What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-01 · 109 added, 181 removed, 159 unchanged (65% of the section changed)

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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 United States (U.S.) To a lesser extent, demand for our products correlates with residential repair-and-remodeling activity and light commercial construction.

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.

For more information, see Note 10, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

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Executive Overview

We recorded income from operations of $129.4 million during the three months ended September 30, 2021, compared with income from operations of $158.6 million during the three months ended September 30, 2020.

In our Wood Products segment, income increased $56.0 million to $122.1 million for the three months ended September 30, 2021, from $66.0 million for the three months ended September 30, 2020, due primarily to higher EWP, plywood, and lumber sales prices, as well as higher EWP sales volumes, offset partially by higher wood fiber costs and lower margins on inventory purchased for resale through certain customer programs.

In our BMD segment, income decreased $91.3 million to $16.6 million for the three months ended September 30, 2021, from $107.9 million for the three months ended September 30, 2020, driven primarily by a gross margin decrease of $100.5 million, resulting from a sharp decline in commodity prices during third quarter 2021.

The negative impacts from commodity price declines were offset partially by higher sales volumes and gross margin percentages for EWP and general line products, as well as decreased selling and distribution expenses of $7.8 million.

We recorded income from operations of $405.6 million during the three months ended March 31, 2022, compared with income from operations of $205.3 million during the three months ended March 31, 2021.

In our Wood Products segment, income increased $93.1 million to $190.1 million for the three months ended March 31, 2022, from $97.1 million for the three months ended March 31, 2021, due primarily to higher EWP and plywood sales prices, offset partially by higher wood fiber and other manufacturing costs.

In our BMD segment, income increased $105.7 million to $225.9 million for the three months ended March 31, 2022, from $120.2 million for the three months ended March 31, 2021, driven by a gross margin increase of $133.6 million, resulting from improved gross margins across substantially all product lines.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $25.5 million and $1.6 million, respectively.

These changes are discussed further in "Our Operating Results" below.

We ended third quarter 2021 with $786.9 million of cash and cash equivalents and $345.3 million of undrawn committed bank line availability, for total available liquidity of $1,132.2 million.

We had $444.4 million of outstanding debt at September 30, 2021.

We generated $381.5 million of cash during the nine months ended September 30, 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 nine month comparative periods are discussed in "Liquidity and Capital Resources" below.

After seeing fewer pandemic-related disruptions during second quarter 2021, we experienced short-term disruptions at many locations during the third quarter as COVID-19 variants spread throughout the United States.

We continue to conduct business with certain 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, including the impact of COVID-19 variants, 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.

Furthermore, we are monitoring the development of government mandates that companies ensure workers are vaccinated or tested regularly for COVID-19.

While we educate our associates on the effectiveness of vaccines and strongly encourage vaccination for its long-term health benefits, the new regulation may have the near-term effect of increasing costs, straining company resources, interrupting operations, reducing employee morale, or increasing employee turnover, which could adversely affect our business, results of operations, or financial condition.

Economic uncertainty due to the pandemic continues.

However, 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.

As of October 2021, the Blue Chip Economic Indicators consensus forecast for 2021 and 2022 single- and multi-family housing starts in the U.S.

were 1.59 million and 1.57 million units, respectively, compared with actual housing starts of 1.38 million in 2020, as reported by the U.S.

We ended first quarter 2022 with $922.7 million of cash and cash equivalents and $346.0 million of undrawn committed bank line availability, for total available liquidity of $1,268.7 million.

We had $444.8 million of outstanding debt at March 31, 2022.

We generated $173.8 million of cash during the three months ended March 31, 2022, 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.

Demand for the products we manufacture, as well as the products we purchase and distribute, is correlated with new residential construction, residential repair-and-remodeling activity and light commercial construction.

Current demographics in the United States (U.S.), as well as continuation of work-from-home practices by many in the economy, continue to create a favorable demand environment for new residential construction.

We expect demand to remain strong during 2022, with April 2022 Blue Chip Economic Indicators consensus forecasts for 2022 single- and multi-family housing starts in the U.S.

of 1.65 million units compared with actual housing starts of 1.60 million in 2021, as reported by the U.S.

Census Bureau.

In addition, the age of the U.S.

housing stock and limited home inventory availability will continue to provide a favorable backdrop for repair-and-remodel spending.

In addition, limited new and existing home inventory availability and the age of the U.S.

housing stock will continue to provide a favorable

backdrop for residential construction and repair-and-remodel spending.

Although we believe that current U.S.

demographics support a higher level of forecasted housing starts, and many national home builders are reporting strong near-term backlogs, labor shortages and supply induced constraints on residential construction activity may continue to extend build times and limit activity.

In addition, the pace of residential construction and repair-and-remodeling activity may be affected by the economic impact of the cost of building materials and construction, housing affordability, mortgage interest rates, wage growth, prospective home buyers' access to financing, consumer confidence, as well as other factors.

demographics support the forecasted level of housing starts, and many national home builders are reporting strong near-term backlogs, labor shortages and supply induced constraints on residential construction activity may continue to extend build times and limit activity.

In addition, the pace of residential construction and repair-and-remodeling activity may be affected by the economic impact of the cost of building materials and construction, housing affordability, increasing mortgage interest rates, wage growth, prospective home buyers' access to financing, and consumer confidence, as well as other factors.

As a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices and rising input costs.

Our distribution business 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 expose us to declines in sales and profitability.

Reflected in our operating results, lumber and panel pricing was very volatile during second and third quarters 2021, with rapidly rising prices in April and most of May followed by sharp price declines through the month of August before stabilizing in September.

Future commodity product pricing and commodity input costs could be volatile in response to capacity restoration and industry operating rates, the impact of COVID-19 on residential construction, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns.

Our first quarter 2022 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in the same period last year, as well as rising prices for EWP and general line products.

Current composite panel and lumber prices have declined by approximately 24% and 15% from levels at the end of first quarter 2022.

We expect future commodity product pricing and commodity input costs to be volatile in response to capacity restoration and industry operating rates, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

EWP and general line products have historically experienced limited price volatility, and we expect the firm pricing environment to continue during 2022.

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 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;

• the commodity nature of a portion 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 duration and magnitude of impacts of the COVID-19 pandemic and related variants;

• the highly competitive nature of our industry;

• declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions;

• the duration and magnitude of impacts of the ongoing COVID-19 pandemic and related variants, including the impact of any government mandates relating to vaccines and testing;

• 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;

• 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;

• the enactment of tax reform legislation;

• impairment of our long-lived assets, goodwill, and/or intangible assets;

• product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers;

• the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials;

• 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;

• concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers;

• impairment of our long-lived assets, goodwill, and/or intangible assets;

• 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;

• compliance with data privacy and security laws and regulations;

• the impacts of climate change, and related legislative and regulatory responses intended to reduce climate change;

• cost of compliance with government regulations, in particular environmental regulations;

• the enactment of tax reform legislation;

• exposure to product liability, product warranty, casualty, construction defect, and other claims;

• fluctuations in the market for our equity;

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Our Operating Results

The following tables set forth our operating results in dollars and as a percentage of sales for the three and nine months ended September 30, 2021 and 2020:

The following tables set forth our operating results in dollars and as a percentage of sales for the three months ended March 31, 2022 and 2021:

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Sales $ 2,326.3 $ 1,821.3

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General and administrative expenses 26.1 25.3

Loss on curtailment of facility — — — 1.7

Other (income) expense, net (2.5) (0.1)

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General and administrative expenses 1.1 1.4

Loss on curtailment of facility — — — —

Other (income) expense, net (0.1) —

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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 BMD segment for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Housing Starts (a)

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Multi-family 129.5 102.4

420.3 387.5 1,213.7 1,015.5

Segment Sales

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Gross margin percentage is gross margin as a percentage of segment sales.

For the three months ended September 30, 2021, total sales increased $290.1 million, or 18%, to $1,879.5 million from $1,589.3 million during the three months ended September 30, 2020.

For the nine months ended September 30, 2021, total sales increased by $2,141.3 million, or 53%, to $6,143.9 million from $4,002.6 million for the same period in the prior year.

For the three months ended March 31, 2022, total sales increased $505.0 million, or 28%, to $2,326.3 million from $1,821.3 million during the three months ended March 31, 2021.

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 third quarter 2021, U.S.

In first quarter 2022, U.S.

housing starts increased 10%, with single-family starts up 4% from the same period in 2021.

On a year-to-date basis through September 2021, total and single-family housing starts both increased 20% compared with the same period in 2020.

Average composite panel prices for the three months ended September 30, 2021 were 29% higher than in the same period in the prior year, as reflected by Random Lengths composite panel pricing.

Average composite lumber prices for the three months ended September 30, 2021 were 34% lower than in the same period in the prior year, as reflected by Random Lengths composite lumber pricing.

For the nine months ended September 30, 2021, average composite panel and average composite lumber prices were 130% and 76% higher, respectively, compared with the same period in the prior year.

Average composite lumber and average composite panel prices for the three months ended March 31, 2022 were 26% and 23% 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 $133.6 million, or 37%, to $497.3 million for the three months ended September 30, 2021, from $363.7 million for the three months ended September 30, 2020.

The increase in sales was driven by higher plywood prices of 31%, resulting in increased sales of $41.6 million.

Higher sales prices for I-joists and LVL of 27% and 23%, respectively, resulted in increased sales of $25.8 million and $19.4 million, respectively.

In addition, sales volumes for I-joists and LVL increased 21% and 2%, respectively, resulting in increased sales of $16.4 million and $1.6 million, respectively.

Improved lumber sales prices of 99% contributed $10.4 million to the increase in sales.

Plywood volumes were flat compared with the same period in the prior year.

For the nine months ended September 30, 2021, sales, including sales to our BMD segment, increased $559.0 million, or 58%, to $1,524.2 million from $965.2 million for the same period in the prior year.

The increase in sales was driven primarily by higher plywood prices of 105%, resulting in increased sales of $328.4 million.

Higher sales volumes for I-joists and LVL of 30% and 5%, respectively, resulted in increased sales of $64.7 million and $11.6 million, respectively.

In addition, sales prices for I-joists and LVL increased 13% and 11%, respectively, resulting in increased sales of $36.8 million and $27.4 million, respectively.

Improved lumber sales prices and plywood sales volumes of 104% and 1%, respectively, contributed $33.1 million and $2.2 million, respectively, to the increase in sales.

Sales, including sales to our BMD segment, increased $126.6 million, or 29%, to $558.9 million for the three months ended March 31, 2022, from $432.3 million for the three months ended March 31, 2021.

The increase in sales was driven by higher sales prices for I-joists and LVL (collectively referred to as EWP) of 42% and 39%, respectively, resulting in increased sales of $36.4 million and $34.3 million, respectively.

The increase in EWP pricing was due to realizations of previously announced price increases and the expiration of certain temporary price protection arrangements.

Higher sales prices for plywood of 24% resulted in increased sales of $42.1 million.

In addition, sales volumes for plywood and LVL increased 4% and 6%, respectively, resulting in increased sales of $7.6 million and $5.4 million, respectively.

Price increases for laminated beam and OSB rimboard combined increased sales by $10.1 million.

These increases were offset partially by a 9% decrease in sales volumes for I-joists, resulting in decreased sales of $8.2 million.

Building Materials Distribution.

Sales increased $283.6 million, or 20%, to $1,721.2 million for the three months ended September 30, 2021, from $1,437.7 million for the three months ended September 30, 2020.

Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales price increase of 23%, offset partially by a sales volume decrease of 3%.

Sales increased $477.1 million, or 29%, to $2,111.8 million for the three months ended March 31, 2022, from $1,634.8 million for the three months ended March 31, 2021.

Compared with the same quarter in the prior year, the overall increase in sales was driven by sales price increases of 29%, as sales volumes were flat.

By product line, commodity sales increased 22%, or $195.9 million;

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and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 54%, or $138.8 million.

During the nine months ended September 30, 2021, sales increased $1,906.8 million, or 53%, to $5,528.8 million from $3,621.9 million for the same period in the prior year.

Compared with the same period in the prior year, the overall increase in sales was driven by sales price and volume increases of 50% and 3%, respectively.

By product line, commodity sales increased 81%, or $1,336.2 million;

general line product sales increased 22%, or $291.8 million;

and sales of EWP increased 43%, or $278.8 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $332.7 million, or 26%, to $1,594.4 million for the three months ended September 30, 2021, compared with $1,261.7 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher EWP sales volumes, as well as higher per-unit costs of logs and OSB (used in the manufacture of I-joists) of approximately 19% and 13%, compared with third quarter 2020.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 390 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor and wood fiber costs.

In BMD, materials, labor, and other operating expenses increased, driven by higher purchased materials costs across all product lines.

In addition, BMD's MLO rate increased by 850 basis points compared with third quarter 2020.

This increase in MLO rate was driven primarily by a sharp decline in commodity prices during the third quarter 2021, offset partially by improved gross margins on our EWP and general line sales.

In our BMD Segment, periods of increasing prices provide the opportunity for higher sales and increased margins, while declining price environments generally result in declines in sales and profitability, as we experienced in commodity products during third quarter 2021.

For the nine months ended September 30, 2021, materials, labor, and other operating expenses (excluding depreciation), increased $1,606.5 million or 49%, to $4,909.4 million, compared with $3,302.9 million in the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher sales volumes, as well as higher per-unit costs of OSB and logs of approximately 27% and 16%, compared with the first nine months of 2020.

However, the MLO rate in our Wood Products segment decreased by 1,480 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor costs, wood fiber costs, and other manufacturing costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher prices and higher sales volumes across all product lines.

In addition, BMD's MLO rate increased by 130 basis points compared with the first nine months of 2020.

Our MLO rate for the nine months ended September 30, 2021, was negatively impacted by the sharp decline in commodity prices during the third quarter 2021, offset partially by improved gross margin percentages on our EWP and general line sales.

Depreciation and amortization expenses increased $0.3 million, or 1%, to $20.3 million for the three months ended September 30, 2021, compared with $20.0 million during the same period in the prior year.

For the nine months ended September 30, 2021, these expenses decreased $15.0 million, or 20%, to $60.3 million, compared with $75.3 million in 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 decreased $8.4 million, or 7%, to $114.5 million for the three months ended September 30, 2021, compared with $122.9 million during the same period in the prior year, due primarily to lower employee-related expenses of $13.0 million, most of which relates to incentive compensation.

The decrease in selling and distribution expenses was offset partially by an increase in occupancy expenses, as well increased discretionary expenses, including travel and entertainment and professional fees.

For the nine months ended September 30, 2021, selling and distribution expenses increased $40.2 million, or 12%, to $366.1 million, compared with $325.9 million during the same period in 2020, due primarily to higher employee-related expenses, including incentive compensation, of $28.3 million, as well as higher shipping and handling costs and occupancy expenses of $5.3 million and $3.4 million, respectively.

General and administrative expenses decreased $5.1 million, or 19%, to $21.0 million for the three months ended September 30, 2021, compared with $26.1 million for the same period in the prior year, due primarily to lower employee-related expenses of $5.9 million, most of which relates to incentive compensation.

The decreases were offset partially by increased discretionary expenses, including travel and entertainment expenses and professional fees.

For the nine months ended September 30, 2021, general and administrative expenses increased $3.4 million, or 6%, to $64.3 million, compared with $60.9 million during the same period in 2020.

The increase was primarily a result of higher employee-related expenses of $3.0 million.

For the nine months ended September 30, 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.

Materials, labor, and other operating expenses (excluding depreciation) increased $279.5 million, or 19%, to $1,729.9 million for the three months ended March 31, 2022, compared with $1,450.4 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 logs of approximately 9% compared with first quarter 2021, as well as increased other manufacturing costs.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 990 basis points, which was primarily due to higher EWP and plywood sales prices, resulting in improved leveraging of wood fiber costs, labor costs, and other manufacturing costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher product prices, compared with first quarter 2021.

However, the BMD segment MLO rate improved 290 basis points compared with first quarter 2021 due primarily by improved gross margin percentages across substantially all product lines, driven by an increasing price environment during first quarter 2022.

Depreciation and amortization expenses increased $1.0 million, or 5%, to $20.5 million for the three months ended March 31, 2022, compared with $19.5 million during the same period in the prior year.

The increase was due primarily to purchases of property and equipment.

Selling and distribution expenses increased $25.7 million, or 21%, to $146.7 million for the three months ended March 31, 2022, compared with $120.9 million during the same period in the prior year, due primarily to higher employee-related expenses, including base pay increases, special bonuses, and sales and incentive compensation of $17.4 million, as well as higher shipping and handling costs of $5.2 million.

In addition, travel and entertainment expenses and occupancy expenses increased $1.3 million and $1.2 million, respectively.

General and administrative expenses increased $0.8 million, or 3%, to $26.1 million for the three months ended March 31, 2022, compared with $25.3 million for the same period in the prior year.

The increase was due primarily to higher employee wages and travel and entertainment expenses of $1.1 million and $0.5 million, respectively, offset partially by lower officer incentive compensation accruals of $0.6 million.

For the three months ended March 31, 2022 other (income) expense, net, was $2.5 million of income, which primarily included earn-out income related to a previous asset sale in our Wood Products segment.

Income From Operations

Income from operations decreased $29.2 million to $129.4 million for the three months ended September 30, 2021, compared with $158.6 million for the three months ended September 30, 2020.

Income from operations increased $508.5 million to $744.4 million for the nine months ended September 30, 2021, compared with $235.9 million for the nine months ended September 30, 2020.

Income from operations increased $200.4 million to $405.6 million for the three months ended March 31, 2022, compared with $205.3 million for the three months ended March 31, 2021.

Wood Products.

Segment income increased $56.0 million to $122.1 million for the three months ended September 30, 2021, compared with $66.0 million for the three months ended September 30, 2020.

The increase in segment income was due primarily to higher EWP, plywood, and lumber sales prices, as well as higher EWP sales volumes.

These increases in segment income were offset partially by higher wood fiber costs and lower margins on inventory purchased for resale through certain customer programs.

For the nine months ended September 30, 2021, segment income increased $346.0 million to $432.9 million from $86.9 million for the nine months ended September 30, 2020.

The increase in segment income was due primarily to higher plywood, EWP, and lumber sales prices, as well as higher EWP 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 were offset partially by higher wood fiber costs and other manufacturing costs.

In addition, selling and distribution expenses and general and administrative expenses increased $1.7 million and $0.7 million, respectively.

Segment income increased $93.1 million to $190.1 million for the three months ended March 31, 2022, compared with $97.1 million for the three months ended March 31, 2021.

The increase in segment income was due primarily to higher EWP and plywood sales prices.

These increases in segment income were offset partially by higher wood fiber costs and other manufacturing costs.

Building Materials Distribution.

Segment income decreased $91.3 million to $16.6 million for the three months ended September 30, 2021, from $107.9 million for the three months ended September 30, 2020.

The decline in segment income was driven primarily by a gross margin decrease of $100.5 million, or a decline in gross margin percentage of 850 basis points, resulting from a sharp decline in commodity prices during third quarter 2021.

For the nine months ended September 30, 2021, segment income increased $162.7 million to $343.1 million from $180.4 million for the nine months ended September 30, 2020.

The increase in segment income was driven by a gross margin increase of $202.7 million, resulting from improved gross margins on EWP, general line, and commodity products compared with the first nine months of 2020.

This improvement was offset partially by increased selling and distribution expenses of $38.6 million.

Unallocated corporate expenses decreased $6.1 million to $9.2 million for the three months ended September 30, 2021, from $15.4 million for the same period in the prior year.

The decrease was due primarily to lower employee-related expenses of $3.0 million, most of which relates to incentive compensation.

In addition, as part of our self-insured risk retention program, corporate absorbed approximately $3.2 million of estimated business interruption losses at Wood Products facilities in third quarter 2020.

For the nine months ended September 30, 2021, unallocated corporate expenses increased $0.2 million to $31.6 million from $31.4 million for the nine months ended September 30, 2020.

The increase was due primarily to higher employee-related expenses, offset partially by lower self-insurance losses during the first nine months of 2021.

Segment income increased $105.7 million to $225.9 million for the three months ended March 31, 2022, from $120.2 million for the three months ended March 31, 2021.

The increase in segment income was driven by a gross margin increase of $133.6 million, resulting from improved gross margins across substantially all product lines compared with first quarter 2021.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $25.5 million and $1.6 million, respectively.

Unallocated corporate expenses decreased $1.6 million to $10.4 million for the three months ended March 31, 2022, from $12.0 million for the same period in the prior year.

The decrease was due primarily to lower officer incentive compensation accruals.

Change in fair value of interest rate swaps.

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Financial Statements" of this Form 10-Q.

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 third quarter 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 information related to our indebtedness, see Note 6, Debt 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 and nine months ended September 30, 2021, we recorded $31.2 million and $183.6 million, respectively, of income tax expense and had an effective rate of 25.4% and 25.3%, respectively.

For the three and nine months ended September 30, 2020, we recorded $34.6 million and $50.0 million, respectively, of income tax expense and had an effective rate of 25.1% in both periods.

For all periods, 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.

Industry Mergers and Acquisitions

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 the transaction has not, and we do not expect it to have, a material impact on our future results of operations.

The merger resulted in the combined company accounting for 19 % of total receivables as of September 30, 2021.

For the three months ended March 31, 2022 and 2021, we recorded $98.9 million and $51.4 million, respectively, of income tax expense and had an effective rate of 24.6% and 25.6%, respectively.

For both periods, 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.

Liquidity and Capital Resources

We ended third quarter 2021 with $786.9 million of cash and cash equivalents and $444.4 million of debt.

At September 30, 2021, we had $1,132.2 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Further descriptions of our cash sources and uses for the nine month comparative periods are noted below.

We ended first quarter 2022 with $922.7 million of cash and cash equivalents and $444.8 million of debt.

At March 31, 2022, we had $1,268.7 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

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 the remainder of 2021 from cash on hand and, if necessary, borrowings under our revolving credit facility.

We expect to fund our seasonal and intra-month working capital requirements in 2022 from cash on hand and, if necessary, borrowings under our revolving credit facility.

We also estimate remitting between $165 million and $185 million of income tax payments during second quarter 2022 for estimated payments on 2022 income.

Sources and Uses of Cash

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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.

In addition to paying for ongoing operating costs, we use cash to invest in our business, service our debt and lease obligations, and return cash to our shareholders through dividends or common stock repurchases.

Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities.

Nine Months Ended

Three Months Ended

Net cash provided by operations $ 198,945 $ 72,251

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Operating Activities

For the nine months ended September 30, 2021, our operating activities generated $527.1 million of cash, compared with $293.8 million of cash generated in the same period in 2020.

For the three months ended March 31, 2022, our operating activities generated $198.9 million of cash, compared with $72.3 million of cash generated in the same period in 2021.

The $126.7 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, pension contributions decreased $12.4 million compared to the prior year.

These increases in cash were offset partially by an increase in working capital of $63.0 million during the nine months ended September 30, 2021, compared with a $41.2 million decrease for the same period in the prior year.

In addition, cash paid for taxes, net of refunds received, increased $168.2 million, compared to the prior year, resulting from the significant improvement in income from operations during the first nine months of 2021.

The increase in working capital during the nine months ended September 30, 2021 was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities.

The changes in working capital during the nine months ended September 30, 2020 included an increase in receivables, which was more than offset by an increase in accounts payable and accrued liabilities and lower inventories.

The increases in receivables in both periods primarily reflect increased sales of approximately 17% and 70%, comparing sales for the months of September 2021 and 2020 with sales for the months of December 2020 and 2019, respectively.

Inventories increased during the nine months ended September 30, 2021 primarily due to increased cost of inventory purchased for resale.

During the nine months ended September 30, 2020, distribution inventories decreased due to stronger than expected demand and higher inventory turns, while manufacturing inventories decreased due to strong-end product demand, lower log inventory, and reduced production levels in response to periodic short-term disruptions at many locations due to COVID-19 and hurricanes in the Southeastern U.S.

The increase in accounts payable and accrued liabilities provided $186.1 million of cash during the nine months ended September 30, 2021, compared with $213.9 million in the same period a year ago.

During both periods, seasonally higher purchasing activity and extended terms offered by major vendors to our BMD segment led to the increase in accounts payable.

During the nine months ended September 30, 2021, an increase in accrued rebates contributed to the increase in accrued liabilities.

During the nine months ended September 30, 2020, accrued liabilities also increased due to higher incentive compensation accruals for 2020.

This increase in cash was offset partially by an increase in working capital of $217.8 million during the three months ended March 31, 2022, compared with a $147.4 million increase for the same period in the prior year.

In addition, cash paid for taxes, net of refunds received, increased $3.2 million compared to the prior year.

The increase in working capital during 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 49% and 46%, comparing sales for the months of March 2022 and 2021 with sales for the months of December 2021 and 2020, respectively.

Inventories increased during both periods primarily due to increased cost of inventory purchased for resale and higher production costs for our manufactured products.

The increase in accounts payable and accrued liabilities provided $147.4 million of cash during the three months ended March 31, 2022, compared with $125.1 million in the same period a year ago.

The increase in accounts payable and accrued liabilities as of March 31, 2022 was related to the increase in inventories and higher accrued rebates, offset partially by employee incentive compensation payouts made during the quarter.

During the three months ended March 31, 2021, seasonal increases in inventory in preparation for the spring building season and extended terms offered by major vendors to our BMD 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 first quarter 2021.

Investment Activities

During the nine months ended September 30, 2021 and 2020, we used $51.5 million and $47.0 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.

During the three months ended March 31, 2022 and 2021, we used $17.4 million and $13.3 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.

During the three months ended March 31, 2022, we received $2.5 million of earn-out income related to a previous asset sale in our Wood Products segment.

We expect capital expenditures in 2022 to total approximately $110 million to $130 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.

We expect our capital spending, excluding acquisitions, to be approximately $100-to-$130 million in 2022.

These levels 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.

We expect our capital spending in 2022 will be for business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Our 2022 capital expenditures range includes funding to complete our BMD organic expansions in Ohio, Kentucky, and Minnesota, and a new dryer at our Chester, South Carolina, veneer and plywood plant.

This level of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to further 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 nine months ended September 30, 2021, our financing activities used $94.8 million of cash, including $91.0 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards.

During the nine months ended September 30, 2021, we also borrowed $28.0 million under our revolving credit facility, which were subsequently repaid during the same period with cash on hand.

During the nine months ended September 30, 2020, our financing activities used $28.6 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 the nine months ended September 30, 2020, our financing activities also used $12.6 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.

During the nine months ended September 30, 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.

During the three months ended March 31, 2022, our financing activities used $10.3 million of cash, including $5.9 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards.

three months ended March 31, 2022, we did not borrow under our revolving credit facility, and therefore have no borrowing outstanding on the facility as of March 31, 2022.

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.

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, material cash requirements, 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 5, Debt, and Note 8, 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.

Other Material Cash Requirements

For information about other material cash requirements, see Liquidity and Capital Resources in "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K.

As of September 30, 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 September 30, 2021, and December 31, 2020, we had no material off-balance-sheet arrangements with unconsolidated entities.

As of March 31, 2022, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2021.

Note 9, Debt, and Note 17, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" in our 2021 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 September 30, 2021, there have been no material changes to the guarantees disclosed in our 2020 Form 10-K.

As of March 31, 2022, there have been no material changes to the guarantees disclosed in our 2021 Form 10-K.

Seasonal Influences

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Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities.

As of October 17, 2021, we had approximately 6,020 employees.

As of May 1, 2022, we had approximately 6,140 employees.

Approximately 23% of these employees work pursuant to collective bargaining agreements.

As of October 17, 2021, we had ten collective bargaining agreements.

As of May 1, 2022, we had ten collective bargaining agreements.

Two agreements covering approximately 780 employees at our Oakdale and Florien plywood plants expired on July 15, 2021, but the terms and conditions of these agreements remain in effect pending negotiation of new agreements.

One agreement covering approximately 120 employees at our Canadian EWP facility is set to expire on December 31, 2022.

We may not be able to renew these agreements or may renew them on terms that are less favorable to us than the current agreements.

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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 September 30, 2021, there have been no material changes to financial market risks disclosed in our 2020 Form 10-K.

As of March 31, 2022, there have been no material changes to financial market risks disclosed in our 2021 Form 10-K.

Environmental

As of September 30, 2021, there have been no material changes to environmental issues disclosed in our 2020 Form 10-K.

As of March 31, 2022, there have been no material changes to environmental issues disclosed in our 2021 Form 10-K.

For additional information, see Environmental in "Item 7.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K.

At September 30, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 Form 10-K.

At March 31, 2022, there have been no material changes to our critical accounting estimates from those disclosed in our 2021 Form 10-K.

New and Recently Adopted Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis