BOISE CASCADE Co 10-Q

ITEM 2. 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 in "Item 1. Financial Statements" of this Form 10-Q, as well as our 2020 Form 10-K. The following discussion includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements include, without limitation, any statement that may predict, indicate, or imply future results, performance, or achievements and may contain the words "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" in our 2020 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). We do not assume an obligation to update any forward-looking statement. Our future actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Background Boise Cascade Company is a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries. Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor. 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. Demand for the products we manufacture, as well as the products we purchase and distribute, is closely correlated with new residential construction in the U.S. To a lesser extent, demand for our products correlates with residential repair-and-remodeling activity and light commercial construction. For more information, see Note 12, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Executive Overview We recorded income from operations of $205.3 million during the three months ended March 31, 2021, compared with income from operations of $25.5 million during the three months ended March 31, 2020. In our Wood Products segment, income increased $93.3 million to $97.1 million for the three months ended March 31, 2021, from $3.8 million for the three months ended March 31, 2020, due primarily to higher plywood, lumber and EWP sales prices, higher I-joists sales volumes, and lower depreciation and amortization expense, offset partially by higher wood fiber and other manufacturing costs. In our Building Materials Distribution segment, income increased $90.9 million to $120.2 million for the three months ended March 31, 2021, from $29.3 million for the three months ended March 31, 2020, driven by a gross margin increase of $115.3 million, resulting primarily from improved sales volumes and gross margins on substantially all products lines, particularly commodity products, compared with first quarter 2020. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $20.5 million and $3.4 million, respectively. These changes are discussed further in "Our Operating Results" below. We ended first quarter 2021 with $457.0 million of cash and cash equivalents and $345.3 million of undrawn committed bank line availability, for total available liquidity of $802.3 million. We had $444.0 million of outstanding debt at March 31, 2021. We generated $51.6 million of cash during the three months ended March 31, 2021, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards. A further description of our cash sources and uses for the three month comparative periods are discussed in "Liquidity and Capital Resources" below. As both a manufacturer and a distributor, our first quarter 2021 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in the same period last year. The momentum of robust construction activity experienced in the latter half of 2020 continued throughout first quarter 2021, with stronger than typical demand during the winter months. Across commodity product lines, product demand in the first quarter exceeded supply, and certain producers also struggled with production due to raw material constraints or winter storms, causing significant increases in commodity 22 Table of Contents products prices. While not subject to the significant price fluctuations of commodity products, demand also exceeded supply for many of the general line and EWP products distributed by BMD. Our BMD warehouse sales were strong throughout the first quarter as our retail lumberyard customers relied on our broad base of inventory and high service levels to minimize their working capital investment given 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. Wood Products continues to experience periodic short-term disruptions at many locations due to COVID-19 as we continue efforts to increase production rates 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 or weather impacts geographies across the U.S. to differing degrees. Furthermore, supply side constraints across product lines and lean inventories throughout the supply chain have limited the industry's ability to meet underlying demand. 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 and into next year. Furthermore, with homeowners spending more time at home, repair and remodel spending may remain elevated as homeowners invest in existing homes. As of April 2021, the Blue Chip Economic Indicators consensus forecast for 2021 and 2022 single- and multi-family housing starts in the U.S. were 1.55 million and 1.54 million units, respectively, compared with actual housing starts of 1.38 million in 2020, 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, supply induced constraints on residential construction and repair-and-remodeling activity may continue to extend build times and limit activity. Strong demand when coupled with capacity constraints in first quarter 2021 created supply/demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. Future commodity product pricing will be dependent on the impact of COVID-19 on residential construction, capacity restoration and industry operating rates, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns. 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 the following: • the duration and magnitude of impacts of the COVID-19 pandemic; • the commodity nature of our products and their price movements, which are driven largely by industry capacity and operating rates, industry cycles that affect supply and demand, and net import and export activity; • general economic conditions, including but not limited to housing starts, repair-and-remodeling activity, light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, household formation rates, prospective home buyers' access to and cost of financing, and housing affordability, that ultimately affect demand for our products; • the highly competitive nature of our industry; • disruptions to information systems used to process and store customer, employee, and vendor information, as well as the technology that manages our operations and other business processes; • material disruptions and/or major equipment failure at our manufacturing facilities; • concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers; 23 Table of Contents • product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers; • labor disruptions, shortages of skilled and technical labor, or increased labor costs; • the need to successfully formulate and implement succession plans for key members of our management team; • impairment of our long-lived assets, goodwill, and/or intangible assets; • cost and availability of raw materials, including wood fiber and glues and resins; • cost of compliance with government regulations, in particular environmental regulations; • our ability to successfully and efficiently complete and integrate acquisitions; • declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions; • substantial ongoing capital investment costs, including those associated with acquisitions, and the difficulty in offsetting fixed costs related to those investments; • the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials; • exposure to product liability, product warranty, casualty, construction defect, and other claims; • our indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs; • restrictive covenants contained in our debt agreements; • fluctuations in the market for our equity; and • the other factors described in "Item 1A. Risk Factors" in our 2020 Form 10-K. 24 Table of Contents Our Operating Results The following tables set forth our operating results in dollars and as a percentage of sales for the three months ended March 31, 2021 and 2020: Three Months Ended March 31 2021 2020 (millions) Sales $ 1,821.3 $ 1,170.5 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,450.4 992.3 Depreciation and amortization 19.5 35.3 Selling and distribution expenses 120.9 99.5 General and administrative expenses 25.3 16.1 Loss on curtailment of facility — 1.7 Other (income) expense, net (0.1) 0.2 1,616.1 1,145.0 Income from operations $ 205.3 $ 25.5 (percentage of sales) Sales 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 79.6 % 84.8 % Depreciation and amortization 1.1 3.0 Selling and distribution expenses 6.6 8.5 General and administrative expenses 1.4 1.4 Loss on curtailment of facility — 0.1 Other (income) expense, net — — 88.7 % 97.8 % Income from operations 11.3 % 2.2 % 25 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 three months ended March 31, 2021 and 2020. Three Months Ended March 31 2021 2020 (thousands) U.S. Housing Starts (a) Single-family 256.5 214.4 Multi-family 106.2 114.8 362.7 329.2 (thousands) Segment Sales Wood Products $ 432,335 $ 320,061 Building Materials Distribution 1,634,777 1,049,997 Intersegment eliminations (245,796) (199,524) Total sales $ 1,821,316 $ 1,170,534 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 4.4 4.7 I-joists (equivalent lineal feet) 72 59 Plywood (sq. ft.) (3/8" basis) 303 318 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 19.00 $ 18.50 I-joists (1,000 equivalent lineal feet) 1,319 1,276 Plywood (1,000 sq. ft.) (3/8" basis) 556 267 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 55.4 % 41.9 % General line 28.9 % 37.9 % Engineered wood 15.7 % 20.2 % Gross margin percentage (b) 15.1 % 12.6 % _______________________________________ (a) Actual U.S. housing starts data 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. 26 Table of Contents Sales For the three months ended March 31, 2021, total sales increased $650.8 million, or 56%, to $1,821.3 million from $1,170.5 million during the three months ended March 31, 2020. As described below, the increase in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver of our sales. In first quarter 2021, U.S. housing starts increased 10%, with single-family starts up 20% from the same period in 2020. Average composite panel and average composite lumber prices for the three months ended March 31, 2021, were 151% and 143% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing. Wood Products. Sales, including sales to our BMD segment, increased $112.3 million, or 35%, to $432.3 million for the three months ended March 31, 2021, from $320.1 million for the three months ended March 31, 2020. The increase in sales was driven primarily by higher plywood prices of 108%, resulting in increased sales of $87.6 million. Plywood demand in the first quarter far outpaced industry production levels, driving the favorable pricing. Higher sales volumes for I-joists of 20% resulted in increased sales of $15.4 million and higher sales prices for lumber of 88% resulted in increased sales of $8.8 million. In addition, sales prices for I-joists and LVL each increased 3%, resulting in increased sales of $3.1 million and $2.2 million, respectively. These increases were offset partially by lower sales volumes for LVL and plywood of 7% and 5%, respectively, resulting in decreased sales of $5.8 million and $3.9 million, respectively. The lower volume for plywood sales reflects our continued work to optimize veneer into EWP production, as well as rolling curtailments at our Elgin plywood facility as we manage environmental permits and log supply availability, periodic short-term disruptions related to COVID-19, and a significant winter storm in Louisiana during February 2021. Building Materials Distribution. Sales increased $584.8 million, or 56%, to $1,634.8 million for the three months ended March 31, 2021, from $1,050.0 million for the three months ended March 31, 2020. Compared with the same quarter in the prior year, the overall increase in sales was driven by sales volume and sales price increases of 34% and 22%, respectively. By product line, commodity sales increased 106%, or $465.9 million; general line product sales increased 19%, or $75.4 million; and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 21%, or $43.5 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) increased $458.2 million, or 46%, to $1,450.4 million for the three months ended March 31, 2021, compared with $992.3 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 42% and 11%, compared with first quarter 2020. However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 1,420 basis points, which was primarily due to higher plywood sales prices, resulting in improved leveraging of wood fiber costs, labor costs, and other manufacturing costs. In BMD, materials, labor, and other operating expenses increased, driven by higher purchased materials costs as a result of higher sales volumes and higher commodity prices, compared with first quarter 2020. However, the BMD segment MLO rate improved 250 basis points compared with the first quarter 2020 due primarily to improved sales volumes and gross margin percentages for substantially all product lines, particularly commodity product sales, driven by an increasing commodity price environment during first quarter 2021. Depreciation and amortization expenses decreased $15.8 million, or 45%, to $19.5 million for the three months ended March 31, 2021, compared with $35.3 million during the same period in the prior year, 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 5, Curtailment of Manufacturing Facility, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Selling and distribution expenses increased $21.5 million, or 22%, to $120.9 million for the three months ended March 31, 2021, compared with $99.5 million during the same period in the prior year, due primarily to higher employee-related expenses of $21.6 million, most of which relates to incentive compensation, as well as higher shipping and handling costs of $2.2 million. These increases were offset partially by lower travel and entertainment expenses of $1.7 million. General and administrative expenses increased $9.2 million, or 57%, to $25.3 million for the three months ended March 31, 2021, compared with $16.1 million for the same period in the prior year. The increase was primarily a result of higher employee-related expenses of $9.8 million, most of which relates to incentive compensation, offset partially by lower travel and entertainment expenses. 27 Table of Contents For the three months ended March 31, 2020, loss on curtailment of facility was $1.7 million, representing various closure-related costs from the permanent curtailment of I-joist production at our Roxboro, North Carolina facility. For additional information, see Note 5, Curtailment of Manufacturing Facility, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Income From Operations Income from operations increased $179.7 million to $205.3 million for the three months ended March 31, 2021, compared with $25.5 million for the three months ended March 31, 2020. Wood Products. Segment income increased $93.3 million to $97.1 million for the three months ended March 31, 2021, compared with $3.8 million for the three months ended March 31, 2020. The increase in segment income was due primarily to higher plywood, lumber and EWP sales prices, as well as higher I-joists sales volumes. In addition, first quarter 2020 results included accelerated depreciation and amortization expense and loss on curtailment of facility of $15.0 million and $1.7 million, respectively, related to the permanent curtailment of I-joist production at our Roxboro, North Carolina facility. These increases in segment income were offset partially by higher wood fiber and other manufacturing costs. In addition, selling and distribution expenses and general and administrative expenses increased $1.0 million and $1.3 million, respectively. Building Materials Distribution. Segment income increased $90.9 million to $120.2 million for the three months ended March 31, 2021, from $29.3 million for the three months ended March 31, 2020. The increase in segment income was driven by a gross margin increase of $115.3 million, resulting primarily from improved sales volumes and gross margins on substantially all product lines, particularly commodity products, compared with first quarter 2020. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $20.5 million and $3.4 million, respectively. Corporate. Unallocated corporate expenses increased $4.5 million to $12.0 million for the three months ended March 31, 2021, from $7.5 million for the same period in the prior year. The increase was due primarily to higher employee-related expenses, most of which relates to incentive compensation. Other Change in fair value of interest rate swaps. For information related to our interest rate swaps, see the discussion under "Interest Rate Risk and Interest Rate Swaps" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Income Tax Provision For the three months ended March 31, 2021 and 2020, we recorded $51.4 million and $4.0 million, respectively, of income tax expense and had an effective rate of 25.6% and 24.7%, respectively. During the three months ended March 31, 2021, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes. During the three months ended March 31, 2020, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes, offset by excess tax benefits of vested share-based payment awards and accounting for the tax impact of the CARES Act. 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 would 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 a good relationship with this vendor 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. Prior to the merger, BFS and BMC were both customers of ours. We believe we have a good relationship with the combined company and we do not expect the transaction to have a material impact on our future results of operations. The merger resulted in the combined company accounting for 17 % of total receivables as of March 31, 2021. 28 Table of Contents Liquidity and Capital Resources We ended first quarter 2021 with $457.0 million of cash and cash equivalents and $444.0 million of debt. At March 31, 2021, we had $802.3 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). We generated $51.6 million of cash during the three months ended March 31, 2021, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards. Further descriptions of our cash sources and uses for the three month comparative periods are noted below. 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, lease obligations, working capital, income tax payments, 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. We also estimate remitting between $130 million and $150 million of income tax payments during second quarter 2021 as we extend 2020 income tax filings and pay estimated payments on 2021 income. 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. Three Months Ended March 31 2021 2020 (thousands) Net cash provided by (used for) operations $ 72,251 $ (42,467) Net cash used for investment (13,165) (18,460) Net cash used for financing (7,486) (9,318) Operating Activities For the three months ended March 31, 2021, our operating activities generated $72.3 million of cash, compared with $42.5 million of cash used in the same period in 2020. The $114.7 million increase in cash provided by operations was due primarily to an improvement in income from operations. See "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for more information related to factors affecting our operating results. In addition, cash paid for taxes, net of refunds received, decreased $4.2 million, compared to the prior year. Income taxes payable increased $52.6 million during the three months ended March 31, 2021, compared with a decrease of $2.1 million during the same period last year, resulting from the significant improvement in income from operations in first quarter 2021. These increases in cash were offset partially by an increase in working capital of $147.4 million during the three months ended March 31, 2021, compared with a $94.9 million increase for the same period in the prior year. The change in working capital in both periods was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities. The increases in receivables in both periods primarily reflect increased sales of approximately 46% and 29%, comparing sales for the months of March 2021 and 2020 with sales for the months of December 2020 and 2019, respectively. The increase in accounts payable and accrued liabilities provided $125.1 million of cash during the three months ended March 31, 2021, compared with $55.6 million in the same period a year ago. During both periods, seasonal increases in inventory in preparation for the spring building season and extended terms offered by major vendors to our Building Materials Distribution segment led to the increase in accounts payable. This increase in accounts payable was offset partially by decreases in accrued liabilities, most notably annual employee incentive compensation payouts made during both periods. 29 Table of Contents Investment Activities During the three months ended March 31, 2021 and 2020, we used $13.3 million and $18.6 million, respectively, of cash for purchases of property and equipment, including business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. We expect capital expenditures in 2021 to total approximately $90 million to $100 million. We expect our capital spending in 2021 will be for business improvement and quality/efficiency projects, replacement projects, and ongoing environmental compliance. Included in our capital spending range is the completion of a log utilization center project at our Florien plywood and veneer plant, a new door assembly operation in Houston, and expansion of our distribution capabilities in the Nashville market. 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, availability of engineering and construction resources, and timing and availability of equipment purchases. Financing Activities During the three months ended March 31, 2021, our financing activities used $7.5 million of cash, including $4.4 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards. During the three months ended March 31, 2021, we did not borrow under our revolving credit facility, and therefore have no borrowings outstanding on the facility as of March 31, 2021. During the three months ended March 31, 2020, our financing activities used $9.3 million of cash, including $4.6 million for common stock dividend payments and $3.3 million of tax withholding payments on stock-based awards. During the three months ended March 31, 2020, we did not borrow under our revolving credit facility. Future 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 more information related to our debt transactions and structure, and our dividend policy, see the discussion in Note 6, Debt, and Note 10, Stockholders' Equity, respectively, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Contractual Obligations For information about contractual obligations, see Contractual Obligations in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. As of March 31, 2021, there have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2020. Off-Balance-Sheet Activities At March 31, 2021, and December 31, 2020, 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" in our 2020 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. As of March 31, 2021, there have been no material changes to the guarantees disclosed in our 2020 Form 10-K. 30 Table of Contents 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. Employees As of May 2, 2021, we had approximately 6,060 employees. Approximately 23% of these employees work pursuant to collective bargaining agreements. As of May 2, 2021, we had ten collective bargaining agreements. Two agreements covering approximately 760 employees at our Oakdale and Florien plywood plants are set to expire on July 15, 2021. If any of these agreements are not renewed or extended upon their termination, we could experience a material labor disruption, strike, or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise. Labor disruptions or shortages could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. 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. As of March 31, 2021, there have been no material changes to financial market risks disclosed in our 2020 Form 10-K. Environmental As of March 31, 2021, there have been no material changes to environmental issues disclosed in our 2020 Form 10-K. For additional information, see Environmental in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. Critical Accounting Estimates Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. At March 31, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 Form 10-K. 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 Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" in this Form 10-Q.