings under our revolving credit facility. Consistent with our historical patterns, we expect working capital increases to use cash in the first quarter of 2021. Sources and Uses of Cash We generate cash primarily from sales of our products, as well as short-term and long-term borrowings. Our primary uses of cash are for expenses related to the manufacture and distribution of building products, including inventory purchased for resale, wood fiber, labor, energy, and glues and resins. In addition to paying for ongoing operating costs, we use cash to invest in our business, service our debt, pay dividends, repurchase our common stock, and meet our contractual obligations and commercial commitments. Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities. Year Ended December 31 2020 2019 2018 (thousands) Net cash provided by operations $ 294,516 $ 245,647 $ 163,611 Net cash used for investment (78,716) (94,065) (89,257) Net cash used for financing (95,655) (58,016) (59,823) Operating Activities 2020 Compared With 2019 In 2020, our operating activities generated $294.5 million of cash, compared with $245.6 million in 2019. The $48.9 million increase in cash provided by operations in 2020 relates primarily to the following: • A $131.3 million increase in income in our BMD segment and a $73.5 million increase in income in our Wood Products segment. See "Operating Results" above for a discussion on our results for 2020. • A $35.7 million increase in working capital during 2020, compared with a $47.4 million decrease in working capital during 2019. Working capital is subject to cyclical operating needs, seasonal buying patterns for inventory purchased for resale and logs, the timing of the collection of receivables, and the timing of payment of payables and expenses. The increase in working capital in 2020 was primarily attributable to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities. The increase in receivables in 2020 primarily reflects increased sales of approximately 55%, comparing sales for the month of December 2020 with sales for the month of December 2019. Inventories increased in 2020 primarily due to an increase in finished goods inventory in our BMD segment. However, inventories in our Wood Products segment decreased in 2020 due to strong product demand, lower log inventory, and reduced production levels as a result of periodic short-term disruptions at many 45 Table of Contents locations due to COVID-19. The decrease in working capital in 2019 was primarily attributable to decreased inventories and higher accounts payable. Inventories decreased in 2019, particularly in our BMD segment, as a result of weaker commodity pricing during the period. The increase in accounts payable and accrued liabilities in 2020 was greater than the 2019 increase, reflecting the increase in inventories as of December 31, 2020, and higher incentive compensation accruals. • A $76.5 million increase in cash paid for income taxes, net of refunds. During 2020, cash paid for taxes, net of refunds received was $75.1 million, compared to income tax refunds received, net of taxes paid of $1.4 million in 2019. The increase in cash paid for income taxes is primarily due to an increase in income from operations. • An increase in cash contributions to our pension plans of $7.5 million. During 2020, we used $12.8 million of cash to make pension contributions, compared with $5.2 million during 2019. 2019 Compared With 2018 In 2019, our operating activities generated $245.6 million of cash, compared with $163.6 million in 2018. The $82.0 million increase in cash provided by operations in 2019 relates primarily to the following: • A $47.4 million decrease in working capital during 2019, compared with a $41.7 million increase in working capital during 2018. Working capital is subject to cyclical operating needs, seasonal buying patterns for inventory purchased for resale and logs, the timing of the collection of receivables, and the timing of payment of payables and expenses. The decrease in working capital in 2019 was primarily attributable to decreased inventories and higher accounts payable. The decrease in inventories provided $40.2 million of cash during 2019, compared with a use of cash of $64.2 million in the same period a year ago. Inventories decreased during 2019 as inventory in our BMD segment did not increase at the same rate as the comparative prior year period as a result of weaker commodity pricing in 2019. In addition, inventory levels at the end of 2018 were seasonally higher than normal with slower sales in the second half of 2018 due to slower housing activity and concerns regarding further commodity price declines impacting our customers purchasing patterns. The increase in accounts payable and accrued liabilities provided $5.2 million of cash during 2019, compared with a use of cash of $14.5 million in the same period a year ago. The increase in working capital in 2018 was primarily attributable to higher inventories and a decrease in accounts payable and accrued liabilities, offset partially by a decrease in receivables. As discussed above, inventories increased in 2018 primarily due to an increase in finished goods inventory in our BMD segment. The decrease in receivables and increase in inventory in 2018 primarily reflects decreased sales of approximately 12%, comparing sales for the month of December 2018 with sales for the month of December 2017. Accounts payable and accrued liabilities decreased in 2018 primarily due to lower inventory purchases in our BMD segment in December 2018, compared with December 2017. • A decrease in cash contributions to our pension plans of $20.8 million. During 2019, we used $5.2 million of cash to make pension contributions, compared with $26.1 million during 2018. • A $15.9 million decrease in cash paid for income taxes, net of refunds. The decrease in cash paid for income taxes is primarily due to an overpayment of taxes in 2018 which was applied to 2019 tax payment requirements. • A decrease in cash generated by our Wood Products operations. Although operating income in our Wood Products segment increased $64.2 million, the 2018 results include approximately $90 million of non-cash charges including the accelerated depreciation of curtailed LVL production assets at our Roxboro, North Carolina facility, the Moncure Impairment Loss, and the NEO Impairment Loss. See "Operating Results" above for a discussion on our results for 2019 and 2018. Investment Activities Net cash used for investing activities was $78.7 million, $94.1 million, and $89.3 million during 2020, 2019, and 2018, respectively. 46 Table of Contents 2020 During the year ended December 31, 2020, we used approximately $79.4 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. Included in our 2020 capital spending is the log utilization center improvement project at our plywood and veneer facility in Florien, Louisiana, BMD's door shop expansion in Dallas, Texas, the purchase and improvement of a BMD property in Gallatin, Tennessee, that expands our service capabilities in the Nashville market, and the purchase of a previously leased BMD property in Woodinville, Washington. Purchases of property and equipment also included approximately $1 million for environmental compliance in 2020, and we expect to spend approximately $2 million in environmental compliance related spending in 2021. We expect capital expenditures in 2021 to total approximately $80 million to $90 million. We expect our capital spending in 2021 will be for business improvement and quality/efficiency projects, replacement projects, and ongoing environmental compliance. This level of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, and timing of equipment purchases. 2019 During the year ended December 31, 2019, we used approximately $82.7 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. In 2019, purchases of property and equipment included approximately $2 million for environmental compliance. In addition, we used $15.7 million for the acquisition of a wholesale building materials distribution location in Birmingham, Alabama. For the year ended December 31, 2019, we received asset sales proceeds of $2.5 million, from the sale of a hardwood plywood facility located in Moncure, North Carolina. For additional information related to the sale of our manufacturing facility and acquisition of the distribution facility, see Note 7, Sale of Manufacturing Facilities, and Note 8, Acquisitions, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. 2018 During the year ended December 31, 2018, we used approximately $80.0 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. In 2018, purchases of property and equipment included approximately $1 million for environmental compliance. In addition, we used $25.5 million for the acquisitions of three distribution locations. For the year ended December 31, 2018, we received asset sales proceeds of $15.0 million, from the sale of two lumber mills and a particleboard plant located in Northeast Oregon. For additional information related to the sale of our manufacturing facilities and acquisitions of the distribution facilities, see Note 7, Sale of Manufacturing Facilities, and Note 8, Acquisitions, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Financing Activities During 2020, our financing activities used $95.7 million of cash. On July 27, 2020, we issued $400 million of 2030 Notes. With proceeds from the 2030 Notes issuance, we retired our $350 million of 2024 Notes and paid-off our American AgCredit term loan of $45.0 million. In connection with the retirement of the 2024 Notes, we made debt extinguishment premium payments of $10.8 million. During 2020, our financing activities also used $79.2 million for common stock dividend payments, $6.2 million for financing costs related to the 2030 Notes, and $3.3 million of tax withholding payments on stock-based awards. See "Dividends on Common Stock" below for further discussion of common stock dividend payments. During 2020, we did not borrow under our revolving credit facility, and therefore have no borrowings outstanding on the facility as of December 31, 2020. On March 13, 2020, we negotiated an extension of our $350 million revolving credit agreement and our related $50 million term loan. As of December 31, 2020, we have no debt maturities prior to 2025. 47 Table of Contents During 2019, our financing activities used $58.0 million of cash, including $54.0 million for common stock dividend payments and $3.6 million of tax withholding payments on stock-based awards. During 2019, we borrowed $5.5 million under our revolving credit facility to fund intra-month working capital needs, which were subsequently repaid during the same period with cash on hand. At December 31, 2019, we had no borrowings outstanding under the revolving credit facility. During 2018, our financing activities used $59.8 million of cash, including $50.6 million for common stock dividend payments, $5.1 million of tax withholding payments on stock-based awards, and $4.9 million for the repurchase of common stock. During 2018, we borrowed $7.5 million under our revolving credit facility to fund intra-month working capital needs, which were subsequently repaid during the same period with cash on hand. At December 31, 2018, we had no borrowings outstanding under the revolving credit facility. Debt Structure For information related to our debt transactions and debt structure, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Dividends on Common Stock On November 14, 2017, our board of directors approved a dividend policy to pay quarterly cash dividends to holders of our common stock. Future quarterly dividend declarations, including amount per share, record date and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, contractual obligations, restrictions imposed by our asset-based credit facility and the indenture governing our senior notes, applicable laws, and other factors that our board of directors may deem relevant. For a description of the restrictions in our asset-based credit facility and the indenture governing our senior notes on our ability to pay dividends, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. The dividend policy may be suspended or canceled at the discretion of the board of directors at any time. For more information regarding our dividend declarations and payments made during 2020, 2019, and 2018, see Note 14, Stockholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Stock Repurchase Program For information related to our stock repurchases, see Note 14, Stockholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. 48 Table of Contents Contractual Obligations In the table below, we set forth our contractual obligations as of December 31, 2020. Some of the amounts included in the table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. Purchase orders made in the ordinary course of business are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities. Payments Due by Period 2021 2022-2023 2024-2025 Thereafter Total (millions) Long-term debt (a) $ — $ — $ 50.0 $ 400.0 $ 450.0 Interest (b) 20.0 39.9 39.6 97.5 197.0 Operating leases (c) 13.6 25.1 20.6 25.5 84.9 Finance leases (c) 3.9 7.9 7.6 37.8 57.2 Purchase obligations Raw materials (d) 41.6 75.1 49.0 48.7 214.4 Other 3.2 2.3 0.2 — 5.7 Other long-term liabilities reflected on our Balance Sheet (e) Compensation and benefits, including pension funding obligations (f) 7.9 4.2 4.2 15.9 32.2 Other 2.9 3.7 1.8 6.8 15.2 $ 93.1 $ 158.2 $ 173.0 $ 632.2 $ 1,056.6 _______________________________________ (a) These borrowings are further explained in Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. The table assumes our long-term debt is held to maturity. (b) Amounts represent estimated interest payments on the 2030 Notes and ABL Term Loan as of December 31, 2020, assuming these instruments are held to maturity. Unused commitment fees and letter of credit fees payable under the Revolving Credit Facility are excluded from the table above. In addition, we have excluded our interest rate swaps from interest in the table above. For information regarding average pay rates and average receive rates on our interest rate swaps, see "Financial Instruments" included in this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K. (c) We enter into operating and finance leases in the normal course of business. We lease a portion of our distribution centers as well as other property and equipment under operating and finance leases. Some lease agreements provide us with the option to renew the lease or purchase the leased property. The lease term includes any renewal option periods we are reasonably certain of exercising. Our operating and finance lease obligations could change based on whether we actually exercise these renewal options and/or if we entered into additional lease agreements. Amounts exclude the minimum lease commitment for leases signed but not yet commenced as of December 31, 2020 of $7.3 million. For more information, see Note 11, Leases, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. (d) Amounts represent contracts to purchase approximately $214 million of logs, approximately $35 million of which will be purchased pursuant to fixed-price contracts and approximately $179 million of which will be purchased pursuant to variable-price contracts. The $179 million is estimated using current contractual index pricing, but actual prices depend on future market prices. Under certain log agreements, we have the right to cancel or reduce our commitments in the event of a mill curtailment or shutdown. Future purchase prices under most of the variable-price agreements will be set quarterly or semiannually based on regional market prices. Our log requirements and our access to supply, as well as the cost of obtaining logs, are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log availability, and the status of environmental appeals. Except for deposits required pursuant to log supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. (e) Long-term deferred income tax liabilities and unrecognized tax benefits are excluded from this table, because the timing of future cash outflows related to these items are uncertain. For more information, see Note 4, Income Taxes, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. (f) Amounts consist of our non-qualified pension and deferred compensation liabilities, including the current portion of those obligations of $6.3 million. 49 Table of Contents Off-Balance Sheet Arrangements At December 31, 2020 and 2019, we had no material off-balance sheet arrangements with unconsolidated entities. Guarantees Note 10, Debt, and Note 18, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K describe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make. Seasonal Influences We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing starts, repair-and-remodeling activities, and light commercial construction activities. We typically report lower sales volumes in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales volumes in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. We typically have higher working capital in the first and second quarters in preparation and response to the building season. Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities. Disclosures of Financial Market Risks In the normal course of business, we are exposed to financial risks such as changes in commodity prices, interest rates, and foreign currency exchange rates. In 2020, 2019, and 2018, we did not use derivative instruments to manage these risks, except for interest rate swaps as discussed below. Commodity Price Risk Many of the products we manufacture or purchase and resell and some of our key production inputs are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are primarily affected by various economic and industry factors, including the strength of the U.S. housing market, net import and export activity, changes in or disruptions to industry production capacity, changes in inventory levels, and other factors beyond our control. For further discussion of commodity price risk, refer to "Item 1A. Risk Factors" of this Form 10-K and "Factors That Affect Our Operating Results and Trends" in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Interest Rate Risk We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR on our term loan and when we have loan amounts outstanding on our Revolving Credit Facility. At December 31, 2020, we had $50.0 million of variable-rate debt outstanding based on one-month LIBOR after the pay-off of our $45.0 million term loan in July 2020, described in Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. During the year ended December 31, 2020, we liquidated our interest rate swap agreements with notional principal amounts of $45.0 million in conjunction with the pay-off of the $45.0 million term loan. Our objective is to limit the variability of interest payments on our debt. To meet this objective, we enter into receive-variable, pay-fixed interest rate swaps to change the variable-rate cash flow exposure to fixed-rate cash flows. In accordance with our risk management strategy, we actively monitor our interest rate exposure and use derivative instruments from time to time to manage the related risk. We do not speculate using derivative instruments. 50 Table of Contents At December 31, 2020, we had two interest rate swap agreements. Under the interest rate swaps, we receive one-month LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $50.0 million of variable rate debt exposure. Payments on one interest rate swap, entered into in 2016, with a notional principal amount of $50.0 million is due on a monthly basis at an annual fixed rate of 1.007% and expires in February 2022 (Initial Swap). During second quarter 2020, we entered into another forward interest rate swap agreement which commences on the expiration date of the Initial Swap. Payments on this interest rate swap with a notional principal amount of $50.0 million will be due on a monthly basis at an annual fixed rate of 0.39% and expires in June 2025. The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income. At December 31, 2020, we recorded a long-term liability of $0.6 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. At December 31, 2019, we recorded a long-term asset of $0.8 million in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. Foreign Currency Risk We have sales in countries outside the U.S. As a result, we are exposed to movements in foreign currency exchange rates, primarily in Canada, but we do not believe our exposure to currency fluctuations is significant. Financial Instruments The table below provides information as of December 31, 2020, about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. For obligations with variable interest rate sensitivity, the table sets forth payout amounts based on December 31, 2020 rates and does not attempt to project future rates. December 31, 2020 2021 2022 2023 2024 2025 There- after Total Fair Value (b) (millions, other than percentages) Long-term debt Fixed-rate debt payments (a) Senior Notes $ — $ — $ — $ — $ — $ 400.0 $ 400.0 $ 432.0 Average interest rates — — — — — 4.875 % 4.875 % — Variable-rate debt payments (a) Term Loan $ — $ — $ — $ — $ 50.0 $ — $ 50.0 $ 50.0 Average interest rates — — — — 0.9 % — 0.9 % — _______________________________________ (a) These obligations are further explained in Note 10, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. The table assumes our long-term debt is held to maturity. (b) We estimated the fair value using quoted market prices of our debt in inactive markets. 51 Table of Contents The table below provides information as of December 31, 2020, about our interest rate swaps. For information on interest rate swaps, see Interest Rate Risk and Interest Rate Swaps of Note 16, Financial Instrument Risk, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. The following is information about the notional amount and interest rate by contractual maturity date for our interest rate swap agreements, as well as the fair value of the asset at December 31, 2020: December 31, 2020 2021 2022 2023 2024 2025 There- after Total Fair Value (millions, other than percentages) Interest rate swaps Variable to fixed notional amount (a) $ — $ 50.0 $ — $ — $ 50.0 $ — $ 50.0 $ (0.6) Average pay rate (b) — 1.0 % — — 0.4 % — 0.7 % — Average receive rate (c) — 0.2 % — — 0.2 % — 0.2 % — _______________________________________ (a) We have one interest rate swap with a notional principal amount of $50.0 million that expires in February 2022 (Initial Swap). Another forward interest rate swap agreement commences on the expiration date of the Initial Swap and expires in June 2025. (b) Represents the weighted average actual fixed interest rate payable on our interest rate swaps. (c) Represents the weighted average variable interest rate receivable on our interest rate swaps at December 31, 2020. Environmental We are subject to a wide range of general and industry-specific environmental laws and regulations. In particular, we are affected by laws and regulations covering air emissions, wastewater discharges, solid and hazardous waste management, and site remediation. Compliance with these laws and regulations is a significant factor in the operation of our businesses. We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to assure that we are operating within the bounds of regulatory requirements. However, we cannot guarantee that we will be in compliance with environmental requirements at all times, and we cannot guarantee that we will not incur fines and penalties in the future. In 2020, we paid an insignificant amount in environmental fines and penalties. We incur capital and operating expenditures to comply with federal, state, and local environmental laws and regulations. Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions. Our failure to comply could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions. During 2020 and 2019, we spent approximately $1 million and $2 million, respectively, on capital expenditures to comply with environmental requirements. We expect to spend approximately $2 million in 2021 for this purpose. As an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. We may also be contractually obligated to indemnify third parties under environmental laws for the cleanup of past spills and releases of hazardous or toxic substances for properties which we no longer own and operate. We could be found liable under these laws whether or not we knew of, or were responsible for, the presence of such substances. In some cases, this liability may exceed the value of the property itself. In connection with prior transactions, certain third parties are generally obligated to indemnify us for hazardous substance releases and other environmental violations that occurred prior to such transactions. However, these third parties may not have sufficient funds to fully satisfy their indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by them. Climate Change In recent years, various legislative and regulatory proposals to restrict emissions of greenhouse gases (GHG), such as CO2, have been under consideration in state legislative bodies and the Environmental Protection Agency (EPA). These proposals have included regulations to reduce GHG emissions from new and existing electric utilities, which may result in increased electricity and natural gas costs to our businesses. There are currently no specific regulations that require our wood 52 Table of Contents products plants to reduce GHG emissions, and the current EPA administration has not announced plans to develop such federal regulations. States are taking various positions on climate change regulation. For example, Oregon and Washington are considering legislation and/or regulations to reduce GHG emissions that may impact our operations by increasing natural gas, transportation fuel, and/or electricity costs. Our manufacturing operations in these states derive a significant amount of their energy from biomass, although neither state currently plans to regulate biogenic CO2 emissions. We are not aware of any plans to regulate GHG emissions by other states in which we have manufacturing operations. However, there are on going efforts by various other organizations to encourage and/or require companies to calculate, report, and reduce their carbon footprint. Furthermore, our customers may impose carbon footprint standards on their vendors, which may require us to incur additional costs associated with the evaluation and reduction of GHGs. Given the high degree of uncertainty about the ultimate parameters of any GHG regulatory initiatives, it is premature to make any prediction concerning such impacts. Other Regulatory Initiatives From time to time, legislative bodies and environmental regulatory agencies may promulgate new regulatory programs imposing significant incremental operating costs or capital costs on us. In 2016, our facilities began complying with the final Boiler Maximum Achievable Control Technology (MACT) regulations, which regulate emissions of hazardous air pollutants from industrial boilers and process heaters. Following litigation of the standards, in 2020 the EPA proposed more stringent MACT emission standards for several types of boilers, including boilers common to our facilities. The EPA has not finalized those standards and therefore, remain subject to change. We expect our facilities will meet the proposed limits, although certain of our boilers may yet require additional improvements to ensure compliance. We continue to monitor and evaluate the EPA’s revisions to the Boiler MACT emission limits. Some of our wood products facilities are subject to the Plywood and Composite Wood Products (PCWP) MACT standards for hazardous air pollutants, and they have complied with these standards since 2007 or 2008. In 2020, the EPA completed the Risk and Technology Review (RTR) for PCWP MACT standards. The EPA published the PCWP MACT RTR Rule on August 13, 2020, which concluded additional controls were not required for PCWP sources. However, the RTR Rule did not address certain remanded sources, including plywood presses, lumber kilns, and various other emission sources at wood products manufacturing mills. Furthermore, soon after publication of the RTR Rule, an environmental organization filed a petition for reconsideration which the EPA has granted. The EPA expects to begin working on the reconsideration and the remanded sources in 2021, but it may take the EPA two to three years to complete a final rule. It is expected that manufacturing facilities subject to the PCWP MACT standards would have three years after rule promulgation to comply with the revised rule. At this time we are unable to predict the impact to our business due to the potential revisions to this rule. The Oregon Department of Environmental Quality (ODEQ) Cleaner Air Oregon (CAO) rules regulate toxic air emissions from manufacturing facilities located in Oregon. The rules are risk-based, and in March 2019, the ODEQ released their prioritization list establishing which facilities within the state likely pose the greatest risk to their communities based on emissions inventories that facilities submitted to the ODEQ. The ODEQ established four risk groups. None of our mills were identified in the first tier risk group, although our Medford plywood mill was identified in the second tier group. The second group is expected to be selected into the program in 2021 or 2022. Our other mills were identified in the third and fourth tier groups and will likely be selected several years from now. When selected into the program, the facilities may incur expenses to evaluate the risk to the public and may be required to incur additional operating or capital expenditures to mitigate any significant risk. We are developing a strategy for our Medford plywood mill but cannot predict the impact on that operation at this time. Furthermore, the ODEQ is currently considering revisions to the CAO rules and released draft rules on January 20, 2021. Although we are still evaluating effect of the draft rules on our business, we may be required to incur additional costs and/or accelerate the timing of compliance by our facilities. The Regional Haze Rule, promulgated by the EPA, sets standards for visual air clarity in "Federal Class I" areas such as national parks and wilderness areas. In 2020, the ODEQ required our Medford and Elgin plywood mills to submit a cost/benefit analysis of emission controls that would reduce pollution at the mills associated with regional haze. In January 2021 both facilities received a preliminary determination from the ODEQ that additional controls would “likely” be required for the facilities’ boilers. We are currently evaluating the preliminary determination from the ODEQ and assessing the need for additional emission controls. Other At our Elgin plywood facility, our ongoing ability to use waste and storm water has been modified by the ODEQ. The new constraints create uncertainty around the future operations at the site. In late 2020, we reduced our purchases of logs for the 53 Table of Contents Elgin operation considering the uncertainty created by the change in environmental constraints. As a result, we expect to operate with rolling curtailments in the first half of 2021, as we manage environmental permits, log supply availability, operating costs, and other factors influencing operations. Critical Accounting Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Actual results could differ from these estimates. We believe that the accounting estimates discussed below represent the accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results. We reviewed the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. Our current critical accounting estimates are as follows: EWP Rebates and Allowances We provide EWP rebates at various stages of the supply chain (including distributors, retail lumberyards, and homebuilders) as a means to increase sales. EWP rebates are based on the volume of purchases (measured in dollars or units), among other factors such as customer loyalty, conversion, and commitment incentives, as well as temporary protection from price increases. EWP rebate estimates are based on the expected amount to be paid and are recorded as a decrease in "Sales" as revenue is recognized. The estimate of EWP rebates is inherently difficult due to the time lag of information and it is challenging to estimate sales subject to rebate as the products transition beyond our wholesale customers and through the supply chain to homebuilders. In addition, some EWP rebate accruals are estimated based on achievement of tiered sales levels, which require management to forecast sales throughout the supply chain, using incentive terms that vary at each level. Information that we consider when estimating sales activity at retail lumberyards and homebuilders includes historical sales information, sales projections, publicly available information of housing starts by homebuilder, residential development audits, and economic forecasts of new residential construction, among other economic data. We update these forecasts on a regular basis. We adjust our estimate of revenue at the earlier of the time when the probability of EWP rebates paid changes or the time when the amounts of rebates become fixed. Because of the complexity of some of these rebates, the ultimate resolution may result in payments that are materially different from our current estimate of EWP rebates payable. At December 31, 2020 and 2019, we had $40.7 million and $37.3 million, respectively, of EWP rebates payable recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. Long-Lived Asset Impairment We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable (triggering event). No triggering event was identified during the year ended December 31, 2020. An impairment of a long-lived asset exists when the carrying value is not recoverable through future undiscounted cash flows from operations and when the carrying value of an asset or asset group exceeds its fair value. To the extent a triggering event is identified, we would be required to estimate the fair value of an asset or asset group, and long-lived asset impairment would become a critical accounting estimate. We estimate the fair value of an asset or asset group based on quoted market prices for similar assets (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available (Level 2 measurement) or the expected proceeds from the sale of the assets (Level 3 measurement). When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement). To measure future cash flows, we are required to make assumptions about future sales volumes, future product pricing, and future expenses to be incurred. Estimates of future cash flows may change based on overall economic conditions, the cost and availability of wood fiber, environmental requirements, capital spending, and other strategic management decisions. Future events or circumstances such as sustained negative economic impact of the COVID-19 pandemic, declines in single-family housing starts, environmental regulations or restrictions, sustained periods of weak commodity prices, loss of key customers, capacity additions by competitors, changes in the competitive position of our products, or changes in raw materials or manufacturing costs that lead us to believe the long-lived asset will no longer provide a sufficient return on investment, could prompt decisions to invest capital differently than expected, sell facilities, or to curtail operations. Any of these factors, among others, could result in non-cash impairment or accelerated depreciation charges in the future with respect to long-lived assets, which could have a material impact on our results of operations in the period in which an impairment is recognized. Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets and the effects of changes 54 Table of Contents on these valuations, the timing, precision, and reliability of our estimates are subject to uncertainty. As additional information becomes known, we may change our estimates. New and Recently Adopted Accounting Standards For information related to new and recently adopted accounting standards, see "New and Recently Adopted Accounting Standards" in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in this Form 10-K.