BOISE CASCADE Co 10-Q

ITEM 1. FINANCIAL STATEMENTS Boise Cascade Company Consolidated Statements of Operations (unaudited) Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands, except per-share data) Sales $ 2,154,647 $ 1,879,451 $ 6,759,001 $ 6,143,928 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,655,979 1,594,405 5,183,823 4,909,362 Depreciation and amortization 28,374 20,299 69,611 60,258 Selling and distribution expenses 142,176 114,466 423,106 366,119 General and administrative expenses 27,622 21,002 81,375 64,252 Other (income) expense, net 1,126 ( 107 ) ( 987 ) ( 485 ) 1,855,277 1,750,065 5,756,928 5,399,506 Income from operations 299,370 129,386 1,002,073 744,422 Foreign currency exchange loss ( 1,674 ) ( 353 ) ( 2,041 ) ( 52 ) Pension expense (excluding service costs) ( 41 ) ( 19 ) ( 253 ) ( 57 ) Interest expense ( 6,398 ) ( 6,279 ) ( 18,969 ) ( 18,501 ) Interest income 3,238 63 4,688 173 Change in fair value of interest rate swaps 1,134 59 3,594 1,058 ( 3,741 ) ( 6,529 ) ( 12,981 ) ( 17,379 ) Income before income taxes 295,629 122,857 989,092 727,043 Income tax provision ( 76,042 ) ( 31,158 ) ( 248,794 ) ( 183,632 ) Net income $ 219,587 $ 91,699 $ 740,298 $ 543,411 Weighted average common shares outstanding: Basic 39,544 39,442 39,521 39,413 Diluted 39,776 39,661 39,762 39,623 Net income per common share: Basic $ 5.55 $ 2.32 $ 18.73 $ 13.79 Diluted $ 5.52 $ 2.31 $ 18.62 $ 13.71 Dividends declared per common share $ 0.12 $ 0.10 $ 2.86 $ 2.30 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 1 Table of Contents Boise Cascade Company Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands) Net income $ 219,587 $ 91,699 $ 740,298 $ 543,411 Other comprehensive income (loss), net of tax Defined benefit pension plans Amortization of actuarial (gain) loss, net of tax of $ 6 , $( 2 ), $ 16 , and $( 4 ), respectively 15 ( 3 ) 47 ( 10 ) Effect of settlements, net of tax of $ — , $ — , $ 32 , and $ — , respectively — — 98 — Other comprehensive income (loss), net of tax 15 ( 3 ) 145 ( 10 ) Comprehensive income $ 219,602 $ 91,696 $ 740,443 $ 543,401 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 2 Table of Contents Boise Cascade Company Consolidated Balance Sheets (unaudited) September 30, 2022 December 31, 2021 (thousands) ASSETS Current Cash and cash equivalents $ 867,064 $ 748,907 Receivables Trade, less allowances of $ 3,165 and $ 2,054 511,047 444,325 Related parties 191 211 Other 18,004 17,692 Inventories 767,187 660,671 Prepaid expenses and other 17,944 14,072 Total current assets 2,181,437 1,885,878 Property and equipment, net 744,547 495,240 Operating lease right-of-use assets 59,631 62,663 Finance lease right-of-use assets 27,151 29,057 Timber deposits 9,563 9,461 Goodwill 134,356 60,382 Intangible assets, net 169,538 15,351 Deferred income taxes 7,852 6,589 Other assets 14,459 8,019 Total assets $ 3,348,534 $ 2,572,640 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 3 Table of Contents Boise Cascade Company Consolidated Balance Sheets (continued) (unaudited) September 30, 2022 December 31, 2021 (thousands, except per-share data) LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable Trade $ 398,397 $ 334,985 Related parties 1,988 1,498 Accrued liabilities Compensation and benefits 147,548 128,518 Income taxes payable 12,365 — Interest payable 5,081 9,886 Other 174,084 165,859 Total current liabilities 739,463 640,746 Debt Long-term debt 444,175 444,628 Other Compensation and benefits 30,562 28,365 Operating lease liabilities, net of current portion 51,992 55,263 Finance lease liabilities, net of current portion 30,547 31,898 Deferred income taxes 50,884 3,641 Other long-term liabilities 17,839 15,480 181,824 134,647 Commitments and contingent liabilities Stockholders' equity Preferred stock, $ 0.01 par value per share; 50,000 shares authorized, no shares issued and outstanding — — Common stock, $ 0.01 par value per share; 300,000 shares authorized, 44,815 and 44,698 shares issued, respectively 448 447 Treasury stock, 5,367 shares at cost ( 138,909 ) ( 138,909 ) Additional paid-in capital 548,035 543,249 Accumulated other comprehensive loss ( 902 ) ( 1,047 ) Retained earnings 1,574,400 948,879 Total stockholders' equity 1,983,072 1,352,619 Total liabilities and stockholders' equity $ 3,348,534 $ 2,572,640 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 4 Table of Contents Boise Cascade Company Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30 2022 2021 (thousands) Cash provided by (used for) operations Net income $ 740,298 $ 543,411 Items in net income not using (providing) cash Depreciation and amortization, including deferred financing costs and other 71,213 61,559 Stock-based compensation 8,690 5,684 Pension expense 253 57 Deferred income taxes 45,365 ( 12,017 ) Change in fair value of interest rate swaps ( 3,594 ) ( 1,058 ) Other ( 830 ) 928 Decrease (increase) in working capital, net of acquisitions Receivables ( 51,027 ) ( 99,881 ) Inventories ( 83,539 ) ( 142,171 ) Prepaid expenses and other ( 5,901 ) ( 7,007 ) Accounts payable and accrued liabilities 78,444 186,090 Pension contributions ( 922 ) ( 229 ) Income taxes payable 14,970 ( 7,927 ) Other 705 ( 348 ) Net cash provided by operations 814,125 527,091 Cash provided by (used for) investment Expenditures for property and equipment ( 61,835 ) ( 51,460 ) Acquisitions of businesses and facilities ( 516,881 ) — Proceeds from sales of assets and other 3,094 636 Net cash used for investment ( 575,622 ) ( 50,824 ) Cash provided by (used for) financing Borrowings of long-term debt, including revolving credit facility — 28,000 Payments of long-term debt, including revolving credit facility — ( 28,000 ) Payments of deferred financing costs ( 1,170 ) — Dividends paid on common stock ( 114,025 ) ( 90,969 ) Tax withholding payments on stock-based awards ( 3,930 ) ( 2,729 ) Other ( 1,221 ) ( 1,065 ) Net cash used for financing ( 120,346 ) ( 94,763 ) Net increase in cash and cash equivalents 118,157 381,504 Balance at beginning of the period 748,907 405,382 Balance at end of the period $ 867,064 $ 786,886 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 5 Table of Contents Boise Cascade Company Consolidated Statements of Stockholders' Equity (unaudited) Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shares Amount Shares Amount (thousands) Balance at December 31, 2021 44,698 $ 447 5,367 $ ( 138,909 ) $ 543,249 $ ( 1,047 ) $ 948,879 $ 1,352,619 Net income 302,600 302,600 Other comprehensive income 114 114 Common stock issued 117 1 1 Stock-based compensation 2,392 2,392 Common stock dividends ($ 0.12 per share) ( 5,133 ) ( 5,133 ) Tax withholding payments on stock-based awards ( 3,930 ) ( 3,930 ) Proceeds from exercise of stock options 27 27 Other ( 1 ) ( 1 ) Balance at March 31, 2022 44,815 $ 448 5,367 $ ( 138,909 ) $ 541,737 $ ( 933 ) $ 1,246,346 $ 1,648,689 Net income 218,111 218,111 Other comprehensive income 16 16 Stock-based compensation 3,011 3,011 Common stock dividends ($ 2.62 per share) ( 104,842 ) ( 104,842 ) Balance at June 30, 2022 44,815 $ 448 5,367 $ ( 138,909 ) $ 544,748 $ ( 917 ) $ 1,359,615 $ 1,764,985 Net income 219,587 219,587 Other comprehensive income 15 15 Stock-based compensation 3,287 3,287 Common stock dividends ($ 0.12 per share) ( 4,802 ) ( 4,802 ) Balance at September 30, 2022 44,815 $ 448 5,367 $ ( 138,909 ) $ 548,035 $ ( 902 ) $ 1,574,400 $ 1,983,072 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 6 Table of Contents Boise Cascade Company Consolidated Statements of Stockholders' Equity (continued) (unaudited) Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shares Amount Shares Amount (thousands) Balance at December 31, 2020 44,568 $ 446 5,367 $ ( 138,909 ) $ 538,006 $ ( 1,078 ) $ 452,334 $ 850,799 Net income 149,156 149,156 Other comprehensive loss ( 4 ) ( 4 ) Common stock issued 130 1 1 Stock-based compensation 2,092 2,092 Common stock dividends ($ 0.10 per share) ( 4,116 ) ( 4,116 ) Tax withholding payments on stock-based awards ( 2,729 ) ( 2,729 ) Proceeds from exercise of stock options 63 63 Other ( 1 ) ( 1 ) Balance at March 31, 2021 44,698 $ 447 5,367 $ ( 138,909 ) $ 537,431 $ ( 1,082 ) $ 597,374 $ 995,261 Net income 302,556 302,556 Other comprehensive loss ( 3 ) ( 3 ) Stock-based compensation 1,411 1,411 Common stock dividends ($ 2.10 per share) ( 83,514 ) ( 83,514 ) Other ( 1 ) ( 1 ) Balance at June 30, 2021 44,698 $ 447 5,367 $ ( 138,909 ) $ 538,841 $ ( 1,085 ) $ 816,416 $ 1,215,710 Net income 91,699 91,699 Other comprehensive loss ( 3 ) ( 3 ) Stock-based compensation 2,181 2,181 Common stock dividends ($ 0.10 per share) ( 3,982 ) ( 3,982 ) Balance at September 30, 2021 44,698 $ 447 5,367 $ ( 138,909 ) $ 541,022 $ ( 1,088 ) $ 904,133 $ 1,305,605 See accompanying condensed notes to unaudited quarterly consolidated financial statements. 7 Table of Contents Condensed Notes to Unaudited Quarterly Consolidated Financial Statements 1. Nature of Operations and Consolidation Nature of Operations 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. We are one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading United States wholesale distributor of building products. We operate our business using two reportable segments: (1) Wood Products, which primarily manufactures EWP and plywood, and (2) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. For more information, see Note 12, Segment Information. Consolidation The accompanying quarterly consolidated financial statements have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments necessary to present fairly the financial position, results of operations, cash flows, and stockholders' equity for the interim periods presented. Except as disclosed within these condensed notes to unaudited quarterly consolidated financial statements, the adjustments made were of a normal, recurring nature. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The quarterly consolidated financial statements include the accounts of Boise Cascade and its subsidiaries after elimination of intercompany balances and transactions. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2021 Form 10-K and the other reports we file with the Securities and Exchange Commission. 2. Summary of Significant Accounting Policies Accounting Policies The complete summary of significant accounting policies is included in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2021 Form 10-K. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived assets; legal contingencies; guarantee obligations; indemnifications; assumptions used in retirement, medical, and workers' compensation benefits; assumptions used in the determination of right-of-use (ROU) assets and related lease liabilities; stock-based compensation; fair value measurements; income taxes; and vendor and customer rebates, among others. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. 8 Table of Contents Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For revenue disaggregated by major product line for each reportable segment, see Note 12, Segment Information. Fees for shipping and handling charged to customers for sales transactions are included in "Sales" in our Consolidated Statements of Operations. When control over products has transferred to the customer, we have elected to recognize costs related to shipping and handling as fulfillment costs. For our Wood Products segment, costs related to shipping and handling are included in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations. In our Wood Products segment, we view our shipping and handling costs as a cost of the manufacturing process and the movement of product to our end customers. For our BMD segment, costs related to shipping and handling of $ 59.5 million and $ 48.3 million, for the three months ended September 30, 2022 and 2021, respectively, and $ 171.9 million and $ 144.5 million for the nine months ended September 30, 2022 and 2021, respectively, are included in "Selling and distribution expenses" in our Consolidated Statements of Operations. In our BMD segment, our activities relate to the purchase and resale of finished product, and excluding shipping and handling costs from "Materials, labor, and other operating expenses (excluding depreciation)" provides us a clearer view of our operating performance and the effectiveness of our sales and purchasing functions. Customer Rebates and Allowances Rebates are provided to our customers and our customers' customers based on the volume of their purchases, among other factors such as customer loyalty, conversion, and commitment, as well as temporary protection from price increases. We provide the rebates to increase the sell-through of our products. Rebates are generally estimated based on the expected amount to be paid and recorded as a decrease in "Sales." At September 30, 2022 and December 31, 2021, we had $ 136.1 million and $ 138.1 million, respectively, of rebates payable to our customers recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. We adjust our estimate of revenue at the earlier of when the probability of rebates paid changes or when the amounts become fixed. There have not been significant changes to our estimates of rebates, although it is reasonably possible that a change in the estimate may occur. Vendor Rebates and Allowances We receive rebates and allowances from our vendors under a number of different programs, including vendor marketing programs. At September 30, 2022 and December 31, 2021, we had $ 12.8 million and $ 13.0 million, respectively, of vendor rebates and allowances recorded in "Receivables, Other" on our Consolidated Balance Sheets. Rebates and allowances received from our vendors are recognized as a reduction of "Materials, labor, and other operating expenses (excluding depreciation)" when the product is sold, unless the rebates and allowances are linked to a specific incremental cost to sell a vendor's product. Amounts received from vendors that are linked to specific selling and distribution expenses are recognized as a reduction of "Selling and distribution expenses" in the period the expense is incurred. Leases We primarily lease land, building, and equipment under operating and finance leases. We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or upon modification. Substantially all of our leases with initial terms greater than one year are for real estate, including distribution centers, corporate headquarters, land, and other office space. Substantially all of these lease agreements have fixed payment terms based on the passage of time and are recorded in our BMD segment. Many of our leases include fixed escalation clauses, renewal options and/or termination options that are factored into our determination of lease term and lease payments when appropriate. Renewal options generally range from one to ten years with fixed payment terms similar to those in the original lease agreements. Some lease agreements provide us with the option to purchase the leased property at market value. Our lease agreements do not contain any residual value guarantees. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. The current portion of our operating and finance lease liabilities are recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. In determining our incremental borrowing rates, we 9 Table of Contents give consideration to publicly available interest rates for instruments with similar characteristics, including credit rating, term, and collateralization. For purposes of determining straight-line rent expense, the lease term is calculated from the date we first take possession of the facility, including any periods of free rent and any renewal option periods we are reasonably certain of exercising. Variable lease expense generally includes reimbursement of actual costs for common area maintenance, property taxes, and insurance on leased real estate and are recorded as incurred. Most of our operating lease expense was recorded in "Selling and distribution expenses" in our Consolidated Statements of Operations. In addition, we do not separate lease and non-lease components for all of our leases. Our short-term leases primarily include equipment rentals with lease terms on a month-to-month basis, which provide for our seasonal needs and flexibility in the use of equipment. Our short-term leases also include certain real estate for which either party has the right to cancel upon providing notice of 30 to 90 days. We do not recognize ROU assets or lease liabilities for short-term leases. Inventories Inventories included the following (work in process is not material): September 30, 2022 December 31, 2021 (thousands) Finished goods and work in process $ 669,615 $ 573,908 Logs 54,028 47,401 Other raw materials and supplies 43,544 39,362 $ 767,187 $ 660,671 Property and Equipment Property and equipment consisted of the following asset classes: September 30, 2022 December 31, 2021 (thousands) Land $ 57,631 $ 51,564 Buildings 210,843 178,323 Improvements 70,806 66,492 Mobile equipment, information technology, and office furniture 202,713 191,134 Machinery and equipment 964,377 735,979 Construction in progress 50,131 35,912 1,556,501 1,259,404 Less: accumulated depreciation ( 811,954 ) ( 764,164 ) $ 744,547 $ 495,240 As of September 30, 2022, $ 251.3 million of property and equipment relates to two plywood facilities acquired by us on July 25, 2022. For more information, see Note 5, Acquisition. 10 Table of Contents Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices, and third-party valuations utilizing underlying asset assumptions (Level 3). Financial Instruments Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and interest rate swaps. Our cash is recorded at cost, which approximates fair value, and our cash equivalents are money market funds. As of September 30, 2022 and December 31, 2021, we held $ 804.3 million and $ 701.6 million, respectively, in money market funds that are measured at fair value on a recurring basis using Level 1 inputs. The recorded values of accounts receivable and accounts payable approximate fair values based on their short-term nature. At September 30, 2022 and December 31, 2021, the book value of our fixed-rate debt for each period was $ 400.0 million, and the fair value was estimated to be $ 332.5 million and $ 420.0 million, respectively. The difference between the book value and the fair value is derived from the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices of our debt in inactive markets (Level 2 inputs). The interest rate on our variable-rate debt is based on market conditions such as the Secured Overnight Financing Rate (SOFR) or a base rate. Because the interest rate on the variable-rate debt is based on current market conditions, we believe that the estimated fair value of the outstanding balance on our variable-rate debt approximates book value. As discussed below, we also have interest rate swaps to mitigate our variable interest rate exposure, the fair value of which is measured based on Level 2 inputs. Interest Rate Risk and Interest Rate Swaps We are exposed to interest rate risk arising from fluctuations in variable-rate SOFR on our term loan and when we have loan amounts outstanding on our Revolving Credit Facility. At September 30, 2022, we had $ 50.0 million of variable-rate debt outstanding based on one-month term SOFR . Our objective is to limit the variability of interest payments on our debt. To meet this objective, we enter into receive-variable, pay-fixed interest rate swaps to change the variable-rate cash flow exposure to fixed-rate cash flows. In accordance with our risk management strategy, we actively monitor our interest rate exposure and use derivative instruments from time to time to manage the related risk. We do not speculate using derivative instruments. At December 31, 2021, we had two interest rate swap agreements. Under the interest rate swaps, we receive one-month LIBOR -based variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $ 50.0 million of variable rate debt exposure. Payments on one interest rate swap, entered into in 2016, with a notional principal amount of $ 50.0 million were due on a monthly basis at an annual fixed rate of 1.007 %, and this swap expired in February 2022 (the Initial Swap). During 2020, we entered into another forward interest rate swap agreement which commenced on the expiration date of the Initial Swap. In September 2022, we amended our interest rate swap to receive variable interest rate payments based on one-month SOFR plus a spread adjustment of 0.10 % and make fixed interest rate payments. Payments on this interest rate swap with a notional principal amount of $ 50.0 million are due on a monthly basis at an annual fixed rate. The interest rate swap amendment increased the annual fixed rate from 0.39 % to 0.41 %, and this swap expires in June 2025 . The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income. At September 30, 2022, we recorded a long-term asset of $ 4.8 million in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreement. At December 31, 2021, we recorded a long-term asset of $ 1.2 million in "Other assets" on our Consolidated Balance Sheets, and we also recorded a long-term liability of $ 0.1 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. The swaps were valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs). 11 Table of Contents Concentration of Credit Risk We are exposed to credit risk related to customer accounts receivable. In order to manage credit risk, we consider customer concentrations and current economic trends and monitor the creditworthiness of significant customers based on ongoing credit evaluations. At September 30, 2022, receivables from two customers accounted for approximately 18 % and 12 % of total receivables. At December 31, 2021, receivables from these two customers accounted for approximately 20 % and 12 % of total receivables. No other customer accounted for 10% or more of total receivables. New and Recently Adopted Accounting Standards In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU requires an acquirer to account for revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. This ASU is applicable to our fiscal year beginning January 1, 2023, and the impact of its adoption on our consolidated financial statements will depend on the contract assets and liabilities acquired in business combinations after that date. There were no other accounting standards recently issued that had or are expected to have a material impact on our consolidated financial statements and associated disclosures. 3. Income Taxes For the three and nine months ended September 30, 2022, we recorded $ 76.0 million and $ 248.8 million, respectively, of income tax expense and had an effective rate of 25.7 % and 25.2 %, respectively. 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 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. During the nine months ended September 30, 2022 and 2021, cash paid for taxes, net of refunds received, were $ 189.0 million and $ 203.5 million, respectively. 4. Net Income Per Common Share Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Weighted average common shares outstanding for the basic net income per common share calculation includes certain vested restricted stock units (RSUs) and performance stock units (PSUs) as there are no conditions under which those shares will not be issued. Diluted net income per common share is computed by dividing net income by the combination of the weighted average number of common shares outstanding during the period and other potentially dilutive weighted average common shares. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, RSUs, and PSUs for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share and the amount of compensation expense, if any, for future service that has not yet been recognized are assumed to be used to repurchase shares in the current period. 12 Table of Contents The following table sets forth the computation of basic and diluted net income per common share: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands, except per-share data) Net income $ 219,587 $ 91,699 $ 740,298 $ 543,411 Weighted average common shares outstanding during the period (for basic calculation) 39,544 39,442 39,521 39,413 Dilutive effect of other potential common shares 232 219 241 210 Weighted average common shares and potential common shares (for diluted calculation) 39,776 39,661 39,762 39,623 Net income per common share - Basic $ 5.55 $ 2.32 $ 18.73 $ 13.79 Net income per common share - Diluted $ 5.52 $ 2.31 $ 18.62 $ 13.71 The computation of the dilutive effect of other potential common shares excludes stock awards representing 0.1 million and no shares of common stock, respectively, in the three months ended September 30, 2022 and 2021, and 0.1 million shares of common stock for both the nine months ended September 30, 2022 and 2021. Under the treasury stock method, the inclusion of these stock awards would have been antidilutive. 5. Acquisition We account for acquisition transactions in accordance with ASC 805, Business Combinations . Accordingly, the results of operations of the acquiree are included in our consolidated financial statements from the acquisition date. The consideration transferred is allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with any excess recorded as goodwill. Transaction-related costs are expensed in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. On July 25, 2022, our wholly-owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of 100 % of the equity interest in Coastal Plywood Company (Coastal Plywood), and its plywood manufacturing operations located in Havana, Florida, and Chapman, Alabama for a purchase price of $ 516.9 million, inclusive of estimated working capital at closing of approximately $ 27 million, which is subject to post-closing adjustments (the Acquisition). We funded the Acquisition and related costs with cash on hand. Acquisition-related costs of $ 0.1 million and $ 1.3 million are recorded in "General and administrative expenses" in our Consolidated Statements of Operations for the three and nine months ended September 30, 2022. 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. Sales, including sales to our BMD segment, from these facilities of $ 43.0 million was reported as part of the Wood Products segment for the third quarter 2022. In addition, the Wood Products segment reported an operating loss of $ 0.8 million from these facilities for the third quarter 2022, which included $ 9.4 million of expense related to the sell-through of inventory recorded at fair market value in connection with the Acquisition. Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired. The primary qualitative factor that contributed to the recognition of goodwill relates to the incremental stress-rated veneer and assembled workforce the facilities provide to allow us to expand our EWP capacity and improve our mix of plywood offerings to serve future and existing customers. The facilities are geographically located in an area that allows us to optimize our mill system and realize freight and other cost synergies. All of the goodwill was assigned to the Wood Products reporting unit and is deductible for U.S. income tax purposes. 13 Table of Contents The Acquisition purchase price allocations are preliminary and subject to post-closing adjustments. Our estimates and assumptions are subject to change as more information becomes available. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of fixed assets, working capital, customer relationships, and residual goodwill. The following table summarizes the allocations of the purchase price to the assets acquired and liabilities assumed, based on our current estimates of the fair value at the date of the Acquisition: Acquisition Date Fair Value (thousands) Accounts receivable $ 18,216 Inventories 22,300 Property and equipment 251,329 Other assets 1,874 Intangible assets: Trade name 1,200 Customer relationships 156,700 Goodwill 73,974 Assets acquired 525,593 Accounts payable and accrued liabilities 6,134 Other long-term liabilities 2,578 Liabilities assumed 8,712 Net assets acquired $ 516,881 Pro Forma Financial Information The following pro forma financial information presents the combined results of operations as if the two Coastal Plywood facilities had been combined with us on January 1, 2021. The pro forma results are intended for information purposes only and do not purport to represent what the combined companies' results of operations would actually have been had the related transaction in fact occurred on January 1, 2021. They also do not reflect any cost savings, operating synergies, or revenue enhancements that we may achieve or the costs necessary to achieve these cost savings, operating synergies, revenue enhancements, or integration efforts. Pro Forma Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (unaudited, thousands, except per share data) Sales $ 2,175,930 $ 1,950,267 $ 6,989,799 $ 6,449,695 Net income (a) $ 229,125 $ 100,109 $ 809,334 $ 638,834 ___________________________________ (a) The pro forma financial information for the three and nine months ended September 30, 2022 was adjusted to exclude $ 0.1 million and $ 1.3 million, respectively, of acquisition-related costs for legal, accounting, and other advisory-related services. 14 Table of Contents 6. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired. The carrying amount of our goodwill by segment is as follows: Building Materials Distribution Wood Products Total (thousands) Balance at December 31, 2021 $ 11,792 $ 48,590 $ 60,382 Additions (a) — 73,974 73,974 Balance at September 30, 2022 $ 11,792 $ 122,564 $ 134,356 ___________________________________ (a) Represents the acquisition of two Coastal Plywood facilities. For additional information, see Note 5, Acquisition. At September 30, 2022 and December 31, 2021, intangible assets represented the values assigned to trade names, trademarks and customer relationships. We maintain trademarks for our manufactured wood products, particularly EWP. Our key registered trademarks are perpetual in duration as long as we continue to timely file all post registration maintenance documents related thereto. These trade names and trademarks have indefinite lives and are not amortized. In addition, we recently acquired a trade name and customer relationships as discussed in Note 5, Acquisition. This acquired trade name has a useful life of one year . The weighted-average useful life for customer relationships from the date of purchase is approximately 10 years. Amortization expense is expected to be approximately $ 16.8 million per year for the next five years. Intangible assets consisted of the following: September 30, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount (thousands) Trade names and trademarks $ 10,100 $ ( 200 ) $ 9,900 Customer relationships 169,150 ( 9,512 ) 159,638 $ 179,250 $ ( 9,712 ) $ 169,538 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount (thousands) Trade names and trademarks $ 8,900 $ — $ 8,900 Customer relationships 12,450 ( 5,999 ) 6,451 $ 21,350 $ ( 5,999 ) $ 15,351 15 Table of Contents 7. Debt Long-term debt consisted of the following: September 30, 2022 December 31, 2021 (thousands) Asset-based revolving credit facility due 2027 $ — $ — Asset-based credit facility term loan due 2027 50,000 50,000 4.875% senior notes due 2030 400,000 400,000 Deferred financing costs ( 5,825 ) ( 5,372 ) Long-term debt $ 444,175 $ 444,628 Asset-Based Credit Facility On May 15, 2015, Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., as borrowers, and Boise Cascade Wood Products Holdings Corp., as guarantor, entered into an Amended and Restated Credit Agreement, as amended, (the Amended Agreement) with Wells Fargo Capital Finance, LLC, as administrative agent, and the banks named therein as lenders. On September 9, 2022, we entered into the Eighth Amendment to the Amended Agreement (the Amendment) to increase the maximum amount available for revolving loans from $ 350 million to $ 400 million (the Revolving Credit Facility) and to extend the maturity date of the Amended Agreement to the earlier of (a) September 9, 2027 and (b) 90 days prior to the maturity of our $ 400 million of 4.875 % senior notes due July 1, 2030 (or the maturity date of any permitted refinancing indebtedness or permitted upsized refinancing indebtedness in respect thereof). The term loan within the Amended Agreement remains at $ 50.0 million (ABL Term Loan). The Amendment also replaced the LIBOR rate with SOFR. In addition, the Amendment reduced the unused commitment fee and modified certain financial covenants. Interest on borrowings under our Revolving Credit Facility and ABL Term Loan are payable monthly. Borrowings under the Amended Agreement are constrained by a borrowing base formula dependent upon levels of eligible receivables and inventory reduced by outstanding borrowings and letters of credit (Availability). The Amended Agreement is secured by a first-priority security interest in substantially all of our assets, except for property and equipment. The proceeds of borrowings under the agreement are available for working capital and other general corporate purposes. The Amended Agreement contains customary nonfinancial covenants, including a negative pledge covenant and restrictions on new indebtedness, investments, distributions to equity holders, asset sales, and affiliate transactions, the scope of which are dependent on the Availability existing from time to time. The Amended Agreement also contains a requirement that we meet a 1 :1 fixed-charge coverage ratio (FCCR), applicable only if Availability falls below the greater of (a) 10 % of the Line Cap (as defined in the Amended Agreement) and (b) $ 35 million. Availability exceeded the minimum threshold amounts required for testing of the FCCR at all times since entering into the Amended Agreement, and Availability at September 30, 2022 was $ 396.2 million. The Amended Agreement permits us to pay dividends only if at the time of payment (a) no default has occurred or is continuing (or would result from such payment) under the Amended Agreement, and (b) either (i) pro forma Excess Availability (as defined in the Amended Agreement) is equal to or exceeds the greater of (a) 20 % of the Line Cap and (b) $ 75 million or (ii) (x) pro forma Excess Availability is equal to or exceeds the greater of (a) 15 % of Line Cap and (b) $ 55 million and (y) our fixed-charge coverage ratio is greater than or equal to 1 :1 on a pro forma basis. 16 Table of Contents Revolving Credit Facility Interest rates under the Revolving Credit Facility are based, at our election, on either Daily Simple SOFR, Term SOFR, or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from 1.25 % to 1.50 % for loans based on SOFR and from 0.25 % to 0.50 % for loans based on the base rate. The spread is determined on the basis of a pricing grid that results in a higher spread as average quarterly Availability declines. Both SOFR options include an additional credit spread adjustment of 0.10 %. Letters of credit are subject to a fronting fee payable to the issuing bank and a fee payable to the lenders equal to the Term SOFR margin rate. In addition, we are required to pay an unused commitment fee at a rate of 0.20 % per annum of the average unused portion of the lending commitments. At both September 30, 2022 and December 31, 2021, we had no borrowings outstanding under the Revolving Credit Facility. At September 30, 2022 and December 31, 2021, we had $ 3.8 million and $ 4.0 million, respectively, of letters of credit outstanding. These letters of credit and borrowings, if any, reduce availability under the Revolving Credit Facility by an equivalent amount. ABL Term Loan The ABL Term Loan was provided by institutions within the Farm Credit system. Borrowings under the ABL Term Loan may be repaid from time to time at the discretion of the borrowers without premium or penalty. However, any principal amount of ABL Term Loan repaid may not be subsequently re-borrowed. Interest rates under the ABL Term Loan are based, at our election, on either Daily Simple SOFR, Term SOFR, or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from 1.75 % to 2.00 % for SOFR rate loans and from 0.75 % to 1.00 % for base rate loans, both dependent on the amount of Average Excess Availability (as defined in the Amended Agreement). Both SOFR options include an additional credit spread adjustment of 0.10 %. During the nine months ended September 30, 2022, the average interest rate on the ABL Term Loan was approximately 2.83 %. We have received and expect to continue receiving patronage credits under the ABL Term Loan. Patronage credits are distributions of profits from banks in the Farm Credit system, which are cooperatives that are required to distribute profits to their members. Patronage distributions, which are generally made in cash, are received in the year after they are earned. Patronage credits are recorded as a reduction to interest expense in the year earned. After giving effect to expected patronage distributions, the effective average net interest rate on the ABL Term Loan was approximately 1.8 % during the nine months ended September 30, 2022. 2030 Notes On July 27, 2020, we issued $ 400 million of 4.875 % senior notes due July 1, 2030 (2030 Notes) through a private placement that was exempt from the registration requirements of the Securities Act. Interest on our 2030 Notes is payable semiannually in arrears on January 1 and July 1. The 2030 Notes are guaranteed by each of our existing and future direct or indirect domestic subsidiaries that is a guarantor under our Amended Agreement. The 2030 Notes are senior unsecured obligations and rank equally with all of the existing and future senior indebtedness of Boise Cascade Company and of the guarantors, senior to all of their existing and future subordinated indebtedness, effectively subordinated to all of their present and future senior secured indebtedness (including all borrowings with respect to our Amended Agreement to the extent of the value of the assets securing such indebtedness), and structurally subordinated to the indebtedness of any subsidiaries that do not guarantee the 2030 Notes. The terms of the indenture governing the 2030 Notes, among other things, limit the ability of Boise Cascade and our restricted subsidiaries to: incur additional debt; declare or pay dividends; redeem stock or make other distributions to stockholders; make investments; create liens on assets; consolidate, merge or transfer substantially all of their assets; enter into transactions with affiliates; and sell or transfer certain assets. The indenture governing the 2030 Notes permits us to pay dividends only if at the time of payment (i) no default has occurred or is continuing (or would result from such payment) under the indenture, and (ii) our consolidated leverage ratio is no greater than 3.5 :1, or (iii) the dividend, together with other dividends since the issue date, would not exceed our "builder" basket under the indenture. In addition, the indenture includes certain specific baskets for the payment of dividends. The indenture governing the 2030 Notes provides for customary events of default and remedies. 17 Table of Contents Interest Rate Swaps For information on interest rate swaps, see Interest Rate Risk and Interest Rate Swaps of Note 2, Summary of Significant Accounting Policies. Cash Paid for Interest For the nine months ended September 30, 2022 and 2021, cash payments for interest were $ 22.1 million and $ 20.4 million, respectively. 8. Leases Lease Costs The components of lease expense were as follows: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands) Operating lease cost $ 3,588 $ 3,474 $ 10,734 $ 10,199 Finance lease cost Amortization of right-of-use assets 617 598 1,863 1,803 Interest on lease liabilities 587 592 1,762 1,775 Variable lease cost 1,052 927 3,174 2,651 Short-term lease cost 1,409 1,391 4,061 3,646 Sublease income ( 106 ) ( 113 ) ( 330 ) ( 176 ) Total lease cost $ 7,147 $ 6,869 $ 21,264 $ 19,898 Other Information Supplemental cash flow information related to leases was as follows: Nine Months Ended September 30 2022 2021 (thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases 10,533 10,080 Operating cash flows from finance leases 1,760 1,768 Financing cash flows from finance leases 1,250 1,127 Right-of-use assets obtained in exchange for lease obligations Operating leases 4,997 9,532 Finance leases — — 18 Table of Contents Other information related to leases was as follows: September 30, 2022 December 31, 2021 Weighted-average remaining lease term (years) Operating leases 7 7 Finance leases 14 15 Weighted-average discount rate Operating leases 5.9 % 5.9 % Finance leases 7.5 % 7.5 % As of September 30, 2022, our minimum lease payment requirements for noncancelable operating and finance leases are as follows: Operating Leases Finance Leases (thousands) Remainder of 2022 $ 3,717 $ 1,013 2023 14,657 4,058 2024 12,593 4,051 2025 10,472 3,735 2026 7,326 3,580 Thereafter 30,469 36,809 Total future minimum lease payments 79,234 53,246 Less: interest ( 15,860 ) ( 20,909 ) Total lease obligations 63,374 32,337 Less: current obligations ( 11,382 ) ( 1,790 ) Long-term lease obligations $ 51,992 $ 30,547 9. Stock-Based Compensation In first quarter 2022 and 2021, we granted two types of stock-based awards under our incentive plan: performance stock units (PSUs) and restricted stock units (RSUs). PSU and RSU Awards During the nine months ended September 30, 2022, we granted 66,180 PSUs to our officers and other employees, subject to performance and service conditions. For the officers, the number of shares actually awarded will range from 0 % to 200 % of the target amount, depending upon Boise Cascade's 2022 return on invested capital (ROIC), as approved by our Compensation Committee in accordance with the related grant agreement. We define ROIC as net operating profit after taxes (NOPAT) divided by average invested capital (based on a rolling thirteen-month average). We define NOPAT as net income plus after-tax financing expense. Invested capital is defined as total assets plus capitalized lease expense, less current liabilities, excluding short-term debt. For our other employees, the number of shares actually awarded will range from 0 % to 200 % of the target amount, depending upon Boise Cascade’s 2022 EBITDA, defined as income before interest (interest expense and interest income), income taxes, and depreciation and amortization, as approved by executive management, determined in accordance with the related grant agreement. Because the PSUs contain a performance condition, we record compensation expense over the requisite service period based on the most probable number of shares expected to vest. During the nine months ended September 30, 2021, we granted 73,265 PSUs to our officers and other employees, subject to performance and service conditions. During the 2021 performance period, officers and other employees both earned 200 % of the target based on Boise Cascade's 2021 ROIC and EBITDA, as applicable, determined by our Compensation Committee and executive management in accordance with the related grant agreements. 19 Table of Contents The PSUs granted to officers generally vest in a single installment three years from the date of grant, while the PSUs granted to other employees vest in three equal tranches each year after the grant date. During the nine months ended September 30, 2022 and 2021, we granted an aggregate of 86,869 and 101,059 RSUs, respectively, to our officers, other employees, and nonemployee directors with only service conditions. The RSUs granted to officers and other employees vest in three equal tranches each year after the grant date. The RSUs granted to nonemployee directors vest in a single installment after a one year period. We based the fair value of PSU and RSU awards on the closing market price of our common stock on the grant date. During the nine months ended September 30, 2022 and 2021, the total fair value of PSUs and RSUs vested was $ 12.0 million and $ 9.2 million, respectively. The following summarizes the activity of our PSUs and RSUs awarded under our incentive plan for the nine months ended September 30, 2022: PSUs RSUs Number of shares Weighted Average Grant-Date Fair Value Number of shares Weighted Average Grant-Date Fair Value Outstanding, December 31, 2021 246,210 $ 39.50 161,300 $ 45.08 Granted 66,180 79.81 86,869 79.92 Performance condition adjustment (a) 64,399 52.45 — — Vested ( 58,935 ) 34.41 ( 91,594 ) 43.58 Forfeited — — ( 1,236 ) 79.83 Outstanding, September 30, 2022 317,854 $ 51.46 155,339 $ 65.17 _______________________________ (a) Represents additional PSUs granted during the nine months ended September 30, 2022, related to above-target achievement of the 2021 performance condition described above. Compensation Expense We record compensation expense over the awards' vesting period and account for share-based award forfeitures as they occur, rather than making estimates of future forfeitures. Any shares not vested are forfeited. We recognize compensation expense for stock awards with only service conditions on a straight-line basis over the requisite service period. Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Operations. Total stock-based compensation recognized from PSUs and RSUs, net of forfeitures, was as follows: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands) PSUs $ 1,933 $ 1,190 $ 4,934 $ 3,024 RSUs 1,354 991 3,756 2,660 Total $ 3,287 $ 2,181 $ 8,690 $ 5,684 The related tax benefit for the nine months ended September 30, 2022 and 2021, was $ 2.2 million and $ 1.4 million respectively. As of September 30, 2022, total unrecognized compensation expense related to nonvested share-based compensation arrangements was $ 16.9 million. This expense is expected to be recognized over a weighted-average period of 1.9 years. 20 Table of Contents 10. Stockholders' Equity Dividends On November 14, 2017, we announced that our board of directors approved a dividend policy to pay quarterly cash dividends to holders of our common stock. For more information regarding our dividend declarations and payments made during each of the nine months ended September 30, 2022 and 2021, see "Common stock dividends" on our Consolidated Statements of Stockholders' Equity. On October 27, 2022 , our board of directors declared a quarterly dividend of $ 0.15 per share on our common stock, as well as a special dividend of $ 1.00 per share on our common stock, both payable on December 15, 2022 , to stockholders of record on December 1, 2022 . For a description of the restrictions in our asset-based credit facility and the indenture governing our senior notes on our ability to pay dividends, see Note 7, Debt. 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. Stock Repurchase Program On July 28, 2022, our board of directors authorized the repurchase of an additional 1.5 million shares of our common stock. This increase is in addition to the remaining authorized shares under our prior common stock repurchase program (the Program). The total combined authorization is approximately 2.0 million shares. Share repurchases may be made on an opportunistic basis through open market transactions, privately negotiated transactions, or by other means in accordance with applicable federal securities laws. We are not obligated to purchase any shares, and there is no set date that the program will expire. Our board of directors, at its discretion, may increase or decrease the number of authorized shares or terminate the program at any time. During the nine months ended September 30, 2022, we did not purchase any shares under the Program. Accumulated Other Comprehensive Loss The following table details the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands) Beginning balance, net of taxes $ ( 917 ) $ ( 1,085 ) $ ( 1,047 ) $ ( 1,078 ) Amortization of actuarial (gain) loss, before taxes (a) 21 ( 5 ) 63 ( 14 ) Effect of settlements, before taxes (a) — — 130 — Income taxes ( 6 ) 2 ( 48 ) 4 Ending balance, net of taxes $ ( 902 ) $ ( 1,088 ) $ ( 902 ) $ ( 1,088 ) ___________________________________ (a) Represents amounts reclassified from accumulated other comprehensive loss. These amounts are included in the computation of net periodic pension cost. 11. Transactions With Related Party Louisiana Timber Procurement Company, L.L.C. (LTP) is an unconsolidated variable-interest entity that is 50 % owned by us and 50 % owned by Packaging Corporation of America (PCA). LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of us and PCA in Louisiana. We are not the primary beneficiary of LTP as we do not have power to direct the activities that most significantly affect the economic performance of LTP. Accordingly, we do not consolidate LTP's results in our financial statements. 21 Table of Contents Sales Related-party sales to LTP from our Wood Products segment in our Consolidated Statements of Operations were $ 3.4 million and $ 3.6 million, respectively, during the three months ended September 30, 2022 and 2021, and $ 10.6 million and $ 10.2 million, respectively, during the nine months ended September 30, 2022 and 2021. These sales are recorded in "Sales" in our Consolidated Statements of Operations. Costs and Expenses Related-party wood fiber purchases from LTP were $ 23.1 million and $ 22.3 million, respectively, during the three months ended September 30, 2022 and 2021, and $ 67.4 million and $ 63.3 million, respectively, during the nine months ended September 30, 2022 and 2021. These costs are recorded in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations. 12. Segment Information We operate our business using two reportable segments: Wood Products and BMD. Unallocated corporate costs are presented as reconciling items to arrive at operating income. There are no differences in our basis of measurement of segment profit or loss from those disclosed in Note 16, Segment Information, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2021 Form 10-K. Wood Products and BMD segment sales to external customers, including related parties, by product line are as follows: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (millions) Wood Products (a) LVL (b) $ 12.3 $ ( 5.1 ) $ 4.5 $ 4.6 I-joists (b) 5.7 ( 9.3 ) ( 9.0 ) ( 1.4 ) Other engineered wood products (b) 10.3 9.6 35.2 32.8 Plywood and veneer 115.4 119.2 388.8 443.2 Lumber 21.7 21.3 60.2 65.9 Byproducts 23.9 17.7 62.3 54.3 Other 8.4 4.9 17.1 15.8 197.8 158.3 559.2 615.3 Building Materials Distribution Commodity 775.0 770.9 2,833.1 2,985.3 General line 691.0 580.8 2,006.8 1,620.2 Engineered wood products 490.7 369.5 1,359.9 923.1 1,956.8 1,721.1 6,199.8 5,528.6 $ 2,154.6 $ 1,879.5 $ 6,759.0 $ 6,143.9 ___________________________________ (a) Amounts represent sales to external customers. Sales are calculated after intersegment sales eliminations to our BMD segment. (b) Sales of EWP to external customers are net of the cost of all EWP rebates and sales allowances provided at various stages of the supply chain (including distributors, dealers, and homebuilders). For both the nine months ended September 30, 2022 and 2021, approximately 78 % of Wood Products' EWP sales volumes were to our BMD segment. 22 Table of Contents An analysis of our operations by segment is as follows: Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (thousands) Net sales by segment Wood Products $ 595,320 $ 497,316 $ 1,690,294 $ 1,524,220 Building Materials Distribution 1,956,802 1,721,244 6,199,835 5,528,765 Intersegment eliminations (a) ( 397,475 ) ( 339,109 ) ( 1,131,128 ) ( 909,057 ) Total net sales $ 2,154,647 $ 1,879,451 $ 6,759,001 $ 6,143,928 Segment operating income Wood Products $ 155,972 $ 122,056 $ 500,189 $ 432,869 Building Materials Distribution 154,436 16,565 534,636 343,122 Total segment operating income 310,408 138,621 1,034,825 775,991 Unallocated corporate costs ( 11,038 ) ( 9,235 ) ( 32,752 ) ( 31,569 ) Income from operations $ 299,370 $ 129,386 $ 1,002,073 $ 744,422 ___________________________________ (a) Primarily represents intersegment sales from our Wood Products segment to our BMD segment. 13. Commitments, Legal Proceedings and Contingencies, and Guarantees Commitments We are a party to a number of long-term log supply agreements that are discussed in 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. In addition, we have purchase obligations for goods and services, capital expenditures, and raw materials entered into in the normal course of business. As of September 30, 2022, there have been no material changes to the above commitments disclosed in the 2021 Form 10-K. Legal Proceedings and Contingencies We are a party to legal proceedings that arise in the ordinary course of our business, including commercial liability claims, premises claims, environmental claims, and employment-related claims, among others. As of the date of this filing, we do not believe that we are party to any legal action that could reasonably be expected to have, individually or in the aggregate, a material adverse effect on our financial position, results of operations, or cash flows. Guarantees We provide guarantees, indemnifications, and assurances to others. 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 describes 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, 2022, there have been no material changes to the guarantees disclosed in the 2021 Form 10-K. 23 Table of Contents