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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-22 · 215 added, 276 removed, 374 unchanged (57% of the section changed)

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"Risk Factors." References to "fiscal year" or "fiscal" refer to our fiscal year ending on December 31 in each calendar year.

The following sections discuss our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.

For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Company Background

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In our Wood Products segment, income increased by $44.0 million to $575.2 million for the year ended December 31, 2022, from $531.2 million in 2021.

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

These improvements were offset partially by higher wood fiber costs and other manufacturing costs.

In our BMD segment, income improved $233.6 million to $481.1 million for the year ended December 31, 2021, from $247.5 million for the year ended December 31, 2020, driven by a gross margin increase of $296.8 million, resulting from improved gross margins across our EWP, general line, and commodity product categories.

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

This increase was offset partially by lower plywood sales prices, lower EWP sales volumes, and higher wood fiber costs and other manufacturing costs.

In addition, depreciation and amortization expense increased due to the acquisition of two plywood facilities on July 25, 2022.

In our BMD segment, income improved $146.0 million to $627.1 million for the year ended December 31, 2022, from $481.1 million for the year ended December 31, 2021, driven by a gross margin increase of $215.5 million, primarily related to improved gross margins across our EWP and general line products.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $56.8 million and $7.8 million, respectively.

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

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 (the Acquisition) for a purchase price of $515.2 million, including closing date working capital of $25.2 million.

We continue to integrate these facilities into our system, which will provide incremental stress-rated veneer needed to optimize and expand our southeastern U.S.

EWP production capacity.

In addition, the Havana plywood operation improves our mix of specialty plywood products and we believe is well positioned geographically to support plywood demand in the southeastern U.S.

We ended 2022 with $998.3 million of cash and cash equivalents and $444.4 million of debt.

At December 31, 2022, we had $396.2 million of unused committed bank line availability.

We generated $343.5 million of cash during the year ended December 31, 2021, as cash provided by operations was offset partially by capital spending and dividends paid on our common stock.

We generated $249.4 million of cash during the year ended December 31, 2022, as cash provided by operations was offset partially by funding the Acquisition, capital spending and dividends paid on our common stock.

A further description of our cash sources and uses for the comparative periods are discussed in "Liquidity and Capital Resources" below.

During 2021, our Wood Products and BMD locations continued to experience periodic short-term disruptions due to COVID-19 as we continued efforts to increase production rates and distribution capabilities in response to strong end-product demand.

Furthermore, supply-side constraints across product lines including shortages of materials, labor, and transportation resources limited the industry's ability to meet underlying demand.

The effects of the COVID-19 vaccine and COVID-19 safety protocols helped slow pandemic-related disruptions at times;

however, COVID-19 variants continue to spread throughout the United States, causing more short-term disruptions as we entered 2022.

We continue to conduct business with certain modifications to mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications.

In addition, we continue to actively monitor evolving developments, including the impact of COVID-19 variants, and may take actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, communities, and stockholders.

Economic uncertainty due to the ongoing COVID-19 pandemic continues.

However, mortgage rate levels, continuation of work-from-home practices by many in the economy, and demographics in the U.S.

have created a favorable demand environment for new residential construction, which we expect to continue in 2022.

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

was 1.60 million units, compared with actual housing starts of 1.60 million in 2021 and 1.38 million in 2020, as reported by the 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.

While mortgage rates have declined from peak levels in late 2022 and home price increases have moderated, home affordability remains a challenge for consumers.

The Federal Reserve's upcoming actions in response to inflationary data and what impacts these actions have on mortgage rates and the broader economy will continue to influence the near-term demand environment.

We expect a deceleration in housing starts, with various industry forecasts for 2023 single- and multi-family housing starts in the U.S generally ranging from 1.1 million to 1.3 million units, compared with actual housing starts of 1.55 million in 2022 and 1.60 million in 2021, as reported by the U.S.

Census Bureau.

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

housing stock will continue to provide a favorable backdrop for residential construction and repair-and-remodel spending.

Although we believe that current U.S.

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

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

As it relates to home improvement spending, the age of U.S.

housing stock and elevated levels of homeowner equity provide a favorable backdrop for repair-and-remodel spending.

While likely 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 sells 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.

Our 2021 results were favorably impacted by historically high commodity wood products pricing, as well as rising prices for EWP and general line products.

Composite lumber and panel prices were very volatile throughout 2021 with rapidly rising prices in second quarter, sharp price declines in third quarter, and prices steadily increasing again during fourth quarter.

As we enter 2022, commodity wood products pricing continues to be above historical averages as strong demand and capacity constraints continue to create supply/demand imbalances in the marketplace.

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

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

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.

In addition, we have experienced price erosion and reduced volumes on our EWP products due to slowing economic activity and decreased demand for new residential construction.

As such, we have and will continue to manage our production levels to meet current and expected sales demand, which will result in operating some of our facilities below their capacity until demand improves.

Factors That Affect Our Operating Results and Trends

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Composite structural panel and lumber prices have been volatile historically.

The following table provides changes in the average composite panel, including certain panel subcategories, and average composite lumber prices as reflected by Random Lengths, an industry publication, for the periods noted below.

In addition to the year-over-year average price changes, 2022 and 2021 were years of exceptional price volatility when compared to historical results.

Year Ended December 31

2021 versus 2020 2020 versus 2019 2019 versus 2018

2022 versus 2021

Increase (decrease) in composite panel prices (18)%

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Our BMD segment purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments may result in declines in sales and profitability.

For further discussion of the impact of commodity prices on historical periods, see "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

For further discussion of the impact of commodity prices, see "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

General Economic and Industry Conditions Affecting Demand

The level of housing starts is especially important to our results of operations.

New residential construction activity has historically been volatile with demand influenced by several economic conditions, including domestic population growth, immigration rates, residential vacancy and foreclosure rates, demand for second homes, and existing home prices.

The pace of household formation rates and residential repair-and-remodeling activity will also be affected by the economic impact of the ongoing COVID-19 pandemic, employment levels, demographic trends, wage growth, housing affordability, availability of construction labor, materials, and building lots, prospective home buyers' access to financing, consumer confidence, as well as other factors.

Improved household formation rates in turn will help stimulate new construction.

In addition, the size of new single-family residences as well as the mix of single and multi-family starts will influence product consumption.

Increases in EWP demand will be highly influenced by single-family housing starts.

Industry supply for the products we produce and distribute is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies, capacity additions and closures, restart of idled capacity, and log availability.

New residential construction activity has historically been volatile with demand for new residential construction influenced by seasonal weather factors, mortgage availability and rates, housing affordability constraints, unemployment levels, wage growth, household formation rates, domestic population growth, immigration rates, residential vacancy and foreclosure rates, demand for second homes, consumer confidence, and other general economic factors.

Furthermore, changing demographics could impact product consumption and demand including urbanization compounding issues around affordability, increasing importance of multi-family housing, declining size of single-family entry level housing, increasing proportion of homes in warmer and/or coastal areas using slab-on-grade construction, reduced birthing statistics, and changing baby boomer needs freeing up housing capacity.

In addition, EWP demand will be highly influenced by single-family housing starts.

Industry supply for the products we produce and distribute is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies and substitutes, capacity additions and closures, the restart of idled capacity, and log availability.

The balance of supply and demand in the U.S.

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We believe that our product line diversification provides us some protection from declines in new residential construction.

Our products are used not only in new residential construction, but also in residential repair-and-remodeling

Our products are used not only in new residential construction, but also in residential repair-and-remodeling projects.

We believe the overall age of the U.S.

housing stock, resales of existing homes, increased focus on making homes more energy efficient, rising home prices, and availability of consumer loans at low interest rates will continue to support long-term growth in repair-and-remodeling expenditures and increased demand through home improvement centers and our other customers that service professional contractors.

housing stock, resales of existing homes, and increased focus on making homes more energy efficient will continue to support long-term growth in repair-and-remodeling expenditures and increased demand through home improvement centers and our other customers that service professional contractors.

Cost and Availability of Raw Materials

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Logs comprised approximately 72% of our wood fiber costs during 2022, and we satisfy our log requirements through a combination of purchases under supply agreements, open-market purchases, and purchases pursuant to contracts awarded under public auctions.

The following table provides changes in our average per-unit log costs for the periods noted below:

The following table provides the change in our average per-unit log costs for the period noted below:

Year Ended December 31

2021 versus 2020 2020 versus 2019 2019 versus 2018

2022 versus 2021

Increase (decrease) in per-unit log costs 6%

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OSB accounted for approximately 6% of the aggregate amount of materials, labor, and other operating expenses (excluding depreciation) for our Wood Products segment in 2022.

OSB is a commodity, and prices have been historically volatile in response to industry capacity and operating rates, the impact of the ongoing COVID-19 pandemic on residential construction, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns.

OSB is a commodity, and prices have been historically 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.

Wood fiber also includes, to a lesser extent than OSB, lumber purchased from third parties for I-joist production at our Canadian EWP facility and for production at our laminated beam plant in Idaho.

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Year Ended December 31

2021 2020 2019

Sales $ 8,387.3 $ 7,926.1

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General and administrative expenses 103.8 83.2

Loss on curtailment of facility — 1.7 —

Other (income) expense, net (1.7) (0.8)

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General and administrative expenses 1.2 1.1

Loss on curtailment of facility — — —

Other (income) expense, net — —

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Year Ended December 31

2021 2020 2019

Housing Starts (a)

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Lumber (1,000 board feet) 927 1,043

(percentage of Building Materials Distribution sales)

(percentage of BMD sales)

Building Materials Distribution

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During 2022, U.S.

housing starts increased 16%, with single-family starts up 14%, compared with 2020.

For the year ended December 31, 2021, average composite panel and average composite lumber prices were 84% and 49% higher, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing.

These increases in composite commodity pricing, as well as price increases across EWP and general line products, resulted in higher sales in both of our segments, as noted below.

housing starts decreased 3%, driven by a decrease in single-family starts of 11%, compared with 2021.

For the year ended December 31, 2022, average composite panel and average composite lumber prices were 18% and 9% lower, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing.

These decreases in composite commodity pricing impacted our sales prices in both of our segments, as noted below.

Wood Products.

During the year ended December 31, 2022, sales, including sales to our BMD segment, increased $145.1 million, or 7%, to $2,115.9 million from $1,970.8 million in 2021.

The increase in sales was driven by higher plywood prices of 75%, resulting in increased sales of $326.5 million.

Higher sales prices for I-joists and LVL (collectively referred to as EWP) of 22% and 19%, respectively, resulted in increased sales of $78.3 million and $63.1 million, respectively.

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

In addition, sales volumes for I-joists and LVL increased 21% and 5%, respectively, resulting in increased sales of $61.8 million and $16.2 million, respectively.

Improved lumber sales prices and plywood sales volumes of 70% and 1%, respectively, contributed $33.2 million and $2.1 million, respectively, to the increase in sales.

In addition, laminated beam and OSB rimboard sales, collectively, increased by approximately $39 million.

The increase in sales was driven by higher sales prices for I-joists and LVL (collectively referred to as EWP) of 44% and 41%, respectively, resulting in increased sales of $152.3 million and $155.5 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 plywood of 5% resulted in increased sales of $36.5 million.

Plywood sales volumes increased due to the Acquisition.

In addition, other sales, including by-products and laminated beams, increased sales by $12.2 million.

These increases were offset partially by lower plywood sales prices of 14%, resulting in decreased sales of $109.3 million.

In addition, I-joist and LVL sales volumes decreased 21% and 3%, respectively, resulting in decreased sales of $92.5 million and $13.8 million, respectively.

I-joist and LVL sales volumes decreased due to a decline in housing starts and significant inventory destocking through the customer channel.

I-joist volumes were also impacted by the availability of product substitutes and construction methods.

Building Materials Distribution.

During the year ended December 31, 2022, sales increased $469.3 million, or 7%, to $7,643.6 million from $7,174.3 million in 2021.

Compared with the prior year, the overall increase in sales was driven by sales price and sales volume increases of 42% and 3%, respectively.

By product line, commodity sales increased 60%, or $1,394.8 million, general line product sales increased 23%, or $402.7 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 48%, or $424.8 million.

Compared with the prior year, the overall increase in sales was driven by sales price increases of 11%, offset partially by a sales volume decrease of 4%.

By product line, commodity sales decreased 7%, or $272.3 million, general line product sales increased 17%, or $377.7 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 28%, or $363.9 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $172.4 million, or 3%, to $6,472.5 million for the year ended December 31, 2022, compared with $6,300.1 million during the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased due to higher EWP sales volumes, as well as higher per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 17% and 14%, compared with 2020.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 1,360 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor cost, wood fiber costs, and other manufacturing costs.

In BMD, the increase in materials, labor, and other operating expenses was driven primarily by higher purchased materials costs as a result of higher prices, as well as a 20 basis point increase in the MLO rate, compared with 2020.

Our BMD MLO rate for the year ended December 31, 2021 was negatively impacted by a sharp decline in commodity prices during the third quarter of 2021, offset partially by improved gross margin percentages on our EWP and general line sales.

Depreciation and amortization expenses decreased $14.4 million, or 15%, to $80.8 million for the year ended December 31, 2021, compared with $95.2 million during the prior year.

The decrease was due primarily to recording accelerated depreciation of $15.0 million in first quarter 2020 to fully depreciate the curtailed I-joist production assets at our Roxboro, North Carolina facility, offset partially by an increase in purchases of property and equipment.

For additional information, see Note 6, Curtailment of Manufacturing Facility, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

In our Wood Products segment, materials, labor, and other operating expenses increased due to higher per-unit costs of logs of approximately 6% compared with 2021, as well as increased labor and other manufacturing costs.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 120 basis points, which was primarily due to higher EWP sales prices, resulting in improved leveraging of wood fiber costs.

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

However, the BMD segment MLO rate improved 200 basis points compared to 2021 due primarily to improved margins on EWP and general line products.

Depreciation and amortization expenses increased $20.8 million, or 26%, to $101.6 million for the year ended December 31, 2022, compared with $80.8 million during the prior year.

The increase was due primarily to the Acquisition and other capital expenditures.

Selling and distribution expenses increased $62.3 million, or 13%, to $553.3 million for the year ended December 31, 2022, compared with $491.0 million for the prior year.

The increase was due primarily to higher employee-related expenses, including base pay increases, special bonuses, and sales and incentive compensation, of $42.5 million, as well as higher shipping and handling costs and occupancy expenses of $8.9 million and $5.1 million, respectively.

The increase was due primarily to higher shipping and handling costs of $23.2 million, as well as higher employee-related expenses, including base pay increases, and sales and incentive compensation of $21.7 million.

In addition, travel and entertainment expenses and occupancy expenses increased $5.1 million and $3.1 million, respectively.

General and administrative expenses increased $20.6 million, or 25%, to $103.8 million for the year ended December 31, 2022, compared with $83.2 million for the prior year.

The increase was due primarily to higher employee-related expenses of $4.0 million.

Loss on curtailment of facility of $1.7 million for the year ended December 31, 2020, represents various closure-related costs due to the permanent curtailment of I-joist production at our Roxboro, North Carolina, facility.

For additional information, see Note 6, Curtailment of Manufacturing Facility, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

The increase was due primarily to higher employee-related expenses, including base pay increases, and incentive compensation of $14.1 million, as well as a $5.6 million increase in discretionary expenses related to professional fees and travel and entertainment.

In addition, in our Wood Products segment, we purchased $1.8 million of insurance related to the Acquisition and incurred $1.3 million of acquisition-related expenses.

For the year ended December 31, 2022 other (income) expense, net, was $1.7 million of income, which primarily included earn-out income related to a previous asset sale in our Wood Products segment, offset partially by other expenses.

Income From Operations

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For the year ended December 31, 2022, segment income increased $44.0 million to $575.2 million from $531.2 million for the year ended December 31, 2021.

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

In addition, 2020 results included accelerated depreciation of $15.0 million and other closure-related costs of $1.7 million at our Roxboro, North Carolina facility.

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

In addition, selling and distribution expenses and general and administrative expenses increased $2.4 million and $0.6 million, respectively.

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 EWP sales volumes, and higher wood fiber costs and other manufacturing costs.

In addition, depreciation and amortization expense increased $18.1 million related to the Acquisition, we purchased $1.8 million of acquisition-related insurance, and incurred $1.3 million of acquisition-related expenses.

Building Materials Distribution.

For the year ended December 31, 2022, segment income increased $146.0 million to $627.1 million from $481.1 million for the year ended December 31, 2021.

The increase in segment income was driven by a gross margin increase of $296.8 million, resulting from improved gross margins across our EWP, general line, and commodity product categories compared with 2020.

The increase in segment income was driven by a gross margin increase of $215.5 million, primarily related to improved gross margins across our EWP and general line products compared with 2021.

The improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $56.8 million and $7.8 million, respectively.

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The increase was due primarily to higher employee-related expenses, offset partially by lower self-insurance losses during 2022.

Pension expense (excluding service costs).

In December 2020, we eliminated our qualified defined benefit pension plan (Pension Plan).

The process of eliminating the Pension Plan included lump-sum payments made to eligible plan participants at their election and the purchase of a buy-out group annuity contract (Buy-Out) from The Prudential Insurance Company of America (Prudential), which was funded with plan assets.

When the Buy-Out became effective on December 31, 2020, we irrevocably transferred to Prudential the future benefit obligations and annuity administration for all remaining plan participants (or their beneficiaries) in the Pension Plan.

These transactions fully eliminated the liabilities of our Pension Plan, resulting in a non-cash settlement charge of $6.2 million in fourth quarter 2020.

For additional information related to our Pension Plan, see Note 11, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

Change in fair value of interest rate swaps.

For information related to our interest rate swaps, see the discussion under "Disclosures of Financial Market Risks" and "Financial Instruments" included in this "Item 7.

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

Loss on extinguishment of debt.

In connection with the issuance of the $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes), we commenced a tender offer to purchase any and all of our $350 million aggregate principal amount of 5.625% senior notes due September 1, 2024 (2024 Notes) then outstanding.

On July 27, 2020, we accepted for purchase an aggregate principal amount of $212.5 million of the 2024 Notes that were tendered.

On September 1, 2020, we redeemed the remaining $137.5 million in aggregate principal amount of the 2024 Notes outstanding.

In connection with these transactions, we recognized a pre-tax loss on the extinguishment of debt of $14.0 million during 2020.

The loss includes $10.8 million in debt extinguishment premium payments and $3.2 million for the write-off of unamortized deferred financing costs.

For more information related to our indebtedness, see Note 9, Debt, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

2020 Compared With 2019

For the year ended December 31, 2020, total sales increased $831.4 million, or 18%, to $5,474.8 million from $4,643.4 million during the year ended December 31, 2019.

As described below, the increase in sales was driven by the

changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver of our sales.

During 2020, U.S.

housing starts increased 7%, with single-family starts up 12%, compared with 2019.

For the year ended December 31, 2020, average composite lumber and average composite panel prices were 57% and 54% higher, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

These increases in composite commodity pricing resulted in higher sales in both of our segments, as noted below.

Wood Products.

During the year ended December 31, 2020, sales, including sales to our BMD segment, increased $48.7 million, or 4%, to $1,323.9 million from $1,275.2 million in 2019.

The increase in sales was driven primarily by higher plywood prices of 30%, resulting in increased sales of $101.0 million.

In addition, higher sales volumes for I-joists of 6% resulted in increased sales of $18.1 million.

These increases were offset partially by lower sales volumes for plywood and LVL of 6% and 3%, respectively, resulting in decreased sales of $22.4 million and $10.4 million, respectively.

The lower volume for plywood sales reflects our continued work to optimize veneer into EWP production, as well as periodic short-term disruptions related to COVID-19.

Net sales prices for LVL and I-joists each decreased 2%, resulting in decreased sales of $6.9 million and $6.2 million, respectively.

In addition, other sales, including by-products, freight, and logs, decreased compared with the prior year period.

Building Materials Distribution.

During the year ended December 31, 2020, sales increased $814.3 million, or 20%, to $4,952.0 million from $4,137.7 million in 2019.

Compared with the prior year, the overall increase in sales was driven by sales price and sales volume increases of 13% and 7%, respectively.

By product line, commodity sales increased 34%, or $584.4 million, general line product sales increased 11%, or $181.7 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 6%, or $48.2 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $570.3 million, or 14%, to $4,536.1 million for the year ended December 31, 2020, compared with $3,965.8 million during the prior year.

In our Wood Products segment, materials, labor, and other operating expenses decreased, due to lower sales volumes, offset partially by higher per-unit costs of OSB (used in the manufacture of I-joists) of 36%, compared with 2019.

The MLO rate in our Wood Products segment decreased by 640 basis points, which was primarily due to higher plywood sales prices, resulting in improved leveraging of manufacturing costs, including labor and wood fiber costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher commodity prices and higher sales volumes, compared with 2019.

However, the BMD segment MLO rate improved 140 basis points compared with 2019 due primarily to improved gross margin percentages for our commodity product sales, driven by an increasing commodity price environment during the majority of 2020.

Depreciation and amortization expenses increased $15.0 million, or 19%, to $95.2 million for the year ended December 31, 2020, compared with $80.1 million during the prior year.

The increase was due primarily to recording accelerated depreciation of $15.0 million in first quarter 2020 to fully depreciate the curtailed I-joist production assets at our Roxboro, North Carolina facility.

For additional information, see Note 6, Curtailment of Manufacturing Facility, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

Selling and distribution expenses increased $37.5 million, or 10%, to $428.3 million for the year ended December 31, 2020, compared with $390.7 million for the prior year.

The increase was due primarily to higher employee-related expenses, mostly incentive compensation, of $34.0 million, as well as higher shipping and handling costs of $3.3 million.

These increases were offset partially by lower travel and entertainment expenses of $5.7 million.

General and administrative expenses increased $7.6 million, or 11%, to $78.6 million for the year ended December 31, 2020, compared with $71.1 million for the prior year.

The increase was due primarily to higher employee-related expenses, mostly incentive compensation, of $11.8 million, offset partially by lower travel and entertainment expenses of $2.2 million and other discretionary expenses.

For more information related to our loss on curtailment of facility during 2020, reference the discussion above, "2021 Compared With 2020."

Income From Operations

Income from operations increased $198.6 million to $335.0 million for the year ended December 31, 2020, compared with $136.5 million for the year ended December 31, 2019.

Wood Products.

For the year ended December 31, 2020, segment income increased $73.5 million to $127.7 million from $54.2 million for the year ended December 31, 2019.

The increase in segment income was due primarily to higher plywood sales prices, as well as higher I-joist sales volumes and lower manufacturing costs.

These improvements were offset partially by accelerated depreciation of $15.0 million and other closure-related costs of $1.7 million at our Roxboro, North Carolina facility, as well as lower EWP prices and higher wood fiber costs.

In addition, selling and distribution expenses and general and administrative expenses increased $1.9 million and $0.6 million, respectively.

Building Materials Distribution.

For the year ended December 31, 2020, segment income increased $131.3 million to

$247.5 million from $116.2 million for the year ended December 31, 2019.

The increase in segment income was driven by a gross margin increase of $173.0 million, resulting primarily from improved gross margins on commodity products, as well as higher sales of general line products compared with 2019.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $35.7 million and $4.2 million, respectively.

Unallocated corporate expenses increased $6.2 million to $40.2 million for the year ended December 31, 2020, from $34.0 million for the year ended December 31, 2019.

The increase was due primarily to higher incentive compensation and business interruption losses.

As part of our self-insured risk retention program, corporate absorbed approximately $3.5 million of estimated business interruption losses at Wood Products facilities in 2020.

The losses resulted from downtime at our Louisiana manufacturing facilities due to hurricanes and from a fire-related production disruption at our Chester, South Carolina, plywood plant.

Pension expense (excluding service costs).

We recognized a non-cash pension settlement charge of $6.2 million in fourth quarter 2020.

For more information, reference the discussion above, "2021 Compared With 2020."

On September 30, 2019, we transferred $19.8 million of our Pension Plan assets to Prudential for the purchase of a group annuity contract.

Under the arrangement, Prudential assumed ongoing responsibility for administration and benefit payments for approximately 10% of our U.S.

qualified pension plan projected benefit obligations at the time of the transaction.

As a result of the transaction, we recognized a non-cash settlement charge of $1.3 million in third quarter 2019.

For additional information related to our Pension Plan, see Note 11, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

Interest Income.

Interest income increased $12.1 million to $12.3 million for the year ended December 31, 2022, from $0.2 million for the year ended December 31, 2021.

The increase was due primarily to higher interest rates on cash equivalents and increases in the average balances of cash equivalents.

Change in fair value of interest rate swaps.

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

Loss on extinguishment of debt.

For more information related to our loss on extinguishment of debt during 2020, reference the discussion above, "2021 Compared With 2020."

Income Tax Provision

For the years ended December 31, 2021, 2020, and 2019, we recorded $236.4 million, $111.3 million, and $27.3 million, respectively, of income tax expense and had an effective rate of 24.9%, 38.9%, and 25.2%, respectively.

For the years ended December 31, 2022 and 2021, we recorded $288.7 million and $236.4 million, respectively, of income tax expense and had an effective rate of 25.2% and 24.9%, respectively.

Our rate is affected by recurring items, such as state income taxes, and discrete items that may occur in any given year but are not consistent from year to year.

During the year ended December 31, 2022, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was a $45.0 million increase in income tax expense, or an effect of 3.9%, from state income taxes.

During the year ended December 31, 2020, the primary reasons for the difference between the federal statutory income tax rate of 21% and the effective tax rate were the effect of the following:

• A $38.8 million increase in income tax expense, or an effect of 13.5%, from the required release of stranded tax effects upon elimination of our Pension Plan in December 2020 (Plan Termination).

For additional information related to the Plan Termination and the related release of stranded tax effects, see Note 4, Income Taxes, and Note 11, Retirement

and Benefit Plans, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

• A $12.3 million increase in income tax expense, or an effect of 4.3%, from state income taxes.

During the year ended December 31, 2019, the primary reasons for the difference between the federal statutory income tax rate of 21% and the effective tax rate were the effect of the following:

• A $4.4 million increase in income tax expense, or an effect of 4.1%, from state income taxes.

• A $1.7 million increase in income tax expense, or an effect of 1.6%, from permanent differences, including meals and entertainment and nondeductible executive compensation.

• A $1.3 million reduction in income tax expense, or an effect of 1.2%, from tax credits and excess tax benefits of share-based payment awards.

Industry Mergers and Acquisitions

On August 27, 2020, Builders FirstSource, Inc.

(BFS) and BMC Stock Holdings (BMC) announced a definitive merger agreement.

The merger closed in early January 2021.

Prior to the merger, BFS and BMC were both customers of ours.

We believe we have a good relationship with the combined company and the transaction has not, and we do not expect it to have, a material impact on our future results of operations.

The merger resulted in the combined company accounting for 20 % of total receivables as of December 31, 2021.

During the year ended December 31, 2021, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was a $35.7 million increase in income tax expense, or an effect of 3.8%, from state income taxes.

Liquidity and Capital Resources

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At December 31, 2022, we had $1,394.5 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Our cash and cash equivalents increased by $343.5 million during the year ended December 31, 2021, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards, as further discussed below.

At December 31, 2021, our cash was invested in high-quality, short-term investments, which we record in "Cash and cash equivalents." The majority of our cash and cash equivalents is comprised of money market funds that are broadly diversified and invested in high-quality, short-duration securities, including commercial paper, certificates of deposit, U.S.

Our cash and cash equivalents increased by $249.4 million during the year ended December 31, 2022, as cash provided by operations was offset partially by funding the Acquisition, capital spending, and dividends paid on our common stock, as further discussed below.

At December 31, 2022, our cash was invested in high-quality, short-term investments, which we record in "Cash and cash equivalents." The majority of our cash and cash equivalents is comprised of money market funds that are broadly diversified and invested in high-quality, short-duration securities, including U.S.

government agency securities and similar instruments.

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Year Ended December 31

2021 2020 2019

Net cash provided by operations $ 1,041,219 $ 666,984

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See "Operating Results" above for a discussion on our results for 2022.

• A decrease in cash contributions to our pension plans of $12.3 million.

During 2021, we used $0.5 million of cash to make pension contributions to the nonqualified plan participants, compared with $12.8 million of pension contributions to the qualified and nonqualified plans during 2020.

• A $185.0 million increase in cash paid for income taxes, net of refunds.

During 2021, cash paid for taxes, net of refunds received was $260.1 million, compared to $75.1 million in 2020.

The increase in cash paid for income taxes is primarily due to an increase in income from operations.

• A $109.2 million increase in working capital during 2021, compared with a $35.7 million increase in working capital during 2020.

• A $41.0 million decrease in working capital during 2022, compared with a $109.2 million increase in working capital during 2021.

Working capital is subject to cyclical operating needs, seasonal buying patterns for inventory purchased for resale and logs, the timing of the collection of receivables, and the timing of payment of payables and expenses.

The decrease in working capital in 2022 was primarily attributable to lower receivables, offset partially by an increase in inventories and a decrease in accounts payable and accrued liabilities.

The decrease in receivables in 2022 primarily reflects decreased sales of approximately 24%, comparing sales for the month of December 2022 with sales for the month of December 2021.

Inventories increased in 2022 primarily due to higher production costs for our manufactured products, the acquisition of two plywood facilities, and decreased housing demand related to economic uncertainties.

The decrease in accounts payable and accrued liabilities in 2022 was related to the decrease in inventories in our BMD segment and lower accrued rebates as of December 31, 2022 as housing activity slowed at the end of 2022.

The increase in working capital in 2021 was primarily attributable to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities.

The increase in receivables in 2021 primarily reflects increased sales of approximately 20%, comparing sales for the month of December 2021 with sales for the month of December 2020.

Inventories increased in 2021 primarily due to increased cost of inventory purchased for resale and higher production costs for our manufactured products.

Inventories increased in 2021 primarily due to the increased cost of inventory purchased for resale and higher production costs for our manufactured products.

The increase in accounts payable and accrued liabilities in 2021 was related to the increase in inventories and higher accrued rebates as of December 31, 2021.

The increase in working capital in 2020 was primarily attributable to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities.

The increase in receivables in 2020 primarily reflects increased sales of approximately 55%, comparing sales for the month of December 2020 with sales for the month of December 2019.

Inventories increased in 2020 primarily due to an increase in finished goods inventory in our BMD segment.

However, inventories in our Wood Products segment decreased in 2020 due to strong product demand, lower log inventory, and reduced production levels as a result of periodic short-term disruptions at many locations due to COVID-19.

The increase in accounts payable and accrued liabilities in 2020 was greater than the 2019 increase, reflecting the increase in inventories as of December 31, 2020, and higher incentive compensation accruals.

2020 Compared With 2019

In 2020, our operating activities generated $294.5 million of cash, compared with $245.6 million in 2019.

The $48.9 million increase in cash provided by operations in 2020 relates primarily to the following:

• A $131.3 million increase in income in our BMD segment and a $73.5 million increase in income in our Wood Products segment.

See "Operating Results" above for a discussion on our results for 2020.

• A $35.7 million increase in working capital during 2020, compared with a $47.4 million decrease in working capital during 2019.

The increase in working capital in 2020 was primarily attributable to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities.

The increase in receivables in 2020 primarily reflects increased sales of approximately 55%, comparing sales for the month of December 2020 with sales for the month of December 2019.

Inventories increased in 2020 primarily due to an increase in finished goods inventory in our BMD segment.

The decrease in working capital in 2019 was primarily attributable to decreased inventories and higher accounts payable.

Inventories decreased in 2019, particularly in our BMD segment, as a result of weaker commodity pricing during the period.

• A $76.5 million increase in cash paid for income taxes, net of refunds.

During 2020, cash paid for taxes, net of refunds received was $75.1, compared to income tax refunds received, net of taxes paid of $1.4 million in 2019.

The increase in cash paid for income taxes is primarily due to an increase in income from operations.

• An increase in cash contributions to our pension plans of $7.5 million.

During 2020, we used $12.8 million of cash to make pension contributions, compared with $5.2 million during 2019.

Investment Activities

Net cash used for investing activities was $105.6 million, $78.7 million, and $94.1 million during 2021, 2020, and 2019, respectively.

During the year ended December 31, 2021, we used approximately $106.5 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Net cash used for investing activities was $625.5 million and $105.6 million during 2022 and 2021, respectively.

During the year ended December 31, 2022, we used $515.2 million for the Acquisition.

The facilities acquired in the Acquisition will provide incremental stress-rated veneer needed to optimize and expand our southeastern U.S.

EWP production capacity and improve our mix of specialty plywood products.

In addition, we used approximately $114.1 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects.

Included in our 2021 capital spending is the completion of a log utilization center project at our Florien, Louisiana, plywood and veneer plant, a new door assembly operation in Houston, Texas, the expansion of our distribution capabilities in the Nashville market, the purchase of a BMD property in Walton, Kentucky, that expands our service capabilities in the Cincinnati and surrounding markets, and the purchase of a previously leased BMD property in Saco, Maine.

Included in our 2022 capital spending is funding for our BMD organic expansions in Minnesota, Ohio, and Kentucky, which services Cincinnati and the surrounding markets.

In addition, we purchased land in South Carolina and Texas for our recently announced BMD greenfield distribution centers, which will allow us to better serve customers in several high-growth markets.

In our Wood Product segment, we had capital spending related to the replacement of a dryer at our Chester, South Carolina, veneer and plywood plant, and post-acquisition veneer equipment related spending at our Chapman, Alabama facility.

Purchases of property and equipment also included approximately $4 million for environmental compliance in 2022, and we expect to spend approximately $4 million in environmental compliance related spending in 2023.

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

Excluding potential acquisitions, we expect capital expenditures in 2023 to total approximately $120 million to $140 million.

We expect our capital spending in 2023 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 recently announced BMD organic expansions in Ohio, Kentucky, and Minnesota, and a new dryer at our Chester, South Carolina veneer and plywood plant.

This level of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to further accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases.

During the year ended December 31, 2020, we used approximately $79.4 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects.

In 2020, purchases of property and equipment included approximately $1 million for environmental compliance.

Our 2023 capital expenditures range includes funding for greenfield distribution centers in South Carolina and Texas, projects at our mills in the southeast to expand our EWP capacity, and the recently announced purchase of property to house an additional door shop assembly operation in Kansas City, Missouri.

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.

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In 2021, purchases of property and equipment included approximately $3 million for environmental compliance.

In addition, we used $15.7 million for the acquisition of a wholesale building materials distribution location in Birmingham, Alabama.

For additional information related to the acquisition of the distribution facility, see Note 7, Acquisitions, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

For the year ended December 31, 2019, we received asset sales proceeds of $2.5 million, from the sale of a hardwood plywood facility located in Moncure, North Carolina.

Financing Activities

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See "Dividends on Common Stock" below for further discussion of common stock dividend payments.

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

At December 31, 2021, we had no borrowings outstanding under the revolving credit facility.

During 2020, our financing activities used $95.7 million of cash.

On July 27, 2020, we issued $400 million of 2030 Notes.

With proceeds from the 2030 Notes issuance, we retired our $350 million of 2024 Notes and paid-off our American AgCredit term loan of $45.0 million.

In connection with the retirement of the 2024 Notes, we made debt extinguishment premium payments of $10.8 million.

During 2020, our financing activities also used $79.2 million for common stock dividend payments, $6.2 million for financing costs related to the 2030 Notes, and $3.3 million of tax withholding payments on stock-based awards.

At December 31, 2020, we had no borrowings outstanding under the revolving credit facility.

During 2022, we did not borrow under our revolving credit facility and therefore had no borrowings outstanding on the facility as of December 31, 2022.

On September 9, 2022, we entered into the Eighth Amendment to the Amended and Restated Credit Agreement (the Amendment) related to our senior secured asset-based revolving credit facility and term loan.

The Amendment increases the maximum amount available for revolving loans from $350 million to $400 million, extends the maturity date of the agreement, and replaced the LIBOR rate with SOFR.

The term loan remains at $50.0 million.

As of December 31, 2022, we have no debt maturities prior to 2027.

During 2021, our financing activities used $217.9 million of cash, including $213.7 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards.

During 2019, we borrowed $5.5 million under our revolving credit facility to fund intra-month working capital needs, which were subsequently repaid during the same period with cash on hand.

During 2021, we also borrowed $28.0 million under our revolving credit facility, which was subsequently repaid during the same period with cash on hand.

At December 31, 2021, we had no borrowings outstanding under the revolving credit facility.

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Stock Repurchase Program

For information related to our stock repurchases, see Note 13, Stockholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8.

On July 28, 2022, our board of directors authorized the repurchase of an additional 1.5 million shares of our common stock.

This increase was in addition to the remaining authorized shares under our prior common stock repurchase program that was authorized on February 25, 2015 (the Program).

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.

As of December 31, 2022, there were approximately 2.0 million shares of common stock that may yet be purchased under the program.

During 2022, we did not purchase any shares under the Program.

For more information related to our stock repurchases, see Note 13, Stockholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

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Price fluctuations in our selling prices and key costs have a significant effect on our financial performance.

The markets for most of these commodities are cyclical and are primarily affected by various economic and industry factors, including industry operating rates, the impact of COVID-19 on residential construction, net import and export activity, changes in or disruptions to industry production capacity, transportation constraints or disruptions, changes in inventory levels, and other factors beyond our control.

The markets for most of these commodities are cyclical and are primarily affected by economic uncertainties, industry operating rates, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, seasonal demand patterns, and other factors beyond our control.

For further discussion of commodity price risk, refer to "Item 1A.

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Interest Rate Risk

We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR on our term loan and when we have loan amounts outstanding on our Revolving Credit Facility.

At December 31, 2021, we had $50.0 million of variable-rate debt outstanding based on one-month LIBOR.

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 December 31, 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.

To meet this objective, we enter into receive-variable, pay-fixed interest rate swaps to mitigate the variable-rate cash flow exposure with 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, 2022, we had one interest rate swap agreement.

Under the interest rate swap, we receive one-month term SOFR plus a spread adjustment of 0.10% 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 this interest rate swap, with a notional principal amount of $50.0 million, are due on a monthly basis at an annual fixed rate of 0.41%, and this swap expires in June 2025.

We entered into this forward interest rate swap in 2020 (the 2020 Swap) and it was amended in 2022.

Prior to the amendment we received one-month LIBOR-based variable interest rate payments and made fixed interest rate payments at an annual fixed rate of 0.39% on the 2020 Swap.

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 are due on a monthly basis at an annual fixed rate of 1.007%, and this swap expires in February 2022 (Initial Swap).

During second quarter 2020, we entered into another forward interest rate swap agreement which commences on the expiration date of the Initial Swap.

Payments on this interest rate swap with a notional principal amount of $50.0 million will be due on a monthly basis at an annual fixed rate of 0.39%, and this swap expires in June 2025.

Under these interest rate swaps, we received one-month LIBOR-based variable interest rate payments and made fixed interest rate payments.

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).

The 2020 Swap, as mentioned above, commenced on the expiration of the Initial Swap in February 2022.

The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income.

At December 31, 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.

At December 31, 2020, we recorded a long-term liability of $0.6 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements.

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).

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(b) We estimated the fair value using quoted market prices of our debt in inactive markets.

The table below provides information as of December 31, 2021, about our interest rate swaps.

For information on interest rate swaps, see Interest Rate Risk and Interest Rate Swaps of Note 15, Financial Instrument Risk, of the Notes to Consolidated Financial Statements in "Item 8.

The table below provides information as of December 31, 2022, about our interest rate swap.

For information on our interest rate swap, see Interest Rate Risk and Interest Rate Swaps of Note 15, Financial Instrument Risk, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

The following is information about the notional amount and interest rate by contractual maturity date for our interest rate swap agreements, as well as the fair value at December 31, 2021:

The following is information about the notional amount and interest rate by contractual maturity date for our interest rate swap agreement, as well as the fair value at December 31, 2022:

December 31, 2022

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(millions, other than percentages)

Interest rate swaps

Variable to fixed notional amount (a) $ 50.0 $ — $ — $ 50.0 $ — $ — $ 50.0 $ 1.1

Average pay rate (c) 1.0 % — — 0.4 % — — 0.7 % —

Average receive rate (d) 0.1 % — — 0.1 % — — 0.1 % —

Interest rate swap

Variable to fixed notional amount $ — $ — $ 50.0 $ — $ — $ — $ 50.0 $ 4.8

Average pay rate (a) — — 0.4 % — — — 0.4 % —

Average receive rate (b) — — 4.3 % — — — 4.3 % —

_______________________________________

(a) We have one interest rate swap with a notional principal amount of $50.0 million that expires in February 2022 (Initial Swap).

Another forward interest rate swap agreement commences on the expiration date of the Initial Swap and expires in June 2025.

(b) 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.

(d) Represents the weighted average variable interest rate receivable on our interest rate swaps at December 31, 2021.

(a) Represents the weighted average actual fixed interest rate payable on our interest rate swap.

(b) Represents the weighted average variable interest rate receivable on our interest rate swap at December 31, 2022.

Environmental

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Compliance with these laws and regulations is a significant factor in the operation of our businesses.

We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to assure that we are operating within the bounds of regulatory requirements.

We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to ensure that we are operating within the bounds of regulatory requirements.

However, we cannot guarantee that we will be in compliance with environmental requirements at all times, and we cannot guarantee that we will not incur fines and penalties in the future.

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We could be found liable under these laws whether or not we knew of, or were responsible for, the presence of such substances.

In some cases, this liability may exceed the value of the property itself.

In some cases, this liability may exceed the property's value.

In connection with prior transactions, certain third parties are generally obligated to indemnify us for hazardous substance releases and other environmental violations that occurred prior to such transactions.

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We are assessing opportunities related to increased interest or demand for wood-based building materials due to their role in climate mitigation.

In recent years, various legislative and regulatory proposals to restrict GHG emissions, such as CO2, have been under consideration in state legislative bodies and the Environmental Protection Agency (EPA).

In recent years, various legislative and regulatory proposals to restrict GHG emissions, such as carbon dioxide, have been under consideration in state legislative bodies and the Environmental Protection Agency (EPA).

These proposals have included regulations to reduce GHG emissions from new and existing electric utilities, which may result in increased electricity and natural gas costs to our businesses.

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States are taking various positions on climate change regulation.

In 2021, Oregon adopted new regulations which required reduction of GHG emissions.

The rules do not directly affect our facilities, but will likely result in increased natural gas, transportation fuel, and/or electricity costs.

In 2021, Washington enacted new legislation establishing a cap and invest program intended to reduce GHG emissions, which may impact our operations by increasing natural gas, transportation fuel, and/or electricity costs.

Oregon and Washington have enacted regulations intended to reduce GHG emissions.

These regulations have not directly affected our facilities;

however, they are expected to impact our operations by increasing future costs related to natural gas, transportation fuel, and/or electricity.

Our manufacturing operations in these states derive a significant amount of their energy from biomass fuel, a carbon neutral emission, which may not be directly regulated.

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We are not aware of any plans to regulate GHG emissions by other states in which we have manufacturing operations.

There are ongoing efforts by various organizations to encourage and/or require companies to

calculate, report, and reduce their carbon footprint.

There are ongoing efforts by various organizations to encourage and/or require companies to calculate, report, and reduce their carbon footprint.

Furthermore, our customers may impose carbon footprint standards on their vendors, which may require us to incur additional costs associated with the evaluation and reduction of GHGs.

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From time to time, legislative bodies and environmental regulatory agencies may promulgate new or revised regulatory programs imposing significant incremental operating costs or capital costs on us.

In 2021, the EPA announced plans to reconsider both the Particulate Matter (PM) and ozone National Ambient Air Quality Standards (NAAQS).

This review will likely result in more stringent PM and ozone NAAQS.

It is too early to predict what NAAQS the EPA will establish and the specific impact to our facilities.

However, any reduction in the NAAQS may require additional improvements to ensure compliance and may restrict our future growth due to emission limitations.

In 2016, our facilities began complying with the final Boiler Maximum Achievable Control Technology (MACT) regulations, which regulate emissions of hazardous air pollutants from industrial boilers and process heaters.

Following litigation of the standards, in 2020 the EPA proposed more stringent MACT emission standards for several types of boilers, including boilers common to our facilities.

The EPA has not finalized those standards and therefore, the proposal remains subject to change.

We expect our manufacturing facilities will meet the proposed limits, although certain of our boilers may require additional improvements to ensure continuous compliance.

We continue to monitor and evaluate the EPA's revisions to the Boiler MACT emission limits.

In January 2023, the EPA signed a proposal to lower the primary annual National Ambient Air Quality Standard (NAAQS) for fine particulate matter (PM-2.5).

Lowering the PM-2.5 NAAQS would result in more areas within the U.S.

that would exceed the NAAQS.

These areas would be classified as non-attainment areas.

It is possible that some of our manufacturing facilities would be located in areas that will be reclassified as non-attainment areas.

Non-attainment areas must develop regulations designed to bring the areas into attainment.

Our manufacturing facilities located in non-attainment areas would be subject to more stringent emission limits and permitting requirements, which could require additional costs to implement improvements to ensure compliance.

Further, it could become more difficult to permit mill expansions, which may restrict our future growth.

Until the EPA finalizes the new rules, we are unable to predict the specific impact to our facilities.

In 2016, our facilities began complying with the Boiler Maximum Achievable Control Technology (Boiler MACT) regulations, which regulate emissions of hazardous air pollutants from industrial boilers and process heaters.

Following litigation of the standards, in September 2022, the EPA adopted more stringent Boiler MACT emission standards for several types of boilers, including boilers common to our facilities.

Boilers must be in compliance with the revised standards by September 2025.

At this time, we believe the majority of our boilers will be able to comply with the new standards.

However, we are still undergoing testing at our recently acquired facilities.

We do not anticipate significant capital expenditures to comply with the revised standards.

Some of our wood products facilities are subject to the Plywood and Composite Wood Products (PCWP) MACT standards for hazardous air pollutants, and they have complied with these standards since 2007 or 2008.

In August 2020, the EPA published its Risk and Technology Review (RTR) for PCWP MACT standards, which concluded additional controls were not required for PCWP sources.

The EPA published its Risk and Technology Review (RTR) for PCWP MACT standards, which concluded additional controls were not required for PCWP sources.

However, the RTR Rule did not address certain remanded sources, including plywood presses, lumber kilns, and various other emission sources at wood products manufacturing mills.

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The Oregon Department of Environmental Quality (ODEQ) Cleaner Air Oregon (CAO) rules regulate toxic air emissions from manufacturing facilities located in Oregon.

The rules are risk-based, and in March 2019, the ODEQ released their prioritization list establishing which facilities within the state likely pose the greatest risk to their communities based on emissions inventories that facilities submitted to the ODEQ.

The rules are risk-based, and the ODEQ released their prioritization list establishing which facilities within the state likely pose the greatest risk to their communities based on emissions inventories that facilities submitted to the ODEQ.

The ODEQ established four risk groups.

None of our mills were identified in the first tier risk group.

Our Medford plywood mill was identified in the second tier group, which initially was expected to be selected into the program in 2021 or 2022;

however, to date the ODEQ has not completed the program for first tier risk group and has not updated their timeline for the second tier group.

None of our mills were identified in

the first tier risk group.

Our Medford plywood mill was identified in the second tier group.

To date the ODEQ has not completed the program for the first tier risk group.

We currently anticipate Medford Plywood will be selected into the program in 2023.

Our other Oregon mills were identified in the third and fourth tier groups and will likely not be selected for several more years.

When selected into the program, the facilities may incur expenses to evaluate the risk to the public and may be required to incur additional operating or capital expenditures to mitigate any significant risk.

The Regional Haze Rule, promulgated by the EPA, sets standards for visual air clarity in "Federal Class I" areas such as national parks and wilderness areas.

The EPA's Regional Haze Rule sets standards for visual air clarity in "Federal Class I" areas such as national parks and wilderness areas.

In 2020, the ODEQ required our Medford and Elgin plywood mills to submit a cost/benefit analysis of emission controls that would reduce pollution at the mills associated with regional haze.

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The emission reductions are not expected to impact the facility's ability to meet production goals.

Our Elgin plywood mill is required to conduct a study to determine what levels of emission reduction can be achieved by installation of improved boiler controls, begin install of boiler combustion improvements in July 2023, monitor emissions and propose new emission limits by December 2025, and then be fully compliant with those new emission limits by August 2026.

Our Elgin plywood mill is required to conduct a study to determine what levels of emission reduction can be achieved by installation of improved boiler controls, begin installation of boiler combustion improvements in July 2023, monitor emissions and propose new emission limits by December 2025, and then be fully compliant with those new emission limits by August 2026.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions about future events.

The preparation of financial statements in accordance 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.

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At December 31, 2022 and 2021, we had $72.2 million and $117.5 million, respectively, of EWP rebates payable recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.

Business Combinations

From time to time, we may enter into material business combinations.

We allocate the total purchase price of a business combination to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values (fair value is determined using the income approach, cost approach and/or market approach) of inventory, property, plant and equipment, and identifiable intangible assets, among others.

This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

If we are required to retroactively adjust provisional amounts that we have recorded for the fair value of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial

condition and results of operations.

Additionally, we expense any acquisition-related costs as incurred in connection with each business combination.

Significant estimates and assumptions used to determine the fair value of assets acquired, including property, plant, and equipment, customer relationships, and other identifiable intangible assets, includes future cash flows that we expect to generate from the acquired assets.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges.

In addition, we have estimated the economic lives of certain acquired assets, and these lives are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation and amortization expenses could be increased or decreased.

Long-Lived Asset Impairment

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When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement).

Future events or circumstances such as sustained negative economic impact of the ongoing COVID-19 pandemic, declines in single-family housing starts, environmental regulations or restrictions, sustained periods of weak commodity prices, loss of key customers, capacity additions by competitors, changes in the competitive position of our products, or changes in raw materials or manufacturing costs that lead us to believe the long-lived asset will no longer provide a sufficient return on investment, could prompt decisions to invest capital differently than expected, sell facilities, or to curtail operations.

Future events or circumstances such as sustained negative economic impacts, declines in single-family housing starts, environmental regulations or restrictions, sustained periods of weak commodity prices, loss of key customers, capacity additions by competitors, changes in the competitive position of our products, or changes in raw materials or manufacturing costs that lead us to believe the long-lived asset will no longer provide a sufficient return on investment, could prompt decisions to invest capital differently than expected, sell facilities, or curtail operations.

Any of these factors, among others, could result in non-cash impairment or accelerated depreciation charges in the future with respect to long-lived assets, which could have a material impact on our results of operations in the period in which an impairment is recognized.

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As additional information becomes known, we may change our estimates.

Non-GAAP Financial Measures

In evaluating our business, we utilize non-GAAP financial measures that fall within the meaning of SEC Regulation G and Regulation S-K Item 10(e), which we believe provide users of the financial information with additional meaningful comparison to prior reported results.

Non-GAAP financial measures do not have standardized definitions and are not defined by GAAP.

In this annual report on Form 10-K, we disclose income before interest (interest expense and interest income), income taxes, and depreciation and amortization as EBITDA, which is a non-GAAP financial measure.

We also disclose Adjusted EBITDA, which further adjusts EBITDA to exclude the change in fair value of interest rate swaps and loss on extinguishment of debt.

We also disclose Segment EBITDA, which is segment income before depreciation and amortization.

We believe EBITDA and Adjusted EBITDA are meaningful measures because they present a transparent view of our recurring operating performance and allow management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance.

We also believe EBITDA and Adjusted EBITDA are useful to investors because they provide a means to evaluate the operating performance of our segments and our Company on an ongoing basis using criteria that are used by our management and because they are frequently used by investors and other interested parties when comparing companies in our industry that have different financing and capital structures and/or tax rates.

EBITDA and Adjusted EBITDA, however, are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measure derived in accordance with GAAP or as alternatives to cash flow from operating activities as a measure of our liquidity.

The use of EBITDA and Adjusted EBITDA instead of net income or segment income (loss) have limitations as analytical tools, including the inability to determine profitability;

the exclusion of interest expense, interest income, and associated significant cash requirements;

and the exclusion of depreciation and amortization, which represent unavoidable operating costs.

Management compensates for these limitations by relying on our GAAP results.

Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the year ended December 31, 2022, 2021 and 2020:

2022 2021 2020

Net income $ 857,658 $ 712,486 $ 174,979

Interest expense 25,412 24,806 26,223

Interest income (12,263) (195) (999)

Income tax provision 288,723 236,365 111,332

Depreciation and amortization 101,593 80,753 95,169

EBITDA 1,261,123 1,054,215 406,704

Change in fair value of interest rate swaps (3,559) (1,745) 2,426

Loss on extinguishment of debt — — 13,968

Adjusted EBITDA $ 1,257,564 $ 1,052,470 $ 423,098

The following table reconciles segment income and unallocated corporate costs to Segment EBITDA, EBITDA and Adjusted EBITDA for the year ended December 31, 2022, 2021, and 2020:

2022 2021 2020

Wood Products

Segment income $ 575,167 $ 531,235 $ 127,720

Depreciation and amortization 73,308 55,249 71,141

Segment EBITDA $ 648,475 $ 586,484 $ 198,861

Building Materials Distribution

Segment income $ 627,091 $ 481,085 $ 247,494

Depreciation and amortization 27,005 24,007 22,460

Segment EBITDA $ 654,096 $ 505,092 $ 269,954

Unallocated corporate costs $ (44,409) $ (40,517) $ (40,185)

Foreign currency exchange gain (loss) (1,584) (10) 357

Pension expense (excluding service costs) (294) (76) (7,457)

Change in fair value of interest rate swaps 3,559 1,745 (2,426)

Loss on extinguishment of debt — — (13,968)

Depreciation and amortization 1,280 1,497 1,568

EBITDA (41,448) (37,361) (62,111)

Change in fair value of interest rate swaps (3,559) (1,745) 2,426

Loss on extinguishment of debt — — 13,968

Corporate Adjusted EBITDA $ (45,007) $ (39,106) $ (45,717)

Total Company Adjusted EBITDA $ 1,257,564 $ 1,052,470 $ 423,098

New and Recently Adopted Accounting Standards

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

What changed 10-K

Item 7. Management’s Discussion and Analysis