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 2021 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 2021 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. 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 11, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. 22 Table of Contents Executive Overview We recorded income from operations of $297.1 million during the three months ended June 30, 2022, compared with income from operations of $409.8 million during the three months ended June 30, 2021. In our Wood Products segment, income decreased $59.7 million to $154.1 million for the three months ended June 30, 2022, from $213.8 million for the three months ended June 30, 2021, due primarily to lower sales prices of plywood and lower plywood and EWP sales volumes, offset partially by higher EWP sales prices. In our BMD segment, income decreased $52.0 million to $154.3 million for the three months ended June 30, 2022, from $206.3 million for the three months ended June 30, 2021, driven by a gross margin decrease of $44.5 million, resulting from a decline in commodity prices during the second quarter 2022. The negative impacts from commodity price declines were offset partially by improved gross margin percentages for EWP and general line products. These changes are discussed further in "Our Operating Results" below. We ended second quarter 2022 with $1,033.0 million of cash and cash equivalents and $346.0 million of undrawn committed bank line availability, for total available liquidity of $1,379.0 million. We had $445.0 million of outstanding debt at June 30, 2022. We generated $284.1 million of cash during the six months ended June 30, 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 six month comparative periods are discussed in "Liquidity and Capital Resources" below. On July 25, 2022, we and our wholly-owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of 100% of the equity interest of Coastal Forest Resources Company's (“CFRC”) wholly-owned subsidiary, Coastal Plywood Company, and its plywood manufacturing operations located in Havana, Florida, and Chapman, Alabama, (the "Acquisition") for a purchase price of $517 million, inclusive of estimated working capital at closing of $27 million, which is subject to post-closing adjustments. We funded the Acquisition and related costs with cash on hand. These facilities will provide incremental stress rated veneer needed to optimize and expand our southeastern U.S. EWP production capacity. In addition, the Havana plywood operation will improve our mix of specialty plywood products and is well positioned geographically to support plywood demand in the southeastern U.S. 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. Consensus forecasts for 2022 single- and multi-family housing starts in the U.S are around 1.6 million units, or essentially flat compared to 2021. We believe that current U.S. demographics and limited new and existing home inventory support this level of housing starts. In addition, the age of U.S. housing stock and elevated levels of homeowner equity provide a favorable backdrop for repair-and-remodel spending. However, recent monetary policy shifts to increase interest rates to combat high levels of inflation have significantly increased mortgage rates and created a great deal of uncertainty broadly across the U.S. economy. As such, we expect the pace of new residential construction in second half of 2022 to slow due to home affordability constraints and a weakening economy. While potentially tempered by an economic slowdown, we anticipate the primary drivers of repair-and-remodeling activity to continue to be supportive of homeowners' further investment in their residences. 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. We expect future commodity product pricing and commodity input costs to be volatile in response to economic uncertainties, 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, but are also subject to price erosion as economic activity slows. 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 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, 23 Table of Contents 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; • 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; • 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; • 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; • our ability to successfully and efficiently complete and integrate acquisitions; • 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; • 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; and • the other factors described in "Item 1A. Risk Factors" in our 2021 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 and six months ended June 30, 2022 and 2021: Three Months Ended June 30 Six Months Ended June 30 2022 2021 2022 2021 (millions) Sales $ 2,278.1 $ 2,443.2 $ 4,604.4 $ 4,264.5 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,797.9 1,864.5 3,527.8 3,315.0 Depreciation and amortization 20.7 20.4 41.2 40.0 Selling and distribution expenses 134.3 130.7 280.9 251.7 General and administrative expenses 27.7 18.0 53.8 43.3 Other (income) expense, net 0.4 (0.3) (2.1) (0.4) 1,981.0 2,033.4 3,901.7 3,649.4 Income from operations $ 297.1 $ 409.8 $ 702.7 $ 615.0 (percentage of sales) Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 78.9 % 76.3 % 76.6 % 77.7 % Depreciation and amortization 0.9 0.8 0.9 0.9 Selling and distribution expenses 5.9 5.4 6.1 5.9 General and administrative expenses 1.2 0.7 1.2 1.0 Other (income) expense, net — — — — 87.0 % 83.2 % 84.7 % 85.6 % Income from operations 13.0 % 16.8 % 15.3 % 14.4 % 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 BMD segment for the three and six months ended June 30, 2022 and 2021. Three Months Ended June 30 Six Months Ended June 30 2022 2021 2022 2021 (thousands) U.S. Housing Starts (a) Single-family 298.9 309.3 565.7 564.8 Multi-family 151.2 126.2 274.1 228.4 450.1 435.5 839.8 793.2 (thousands) Segment Sales Wood Products $ 536,030 $ 594,569 $ 1,094,974 $ 1,026,904 Building Materials Distribution 2,131,200 2,172,744 4,243,033 3,807,521 Intersegment eliminations (389,158) (324,152) (733,653) (569,948) Total sales $ 2,278,072 $ 2,443,161 $ 4,604,354 $ 4,264,477 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 4.6 4.7 9.2 9.1 I-joists (equivalent lineal feet) 69 76 135 147 Plywood (sq. ft.) (3/8" basis) 281 338 598 641 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 28.47 $ 19.63 $ 27.43 $ 19.33 I-joists (1,000 equivalent lineal feet) 2,066 1,363 1,974 1,342 Plywood (1,000 sq. ft.) (3/8" basis) 569 878 633 726 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 44.9 % 60.2 % 48.5 % 58.2 % General line 32.9 % 26.1 % 31.0 % 27.3 % Engineered wood 22.2 % 13.7 % 20.5 % 14.5 % Gross margin percentage (b) 13.9 % 15.6 % 15.9 % 15.4 % _______________________________________ (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 BMD 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 June 30, 2022, total sales decreased $165.1 million, or 7%, to $2,278.1 million from $2,443.2 million during the three months ended June 30, 2021. For the six months ended June 30, 2022, total sales increased $339.9 million, or 8%, to $4,604.4 million from $4,264.5 million for the same period in the prior year. As described below, the change 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 second quarter 2022, total U.S. housing starts increased 3% driven by an increase in multi-family housing starts compared to the same period in 2021. However, single-family housing starts decreased 3% compared to the prior year quarter. On a year-to-date basis through June 2022, total housing starts increased 6%, while single-family housing starts remained flat when compared with the same period in 2021. Average composite panel and average composite lumber prices for the three months ended June 30, 2022 were 43% and 35% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing. For the six months ended June 30, 2022, average composite panel and average composite lumber prices were 17% and 8% lower, respectively, compared with the same period in the prior year. Wood Products. Sales, including sales to our BMD segment, decreased $58.6 million, or 10%, to $536.0 million for the three months ended June 30, 2022, from $594.6 million for the three months ended June 30, 2021. The decrease in sales was driven by lower sales prices and sales volumes for plywood of 35% and 17%, respectively, resulting in decreased sales of $86.9 million and $50.1 million, respectively. Plywood sales volumes decreased primarily as a result of downtime to replace an existing dryer at our Chester, South Carolina, plywood facility, as well as staffing shortages at our Western Oregon plywood facility. In addition, lower sales volumes for I-joists and LVL (collectively referred to as EWP) of 8% and 3%, respectively, resulted in decreased sales of $8.5 million and $2.4 million, respectively. EWP sales volumes decreased primarily related to veneer availability, labor shortages, and transportation constraints. These decreases were offset partially by higher sales prices for I-joists and LVL of 52% and 45%, respectively, resulting in increased sales of $48.8 million and $40.6 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. For the six months ended June 30, 2022, sales, including sales to our BMD segment, increased $68.1 million, or 7%, to $1,095.0 million from $1,026.9 million for the same period in the prior year. The increase in sales was driven by higher sales prices for I-joists and LVL of 47% and 42%, respectively, resulting in increased sales of $85.3 million and $74.7 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 volumes for LVL of 2% resulted in increased sales of $3.1 million. In addition, price increases for laminated beam and OSB rimboard combined increased sales by $20.0 million. These increases were offset partially by lower sales prices and sales volumes for plywood of 13% and 7%, respectively, resulting in decreased sales of $55.7 million and $31.5 million, respectively. In addition, lower sales volumes for I-joists and lumber of 8% and 16%, respectively, resulted in decreased sales of $16.7 million and $6.9 million. Building Materials Distribution. Sales decreased $41.5 million, or 2%, to $2,131.2 million for the three months ended June 30, 2022, from $2,172.7 million for the three months ended June 30, 2021. Compared with the same quarter in the prior year, the overall decrease in sales was driven by a sales volume decrease of 4%, offset partially by a sales price increase of 2%. By product line, commodity sales decreased 27%, or $352.4 million; general line product sales increased 24%, or $134.0 million; and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 59%, or $176.9 million. During the six months ended June 30, 2022, sales increased $435.5 million, or 11%, to $4,243.0 million from $3,807.5 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 a sales price increase of 13%, offset partially by a sales volume decrease of 2%. By product line, commodity sales decreased 7%, or $157.0 million; general line product sales increased 27%, or $276.6 million; and sales of EWP increased 57%, or $315.9 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) decreased $66.6 million, or 4%, to $1,797.9 million for the three months ended June 30, 2022, compared with $1,864.5 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower sales volumes, offset partially by higher per-unit costs of logs of approximately 5%, compared with second quarter 2021. However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 610 basis points. The increase in MLO rate was primarily the result of lower plywood sales prices, as well as lower sales volumes, which resulted in higher per-unit labor, wood fiber, and other manufacturing costs. In BMD, the increase in materials, labor, and other 27 Table of Contents operating expenses was driven by higher purchased materials costs as a result of higher product prices, compared with second quarter 2021. The BMD segment MLO rate increased 180 basis points compared with second quarter 2021. The increase in MLO rate was driven by a declining commodity price environment during the second quarter 2022, offset partially by improved margins on our EWP and general line product 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 second quarter 2022. For the six months ended June 30, 2022, materials, labor, and other operating expenses (excluding depreciation) increased $212.9 million or 6%, to $3,527.8 million, compared with $3,315.0 million in 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 7% compared with the first half of 2021, as well as increased labor and other manufacturing costs. However, the MLO rate in our Wood Products segment decreased by 100 basis points, which was primarily due to higher EWP sales prices, resulting in improved leveraging of wood fiber costs and labor 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 the first half of 2021. However, the BMD segment MLO rate improved 50 basis points as a decrease in commodity product margins compared with the first half of 2021 was more than offset by improved sales of EWP and general line products, which typically have higher margins than commodity products. Depreciation and amortization expenses increased $0.3 million, or 1%, to $20.7 million for the three months ended June 30, 2022, compared with $20.4 million during the same period in the prior year. For the six months ended June 30, 2022, these expenses increased $1.3 million, or 3%, to $41.2 million, compared with $40.0 million in the same period in the prior year. The increases in both periods were due primarily to purchases of property and equipment. Selling and distribution expenses increased $3.5 million, or 3%, to $134.3 million for the three months ended June 30, 2022, compared with $130.7 million during the same period in the prior year, due primarily to higher shipping and handling costs of $5.7 million, as well as increased discretionary expenses related to travel and entertainment and professional fees of $2.2 million. These increases were offset partially by lower employee-related expenses related to sales and incentive compensation of $4.7 million. For the six months ended June 30, 2022, selling and distribution expenses increased $29.3 million, or 12%, to $280.9 million, compared with $251.7 million during the same period in 2021, due primarily to higher employee-related expenses, including base pay increases, special bonuses, and sales and incentive compensation of $12.7 million, as well as higher shipping and handling costs of $11.0 million. In addition, travel and entertainment expenses and occupancy expenses increased $2.6 million and $2.4 million, respectively. General and administrative expenses increased $9.7 million, or 54%, to $27.7 million for the three months ended June 30, 2022, compared with $18.0 million for the same period in the prior year, due to higher employee-related expenses of $6.7 million, most of which relates to incentive compensation. In addition, employee-related expenses were reduced in the three months ended June 30, 2021 due to the departure of two officers and related forfeiture of accrued incentive compensation. Discretionary expenses related to professional fees and travel and entertainment also increased $2.8 million during the three months ended June 30, 2022 compared with the same period in the prior year. For the six months ended June 30, 2022, general and administrative expenses increased $10.5 million, or 24%, to $53.8 million, compared with $43.3 million during the same period in 2021. The increase was primarily the result of higher employee-related expenses, including base pay increases, special bonuses, and incentive compensation of $7.2 million. In addition, discretionary expenses related to professional fees and travel and entertainment increased $3.5 million. Other (income) expense, net for the three months ended June 30, 2022 and 2021, and for the six months ended June 30, 2021, was insignificant. For the six months ended June 30, 2022, other (income) expense, net, was $2.1 million of income, which included $2.5 million of earn-out income from a previous asset sale in our Wood Products segment. Income From Operations Income from operations decreased $112.7 million to $297.1 million for the three months ended June 30, 2022, compared with $409.8 million for the three months ended June 30, 2021. Income from operations increased $87.7 million to $702.7 million for the six months ended June 30, 2022, compared with $615.0 million for the six months ended June 30, 2021. Wood Products. Segment income decreased $59.7 million to $154.1 million for the three months ended June 30, 2022, compared with $213.8 million for the three months ended June 30, 2021. The decrease in segment income was due primarily to lower plywood sales prices, as well as higher per-unit labor, wood fiber, and other manufacturing costs due in part to lower plywood and EWP sales volumes. These decreases in segment income were offset partially by higher EWP sales prices. 28 Table of Contents For the six months ended June 30, 2022, segment income increased $33.4 million to $344.2 million from $310.8 million for the six months ended June 30, 2021. The increase in segment income was due primarily to higher EWP sales prices. This increase in segment income was offset partially by lower plywood sales prices, lower plywood and EWP sales volumes, and higher wood fiber costs and other manufacturing costs. Building Materials Distribution. Segment income decreased $52.0 million to $154.3 million for the three months ended June 30, 2022, from $206.3 million for the three months ended June 30, 2021. The decrease in segment income was driven by lower sales volumes and a gross margin decrease of $44.5 million, resulting from a decline in commodity prices during the second quarter 2022. However, the negative impacts from commodity price declines were offset partially by margin improvements for both EWP and general line products. In addition, general and administrative and selling and distribution expenses increased $3.3 million and $2.0 million, respectively. For the six months ended June 30, 2022, segment income increased $53.6 million to $380.2 million from $326.6 million for the six months ended June 30, 2021. The increase in segment income was driven by a gross margin increase of $89.1 million, resulting from improved gross margins on EWP and general line products, offset partially by decreased gross margins on commodity products. The margin improvement was also offset partially by increased selling and distribution expenses and general and administrative expenses of $27.5 million and $5.0 million, respectively. Corporate. Unallocated corporate expenses increased $1.0 million to $11.3 million for the three months ended June 30, 2022, from $10.3 million for the same period in the prior year. The increase was primarily due to higher employee-related expenses and professional fees. During the three months ended June 30, 2021, employee-related expenses were lower due to the departure of an officer and related forfeiture of accrued incentive compensation. In addition, as part of our self-insured risk retention program, corporate absorbed approximately $3.4 million of estimated insurance losses resulting from a fire at our BMD Phoenix location during second quarter 2021. For the six months ended June 30, 2022, unallocated corporate expenses decreased $0.6 million to $21.7 million from $22.3 million for the six months ended June 30, 2021. The decrease was primarily due to 2021 results including estimated insurance losses absorbed at corporate, as described above, offset partially by higher employee-related expenses during the first half of 2022. 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 and six months ended June 30, 2022, we recorded $73.9 million and $172.8 million, respectively, of income tax expense and had an effective rate of 25.3% and 24.9%, respectively. During the three and six months ended June 30, 2022, 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. For the three and six months ended June 30, 2021, we recorded $101.0 million and $152.5 million, respectively, of income tax expense and had an effective rate of 25.0% and 25.2%, respectively. During the three and six months ended June 30, 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. Industry Mergers and Acquisitions On June 21, 2022, Pacific Woodtech, a manufacturer of engineered wood products, announced an agreement to acquire Louisiana-Pacific Corporation's EWP division. The acquisition is expected to close in third quarter of 2022. Pacific Woodtech is a competitor to our Wood Products segment. Until this transaction closes, we cannot assess the impact, if any, this transaction may have on our future results of operations. On July 11, 2022, US LBM, a distributor of specialty building materials, announced an agreement to acquire Foxworth-Galbraith Lumber, a building products supplier and manufacturer in the Southwest U.S. The acquisition is expected to close in third quarter of 2022. US LBM and Foxworth-Galbraith are both customers of ours. We believe we have good relationships with these customers. However, until this transaction closes, we cannot assess the impact, if any, this customer combination may have on our future results of operations. 29 Table of Contents Liquidity and Capital Resources We ended second quarter 2022 with $1,033.0 million of cash and cash equivalents and $445.0 million of debt. At June 30, 2022, we had $1,379.0 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). We generated $284.1 million of cash during the six months ended June 30, 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. Further descriptions of our cash sources and uses for the six 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 2022 from cash on hand and, if necessary, borrowings under our revolving credit facility. On July 25, 2022, the Company completed the acquisition of Coastal Plywood Company for a purchase price of $517 million, inclusive of estimated working capital at closing of $27 million, which is subject to post-closing adjustments. We funded the acquisition and related costs with cash on hand. For further discussion, see Note 5, Acquisition, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. 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 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. Six Months Ended June 30 2022 2021 (thousands) Net cash provided by operations $ 436,056 $ 291,179 Net cash used for investment (37,944) (31,002) Net cash used for financing (114,032) (11,792) Operating Activities For the six months ended June 30, 2022, our operating activities generated $436.1 million of cash, compared with $291.2 million of cash generated in the same period in 2021. The $144.9 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, the increase in cash provided by operations was due to an increase in working capital of $152.6 million during the six months ended June 30, 2022, compared with a $203.4 million increase for the same period in the prior year. In addition, cash paid for taxes, net of refunds received, decreased $6.4 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 25% and 69%, comparing sales for the months of June 2022 and 2021 with sales for the months of December 2021 and 2020, respectively. Inventories increased during the six months ended June 30, 2022 primarily due to increased cost of inventory purchased for resale on EWP and general line products and higher production costs for our manufactured products, offset partially by decreased costs for commodity products. During the six months ended June 30, 2021 inventories increased primarily due to the growth of inventory for the building season, as well as elevated commodity prices. The increase in accounts payable and accrued liabilities as of June 30, 2022 was related to the increase in inventories and higher accrued rebates. During the six months ended June 30, 2021, seasonally higher purchase activity and extended terms offered by major vendors to our BMD segment led to an increase in accounts payable and an increase in accrued rebates contributed to the increase in accrued liabilities. 30 Table of Contents Investment Activities During the six months ended June 30, 2022 and 2021, we used $40.8 million and $31.5 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 six months ended June 30, 2022, we received $2.5 million of earn-out income related to a previous asset sale in our Wood Products segment. Excluding acquisitions, we expect capital expenditures in 2022 to total approximately $100 million to $120 million. 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, replacement of a dryer at our Chester, South Carolina, veneer and plywood plant, and initial veneer equipment related spending at the Chapman, Alabama facility. This level of capital expenditures could increase or decrease as a result of several 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 six months ended June 30, 2022, our financing activities used $114.0 million of cash, including $109.3 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards. During the six months ended June 30, 2022, we did not borrow under our revolving credit facility, and therefore have no borrowing outstanding on the facility as of June 30, 2022. During the six months ended June 30, 2021, our financing activities used $11.8 million of cash, including $8.4 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards. During the six months ended June 30, 2021, we also borrowed $28.0 million under our revolving credit facility, which was subsequently repaid during the same period with cash on hand. 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, our dividend policy, and our stock repurchase program, see the discussion in Note 6, Debt, and Note 9, Stockholders' Equity, respectively, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. 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 June 30, 2022, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2021. Guarantees 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 June 30, 2022, there have been no material changes to the guarantees disclosed in our 2021 Form 10-K. 31 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 July 24, 2022, we had approximately 6,210 employees. Approximately 23% of these employees work pursuant to collective bargaining agreements. As of July 24, 2022, we had ten collective bargaining agreements. One agreement covering approximately 110 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. 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 June 30, 2022, there have been no material changes to financial market risks disclosed in our 2021 Form 10-K. Environmental As of June 30, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 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 2021 Form 10-K. At June 30, 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 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.