BOISE CASCADE Co 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Understanding Our Financial Information This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes in "Item 1. Financial Statements" of this Form 10-Q, as well as our 2022 Form 10-K. The following discussion includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements include, without limitation, any statement that may predict, indicate, or imply future results, performance, or achievements and may contain the words "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" in our 2022 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (the SEC). We do not assume an obligation to update any forward-looking statement. Our future actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Background Boise Cascade Company is a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries. Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor. We have two reportable segments: (i) Wood Products, which primarily manufactures engineered wood products (EWP) and plywood; and (ii) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. Our products are used in the construction of new residential housing, including single-family, multi-family, and manufactured homes, the repair-and-remodeling of existing housing, the construction of light industrial and commercial buildings, and industrial applications. For more information, see Note 12, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Executive Overview We recorded income from operations of $190.0 million during the three months ended June 30, 2023, compared with income from operations of $297.1 million during the three months ended June 30, 2022. In our Wood Products segment, income decreased $50.1 million to $104.0 million for the three months ended June 30, 2023, from $154.1 million for the three months ended June 30, 2022, due primarily to lower plywood sales prices and an increase in depreciation and amortization expense due to the acquisition of two plywood facilities located in Havana, Florida, and Chapman, Alabama, on July 25, 2022 (the Acquisition). These decreases were offset partially by higher plywood sales volumes, higher EWP sales prices, as well as lower wood fiber costs. In our BMD segment, income decreased $55.7 million to $98.6 million for the three months ended June 30, 2023, from $154.3 million for the three months ended June 30, 2022, driven by a gross margin decrease of $49.8 million, resulting from lower margins on EWP and general line products, offset partially by margin improvements on commodity products. In addition, selling and distribution expenses increased $3.9 million. These changes are discussed further in "Our Operating Results" below. We ended second quarter 2023 with $1,080.9 million of cash and cash equivalents and $395.9 million of undrawn committed bank line availability, for total available liquidity of $1,476.8 million. We had $444.8 million of outstanding debt at June 30, 2023. We generated $82.5 million of cash during the six months ended June 30, 2023, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards. A further description of our cash sources and uses for the six-month comparative periods are discussed in "Liquidity and Capital Resources" below. 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. U.S. housing starts in June 2023 were approximately 1.4 million on a seasonally adjusted annual rate basis, as reported by the U.S. Census Bureau. However, home affordability remains a challenge for consumers, and the Federal Reserve's ongoing actions in response to inflationary data and what impacts these actions have on future mortgage rates and the broader economy will influence the near-term demand environment. As such, the outlook for the back half of 2023 remains uncertain and is reflected in various industry 22 Table of Contents forecasts for 2023 U.S. housing starts that generally range from 1.3 million to 1.4 million units, compared with actual housing starts of 1.55 million in 2022, as reported by the U.S. Census Bureau. Regarding home improvement spending, the age of U.S. housing stock and elevated levels of homeowner equity have provided a favorable backdrop for repair-and-remodel spending. However, industry forecasts project continued moderation of year-over-year growth in renovation spending, and economic uncertainty may also negatively impact homeowners' further investment in their residences. As a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices and rising input costs. Our distribution business purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments expose us to declines in sales and profitability. Future commodity product pricing and commodity input costs may 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, EWP volumes will continue to be influenced by demand for new residential construction, particularly single-family housing starts, and we expect modest EWP price erosion in the third quarter. Factors That Affect Our Operating Results and Trends Our results of operations and financial performance are influenced by a variety of factors, including the following: • the commodity nature of a portion of our products and their price movements, which are driven largely by industry capacity and operating rates, industry cycles that affect supply and demand, and net import and export activity; • general economic conditions, including but not limited to housing starts, repair-and-remodeling activity, light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, inflation, unemployment rates, household formation rates, prospective home buyers' access to and cost of financing, and housing affordability, that ultimately affect demand for our products; • the highly competitive nature of our industry; • declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions; • disruptions to information systems used to process and store customer, employee, and vendor information, as well as the technology that manages our operations and other business processes; • material disruptions and/or major equipment failure at our manufacturing facilities; • labor disruptions, shortages of skilled and technical labor, or increased labor costs; • the need to successfully formulate and implement succession plans for key members of our management team; • product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers; • the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials; • cost and availability of raw materials, including wood fiber and glues and resins; • our ability to successfully and efficiently complete and integrate acquisitions; • the concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers; • impairment of our long-lived assets, goodwill, and/or intangible assets; • substantial ongoing capital investment costs, including those associated with acquisitions, and the difficulty in offsetting fixed costs related to those investments; 23 Table of Contents • our indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs; • restrictive covenants contained in our debt agreements; • compliance with data privacy and security laws and regulations; • the impacts of climate change and related legislative and regulatory responses intended to reduce climate change; • cost of compliance with government regulations, in particular, environmental regulations; • the enactment of tax reform legislation; • exposure to product liability, product warranty, casualty, construction defect, and other claims; • fluctuations in the market for our equity; and • the other factors described in "Item 1A. Risk Factors" in our 2022 Form 10-K. 24 Table of Contents Our Operating Results The following tables set forth our operating results in dollars and as a percentage of sales for the three and six months ended June 30, 2023 and 2022: Three Months Ended June 30 Six Months Ended June 30 2023 2022 2023 2022 (millions) Sales $ 1,815.2 $ 2,278.1 $ 3,359.5 $ 4,604.4 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,426.4 1,797.9 2,657.1 3,527.8 Depreciation and amortization 30.7 20.7 61.9 41.2 Selling and distribution expenses 139.2 134.3 268.0 280.9 General and administrative expenses 30.1 27.7 56.6 53.8 Other (income) expense, net (1.3) 0.4 (1.6) (2.1) 1,625.2 1,981.0 3,042.0 3,901.7 Income from operations $ 190.0 $ 297.1 $ 317.6 $ 702.7 (percentage of sales) Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 78.6 % 78.9 % 79.1 % 76.6 % Depreciation and amortization 1.7 0.9 1.8 0.9 Selling and distribution expenses 7.7 5.9 8.0 6.1 General and administrative expenses 1.7 1.2 1.7 1.2 Other (income) expense, net (0.1) — — — 89.5 % 87.0 % 90.5 % 84.7 % Income from operations 10.5 % 13.0 % 9.5 % 15.3 % 25 Table of Contents Sales Volumes and Prices Set forth below are historical U.S. housing starts data, segment sales volumes and average net selling prices for the principal products sold by our Wood Products segment, and sales mix and gross margin information for our BMD segment for the three and six months ended June 30, 2023 and 2022. Three Months Ended June 30 Six Months Ended June 30 2023 2022 2023 2022 (thousands) U.S. Housing Starts (a) Single-family 261.4 303.3 449.7 570.1 Multi-family 137.6 146.5 264.1 269.4 399.0 449.8 713.8 839.5 (thousands) Segment Sales Wood Products $ 530,273 $ 536,030 $ 967,701 $ 1,094,974 Building Materials Distribution 1,636,538 2,131,200 3,015,780 4,243,033 Intersegment eliminations (351,592) (389,158) (623,933) (733,653) Total sales $ 1,815,219 $ 2,278,072 $ 3,359,548 $ 4,604,354 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 4.7 4.6 8.3 9.2 I-joists (equivalent lineal feet) 63 69 102 135 Plywood (sq. ft.) (3/8" basis) 440 281 846 598 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 30.14 $ 28.47 $ 30.59 $ 27.43 I-joists (1,000 equivalent lineal feet) 2,088 2,066 2,118 1,974 Plywood (1,000 sq. ft.) (3/8" basis) 365 569 366 633 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 37.5 % 44.9 % 38.5 % 48.5 % General line 39.6 % 32.9 % 39.2 % 31.0 % Engineered wood products 22.9 % 22.2 % 22.3 % 20.5 % Gross margin percentage (b) 15.0 % 13.9 % 14.9 % 15.9 % _______________________________________ (a) Actual U.S. housing starts data reported by the U.S. Census Bureau. (b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our BMD segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales. 26 Table of Contents Sales For the three months ended June 30, 2023, total sales decreased $462.9 million, or 20%, to $1,815.2 million from $2,278.1 million during the three months ended June 30, 2022. For the six months ended June 30, 2023, total sales decreased $1,244.9 million, or 27%, to $3,359.5 million from $4,604.4 million for the same period in the prior year. As described below, the decrease in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver of our sales. In second quarter 2023, total U.S. housing starts and single-family housing starts decreased 11% and 14%, respectively, compared with the same period in 2022. On a year-to-date basis through June 2023, total housing starts decreased 15%, driven by a decrease in single-family housing starts of 21% compared with the same period in 2022. Average composite lumber and average composite panel prices for the three months ended June 30, 2023 were 50% and 40% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing. For the six months ended June 30, 2023, average composite lumber and average composite panel prices were 60% and 51% lower, respectively, compared with the same period in the prior year. Wood Products. Sales, including sales to our BMD segment, decreased $5.7 million, or 1%, to $530.3 million for the three months ended June 30, 2023, from $536.0 million for the three months ended June 30, 2022. The decrease in sales was driven by lower plywood sales prices of 36%, resulting in decreased sales of $89.8 million. In addition, lower sales volumes of I-joists of 9% resulted in decreased sales of $13.5 million. The decrease in I-joists sales volumes was due to a decline in housing starts, as well as the availability of product substitutes and construction methods in certain geographies that reduce the wood floor opportunity. These decreases were offset partially by higher sales volumes for plywood of 57%, resulting in increased sales of $90.7 million. Plywood sales volumes increased during the quarter as we shifted a higher proportion of our internally produced veneer into plywood production, given the change in demand for EWP. Plywood sales volumes increased from the prior year quarter due to the Acquisition, as well as downtime taken in 2022 to replace an existing dryer at our Chester, South Carolina, plywood facility. In addition, higher sales prices for LVL and I-joists (collectively referred to as EWP) of 6% and 1%, respectively, resulted in increased sales of $7.8 million and $1.4 million, respectively. The increase in EWP pricing was due to realizations of previously announced price increases and the expiration of certain temporary price protection arrangements. Higher sales volumes for LVL of 2% resulted in increased sales of $2.7 million. For the six months ended June 30, 2023, sales, including sales to our BMD segment, decreased $127.3 million, or 12% to $967.7 million from $1,095.0 million for the same period in the prior year. The decrease in sales was driven by lower plywood sales prices of 42%, resulting in decreased sales of $225.6 million. In addition, lower sales volumes of I-joists and LVL (collectively referred to as EWP) of 25% and 10%, respectively, resulted in decreased sales of $65.5 million and $24.8 million, respectively. EWP sales volumes decreased due to a decline in housing starts. I-joist volumes were also impacted by the availability of product substitutes and construction methods in certain geographies that reduce the wood floor opportunity. These decreases were offset partially by higher sales volumes for plywood of 42%, resulting in increased sales of $157.1 million. Plywood sales volumes increased from the prior year as we shifted a higher proportion of our internally produced veneer into plywood production, given the change in demand for EWP. The Acquisition also increased plywood sales volumes during 2023. In addition, higher sales prices for LVL and I-joists of 12% and 7%, respectively, resulted in increased sales of $26.4 million and $14.7 million, respectively. The increase in EWP pricing was due to realizations of previously announced price increases and the expiration of certain temporary price protection arrangements. Building Materials Distribution. Sales decreased $494.7 million, or 23%, to $1,636.5 million for the three months ended June 30, 2023, from $2,131.2 million for the three months ended June 30, 2022. Compared with the same quarter in the prior year, the overall decrease in sales was driven by sales price and sales volume decreases of 22% and 1%, respectively. By product line, commodity sales decreased 36%, or $342.7 million; general line product sales decreased 8%, or $53.0 million; and EWP sales (substantially all of which are sourced through our Wood Products segment) decreased 21%, or $99.0 million. During the six months ended June 30, 2023, sales decreased $1,227.2 million, or 29%, to $3,015.8 million from $4,243.0 million for the same period in the prior year. The overall decrease in sales was driven by sales price and sales volume decreases of 21% and 8%, respectively. By product line, commodity sales decreased 44%, or $897.0 million; general line product sales decreased 10%, or $134.6 million; and sales of EWP (substantially all of which are sourced through our Wood Products segment) decreased 23%, or $195.6 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) decreased $371.5 million, or 21%, to $1,426.4 million for the three months ended June 30, 2023, compared with $1,797.9 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses increased due to higher labor and other manufacturing costs, as well as the Acquisition. These increases were offset partially by lower per-unit costs of OSB (used in 27 Table of Contents the manufacture of I-joists) and logs of approximately 18% and 6%, respectively, compared with second quarter 2022. Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 750 basis points. The increase in the MLO rate was primarily the result of lower plywood sales prices, resulting in decreased leveraging of labor and other manufacturing costs. In BMD, the decrease in materials, labor, and other operating expenses was driven by lower purchased materials costs primarily as a result of lower commodity prices compared with second quarter 2022. The BMD segment MLO rate decreased 110 basis points compared with second quarter 2022, driven primarily by improved margin percentages on commodity product sales as commodity prices were generally stable during 2023 compared with a declining price environment during 2022. In our BMD segment, periods of increasing prices provide the opportunity for higher sales and increased margins, while declining price environments generally result in declines in sales and profitability. For the six months ended June 30, 2023, materials, labor, and other operating expenses (excluding depreciation) decreased $870.7 million or 25%, to $2,657.1 million, compared with $3,527.8 million in the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses increased due to higher labor and other manufacturing costs, as well as the Acquisition. These increases were offset partially by lower per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 19% and 2%, respectively, compared with the first six months of 2022. The MLO rate in our Wood Products segment increased by 1,040 basis points, which was primarily due to lower plywood sales prices, resulting in decreased leveraging of labor and other manufacturing costs. In BMD, the decrease in materials, labor, and other operating expenses was driven by lower purchased materials costs as a result of a decrease in product prices and lower sales volumes, compared with the first six months of 2022. However, the BMD segment MLO rate increased 100 basis points due to lower margin percentages on commodity products and EWP compared with the first six months of 2022. Depreciation and amortization expenses increased $10.0 million, or 48%, to $30.7 million for the three months ended June 30, 2023, compared with $20.7 million during the same period in the prior year. For the six months ended June 30, 2023, these expenses increased $20.7 million, or 50%, to $61.9 million, compared with $41.2 million in the same period in the prior year. The increase in both periods was due primarily to the Acquisition on July 25, 2022, and other capital expenditures. Selling and distribution expenses increased $4.9 million, or 4%, to $139.2 million for the three months ended June 30, 2023, compared with $134.3 million during the same period in the prior year, primarily due to higher base salaries and incentive compensation expenses of $6.3 million, offset partially by a decrease in sales commissions of $3.0 million. In addition, shipping and handling costs increased $1.8 million during the three months ended June 30, 2023 compared with the same period in the prior year. For the six months ended June 30, 2023, selling and distribution expenses decreased $12.9 million, or 5%, to $268.0 million, compared with $280.9 million during the same period in 2022, primarily as a result of lower sales commissions and incentive compensation expenses of $21.1 million, offset partially by increased shipping and handling costs of $2.8 million and higher employee-related expenses of $2.1 million. In addition, discretionary expenses related to travel and entertainment and advertising increased $1.4 million. General and administrative expenses increased $2.4 million, or 9%, to $30.1 million for the three months ended June 30, 2023, compared with $27.7 million for the same period in the prior year, primarily due to an increase in employee-related expenses, most of which relates to incentive compensation. This increase was offset partially by a decrease in professional fees during the three months ended June 30, 2023 compared with the same period in the prior year. For the six months ended June 30, 2023, general and administrative expenses increased $2.8 million, or 5%, to $56.6 million, compared with $53.8 million during the same period in 2022. The increase was primarily the result of higher employee-related expenses and professional fees. For the three months ended June 30, 2023, other (income) expense, net, was $1.3 million of income. For the three months ended June 30, 2022, other (income) expense was insignificant. For the six months ended June 30, 2023 and 2022, other (income) expense, net, was $1.6 million and $2.1 million of income, respectively. Other income for the three months ended June 30, 2023, as well as for the six months ended June 30, 2023 and 2022, was primarily comprised of earn-out income related to a previous asset sale in our Wood Products segment. Income From Operations Income from operations decreased $107.1 million to $190.0 million for the three months ended June 30, 2023, compared with $297.1 million for the three months ended June 30, 2022. Income from operations decreased $385.1 million to $317.6 million for the six months ended June 30, 2023, compared with $702.7 million for the six months ended June 30, 2022. Wood Products. Segment income decreased $50.1 million to $104.0 million for the three months ended June 30, 2023, compared with $154.1 million for the three months ended June 30, 2022. The decrease in segment income was due primarily to lower plywood sales prices. In addition, segment income was negatively impacted by an increase in depreciation and 28 Table of Contents amortization expense related to the Acquisition. These decreases in segment income were offset partially by higher plywood sales volumes and higher EWP sales prices, as well as lower wood fiber costs. For the six months ended June 30, 2023, segment income decreased $170.8 million to $173.4 million from $344.2 million for the six months ended June 30, 2022. The decrease in segment income was due primarily to lower plywood sales prices and lower EWP sales volumes. In addition, segment income was negatively impacted by an increase in depreciation and amortization expense related to the Acquisition. These decreases in segment income were offset partially by higher EWP sales prices and higher plywood sales volumes, as well as lower wood fiber costs. Building Materials Distribution. Segment income decreased $55.7 million to $98.6 million for the three months ended June 30, 2023, from $154.3 million for the three months ended June 30, 2022. The decline in segment income was driven by a gross margin decrease of $49.8 million, resulting from lower margins on EWP and general line products, offset partially by margin improvements on commodity products. In addition, selling and distribution expenses increased $3.9 million. For the six months ended June 30, 2023, segment income decreased $212.0 million to $168.2 million from $380.2 million for the six months ended June 30, 2022. The decline in segment income was driven by a gross margin decrease of $227.2 million, resulting primarily from gross margin declines on commodity and EWP products and lower sales volumes across all product lines, offset partially by decreased selling and distribution expenses of $16.5 million. Corporate. Unallocated corporate expenses increased $1.3 million to $12.6 million for the three months ended June 30, 2023, from $11.3 million for the same period in the prior year. The increase was primarily due to higher employee-related expenses, most of which relate to incentive compensation. For the six months ended June 30, 2023, unallocated corporate expenses increased $2.4 million to $24.1 million from $21.7 million for the six months ended June 30, 2022. The increase was primarily due to higher employee-related expenses. Other Interest Income. Interest income increased $10.1 million to $11.5 million for the three months ended June 30, 2023, from $1.4 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, interest income increased $19.7 million to $21.2 million from $1.5 million for the six months ended June 30, 2022. The increase in both periods 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. For information related to our interest rate swap, see the discussion under "Interest Rate Risk and Interest Rate Swap" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Income Tax Provision For the three and six months ended June 30, 2023, we recorded $49.4 million and $82.7 million, respectively, of income tax expense and had an effective rate of 25.3% and 25.4%, respectively. For the three and six months ended June 30, 2022, we recorded $73.9 million and $172.8 million, respectively, of income tax expense and had an effective rate of 25.3% and 24.9%, respectively. For all periods, the primary reason for the difference between the federal and statutory income tax rate of 21% and the effective tax rate was the effect of state taxes. Liquidity and Capital Resources We ended second quarter 2023 with $1,080.9 million of cash and cash equivalents and $444.8 million of debt. At June 30, 2023, we had $1,476.8 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). We generated $82.5 million of cash during the six months ended June 30, 2023, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards. Further descriptions of our cash sources and uses for the six-month comparative periods are noted below. We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, working capital, income tax payments, and to pay cash dividends to holders of our common stock over the next 12 months. We expect to fund our seasonal and intra-month working capital requirements in the remainder of 2023 from cash on hand and, if necessary, borrowings under our revolving credit facility. 29 Table of Contents Sources and Uses of Cash We generate cash primarily from sales of our products, as well as short-term and long-term borrowings. Our primary uses of cash are for expenses related to the manufacture and distribution of building products, including inventory purchased for resale, wood fiber, labor, energy, and glues and resins. In addition to paying for ongoing operating costs, we use cash to invest in our business, service our debt and lease obligations, and return cash to our shareholders through dividends or common stock repurchases. Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities. Six Months Ended June 30 2023 2022 (thousands) Net cash provided by operations $ 290,218 $ 436,056 Net cash used for investment (66,369) (37,944) Net cash used for financing (141,336) (114,032) Operating Activities For the six months ended June 30, 2023, our operating activities generated $290.2 million of cash, compared with $436.1 million of cash generated in the same period in 2022. The $145.8 million decrease in cash provided by operations was due primarily to a decrease in income from operations, offset partially by a lesser year-over-year increase in working capital and a decrease in cash paid for taxes, net of refunds, of $102.5 million. Working capital increased $60.2 million during the six months ended June 30, 2023, compared with a $152.6 million increase for the same period in the prior year. See "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for more information related to factors affecting our operating results. The increase in working capital during both periods was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities. The increases in receivables in both periods primarily reflect increased sales of approximately 41% and 25%, comparing sales for the months of June 2023 and 2022 with sales for the months of December 2022 and 2021, respectively. Inventories increased during the six months ended June 30, 2023 due to seasonally higher inventory purchases in our BMD segment in preparation for the summer building season. However, our Wood Products segment inventories decreased during the six months ended June 30, 2023 due to improved demand compared to fourth quarter 2022. During the six months ended June 30, 2022 inventories increased primarily due to increased cost of inventory purchased for resale on EWP and general line products and higher production costs for our manufactured products, offset partially by decreased costs for commodity products. The increase in accounts payable and accrued liabilities as of June 30, 2023 was related to the increase in inventories in our BMD segment and extended terms offered by certain BMD vendors, offset partially by employee incentive compensation payouts made during the period. The increase in accounts payable and accrued liabilities as of June 30, 2022 was related to the increase in inventories and higher accrued rebates. Investment Activities During the six months ended June 30, 2023 and 2022, we used $68.3 million and $40.8 million, respectively, of cash for purchases of property and equipment, including business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. During the six months ended June 30, 2023 and 2022, we received $1.0 million and $2.5 million, respectively, of earn-out income related to a previous asset sale in our Wood Products segment. 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 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 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. 30 Table of Contents Financing Activities During the six months ended June 30, 2023, our financing activities used $141.3 million of cash, including $133.0 million for common stock dividend payments, $5.9 million of tax withholding payments on stock-based awards, and $1.5 million for the repurchase of 25,678 shares of our common stock. During the six months ended June 30, 2023, we did not borrow under our revolving credit facility and therefore have no borrowings outstanding on the facility as of June 30, 2023. During the six months ended June 30, 2022, our financing activities used $114.0 million of cash, including $109.3 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards. During the six months ended June 30, 2022, we did not borrow under our revolving credit facility. Future dividend declarations, including amount per share, record date and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, material cash requirements, restrictions imposed by our asset-based credit facility and the indenture governing our senior notes, applicable laws, and other factors that our board of directors may deem relevant. For more information related to our debt transactions and structure, our dividend policy, and our stock repurchase program, see the discussion in Note 7, Debt, and Note 10, Stockholders' Equity, respectively, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Other Material Cash Requirements For information about other material cash requirements, see Liquidity and Capital Resources in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K. As of June 30, 2023, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2022. Guarantees Note 9, Debt, and Note 17, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2022 Form 10-K describe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make. As of June 30, 2023, there have been no material changes to the guarantees disclosed in our 2022 Form 10-K. Seasonal Influences We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing starts, repair-and-remodeling activities, and light commercial construction activities. We typically report lower sales volumes in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales volumes in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. We typically have higher working capital in the first and second quarters in preparation and response to the building season. Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities. 31 Table of Contents Employees As of July 23, 2023, we had approximately 6,820 employees. Approximately 20% of these employees work pursuant to collective bargaining agreements. As of July 23, 2023, we had ten collective bargaining agreements. Five agreements covering approximately 470 employees at our Elgin plywood plant, Kettle Falls plywood plant, and Woodinville BMD facility are set to expire on May 31, 2024, but the terms and conditions of these agreements will remain in effect after expiration pending negotiation of new agreements. We may not be able to renew these agreements or may renew them on terms that are less favorable to us than the current agreements. If any of these agreements are not renewed or extended upon their termination, we could experience a material labor disruption, strike, or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise. Labor disruptions or shortages could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. Disclosures of Financial Market Risks In the normal course of business, we are exposed to financial risks such as changes in commodity prices, interest rates, and foreign currency exchange rates. As of June 30, 2023, there have been no material changes to financial market risks disclosed in our 2022 Form 10-K. Environmental As of June 30, 2023, there have been no material changes to environmental issues disclosed in our 2022 Form 10-K. For additional information, see Environmental in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K. Critical Accounting Estimates Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K. At June 30, 2023, there have been no material changes to our critical accounting estimates from those disclosed in our 2022 Form 10-K. New and Recently Adopted Accounting Standards For information related to new and recently adopted accounting standards, see "New and Recently Adopted Accounting Standards" in Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" in this Form 10-Q.