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. 22 Table of Contents Executive Overview We recorded income from operations of $185.6 million during the three months ended September 30, 2023, compared with income from operations of $299.4 million during the three months ended September 30, 2022. In our Wood Products segment, income decreased $56.4 million to $99.6 million for the three months ended September 30, 2023, from $156.0 million for the three months ended September 30, 2022, due primarily to lower EWP and plywood sales prices, offset partially by lower wood fiber costs and higher plywood sales volumes. In our BMD segment, income decreased $57.3 million to $97.1 million for the three months ended September 30, 2023, from $154.4 million for the three months ended September 30, 2022, driven by a gross margin decrease of $48.4 million, resulting primarily from lower margins on EWP, offset partially by increased selling and distribution expenses of $6.0 million. These changes are discussed further in "Our Operating Results" below. We ended third quarter 2023 with $1,273.0 million of cash and cash equivalents and $395.9 million of undrawn committed bank line availability, for total available liquidity of $1,668.9 million. We had $445.1 million of outstanding debt at September 30, 2023. We generated $274.6 million of cash during the nine months ended September 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 nine-month comparative periods are discussed in "Liquidity and Capital Resources" below. On October 2, 2023, our wholly-owned subsidiary, Boise Cascade Building Materials Distribution, L.L.C. (BMD) completed the previously announced acquisition of Brockway-Smith Company (BROSCO), a wholesale distributor specializing in doors and millwork, pursuant to the Agreement and Plan of Merger, dated August 22, 2023 (Merger Agreement), by and among Firepit Merger Sub, Inc., a wholly-owned subsidiary of BMD (the Merger Sub), and BROSCO. On the terms and subject to the conditions set forth in the Merger Agreement, on October 2, 2023, Merger Sub merged with and into BROSCO, with BROSCO surviving the merger as a wholly-owned subsidiary of BMD (the Acquisition). The purchase price of the Acquisition was $168 million, inclusive of estimated working capital at closing of $51 million, which is subject to post-closing adjustments. We funded the Acquisition and related costs with cash on hand. These facilities will expand our door and millwork business in the Northeast U.S. markets. 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. Various industry forecasts for 2023 U.S. housing starts are estimated to be 1.4 million units, compared with actual housing starts of 1.55 million in 2022, as reported by the U.S. Census Bureau. Throughout 2023, home affordability has been a challenge for consumers given higher mortgage rates and limited home price decreases. However, given a resilient economy and low levels of existing home inventory for sale, demand for new residential construction has been stronger than anticipated. Homebuilders have also addressed affordability challenges facing homebuyers in various ways, including smaller home sizes, fewer amenities, price incentives, and mortgage rate buydowns. Economic uncertainties, escalating mortgage rates, and home affordability are expected to continue to influence the near-term demand environment. Consensus forecasts for 2024 single- and multi-family housing starts in the U.S. generally range from 1.3 million to 1.4 million units, which is comparable with 2023. 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. During fourth quarter 2023, we expect to experience seasonally slower demand for the products we manufacture and distribute, as well as modest EWP price erosion. 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; 23 Table of Contents • 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; • 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 nine months ended September 30, 2023 and 2022: Three Months Ended September 30 Nine Months Ended September 30 2023 2022 2023 2022 (millions) Sales $ 1,834.4 $ 2,154.6 $ 5,194.0 $ 6,759.0 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,442.2 1,656.0 4,099.2 5,183.8 Depreciation and amortization 31.5 28.4 93.4 69.6 Selling and distribution expenses 147.7 142.2 415.7 423.1 General and administrative expenses 27.6 27.6 84.2 81.4 Other (income) expense, net (0.1) 1.1 (1.8) (1.0) 1,648.8 1,855.3 4,690.8 5,756.9 Income from operations $ 185.6 $ 299.4 $ 503.2 $ 1,002.1 (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 % 76.9 % 78.9 % 76.7 % Depreciation and amortization 1.7 1.3 1.8 1.0 Selling and distribution expenses 8.1 6.6 8.0 6.3 General and administrative expenses 1.5 1.3 1.6 1.2 Other (income) expense, net — 0.1 — — 89.9 % 86.1 % 90.3 % 85.2 % Income from operations 10.1 % 13.9 % 9.7 % 14.8 % 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 nine months ended September 30, 2023 and 2022. Three Months Ended September 30 Nine Months Ended September 30 2023 2022 2023 2022 (thousands) U.S. Housing Starts (a) Single-family 258.2 241.7 707.5 811.8 Multi-family 103.5 144.0 369.4 413.4 361.7 385.7 1,076.9 1,225.2 (thousands) Segment Sales Wood Products $ 515,225 $ 595,320 $ 1,482,926 $ 1,690,294 Building Materials Distribution 1,670,296 1,956,802 4,686,076 6,199,835 Intersegment eliminations (351,080) (397,475) (975,013) (1,131,128) Total sales $ 1,834,441 $ 2,154,647 $ 5,193,989 $ 6,759,001 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 4.9 5.2 13.3 14.4 I-joists (equivalent lineal feet) 64 64 166 199 Plywood (sq. ft.) (3/8" basis) 390 329 1,236 926 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 29.08 $ 33.82 $ 30.03 $ 29.73 I-joists (1,000 equivalent lineal feet) 2,035 2,429 2,086 2,121 Plywood (1,000 sq. ft.) (3/8" basis) 382 477 371 577 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 37.4 % 39.6 % 38.1 % 45.7 % General line 39.4 % 35.3 % 39.3 % 32.4 % Engineered wood products 23.2 % 25.1 % 22.6 % 21.9 % Gross margin percentage (b) 15.2 % 15.4 % 15.0 % 15.8 % _______________________________________ (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 September 30, 2023, total sales decreased $320.2 million, or 15%, to $1,834.4 million from $2,154.6 million during the three months ended September 30, 2022. For the nine months ended September 30, 2023, total sales decreased $1,565.0 million, or 23%, to $5,194.0 million from $6,759.0 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 third quarter 2023, total U.S. housing starts decreased 6%, driven by a decrease in multi-family housing starts compared to the same period in 2022. However, single-family housing starts increased 7% compared with the same period in 2022. On a year-to-date basis through September 2023, total housing starts and single-family housing starts decreased 12% and 13%, respectively, compared with the same period in 2022. Average composite lumber and average composite panel prices for the three months ended September 30, 2023 were 26% and 5% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing. For the nine months ended September 30, 2023, average composite lumber and average composite panel prices were 52% and 40% lower, respectively, compared with the same period in the prior year. Wood Products. Sales, including sales to our BMD segment, decreased $80.1 million, or 13%, to $515.2 million for the three months ended September 30, 2023, from $595.3 million for the three months ended September 30, 2022. The decrease in sales was driven by lower plywood sales prices of 20%, resulting in decreased sales of $36.8 million. In addition, lower sales prices for I-joists and LVL (collectively referred to as EWP) of 16% and 14%, respectively, resulted in decreased sales of $25.3 million and $23.4 million, respectively. Lower sales volumes of LVL of 5% resulted in decreased sales of $8.3 million, while sales volumes for I-joists were flat. These decreases were offset partially by higher sales volumes for plywood of 19%, resulting in increased sales of $29.2 million. For the nine months ended September 30, 2023, sales, including sales to our BMD segment, decreased $207.4 million, or 12% to $1,482.9 million from $1,690.3 million for the same period in the prior year. The decrease in sales was driven by lower plywood sales prices of 36%, resulting in decreased sales of $254.8 million. In addition, lower sales volumes of I-joists and LVL (collectively referred to as EWP) of 17% and 8%, respectively, resulted in decreased sales of $71.0 million and $34.2 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 33%, resulting in increased sales of $178.7 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. In addition, plywood sales volumes increased from the prior year due to the Coastal Plywood acquisition, as well as downtime taken in 2022 to replace an existing dryer at our Chester, South Carolina, plywood facility. Building Materials Distribution. Sales decreased $286.5 million, or 15%, to $1,670.3 million for the three months ended September 30, 2023, from $1,956.8 million for the three months ended September 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 14% and 1%, respectively. By product line, commodity sales decreased 20%, or $151.2 million; general line product sales decreased 5%, or $32.4 million; and EWP sales (substantially all of which are sourced through our Wood Products segment) decreased 21%, or $102.9 million. During the nine months ended September 30, 2023, sales decreased $1,513.7 million, or 24%, to $4,686.1 million from $6,199.8 million for the same period in the prior year. The overall decrease in sales was driven by sales price and sales volume decreases of 17% and 7%, respectively. By product line, commodity sales decreased 37%, or $1,048.1 million; general line product sales decreased 8%, or $167.1 million; and sales of EWP (substantially all of which are sourced through our Wood Products segment) decreased 22%, or $298.5 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) decreased $213.8 million, or 13%, to $1,442.2 million for the three months ended September 30, 2023, compared with $1,656.0 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower per-unit costs of logs and OSB (used in the manufacture of I-joists) of approximately 6% and 3%, respectively, compared with third quarter 2022, as well as a decrease in other manufacturing costs, offset partially by increased labor costs. However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 620 basis points. The increase in the MLO rate was primarily the result of lower plywood and EWP sales prices, resulting in decreased leveraging of labor and wood fiber 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 compared with third quarter 2022. However, the 27 Table of Contents BMD segment MLO rate increased 20 basis points compared with third quarter 2022, driven primarily by lower margin percentages on EWP compared with third quarter 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 nine months ended September 30, 2023, materials, labor, and other operating expenses (excluding depreciation) decreased $1,084.6 million or 21%, to $4,099.2 million, compared with $5,183.8 million in the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 13% and 4%, respectively, compared with the first nine months of 2022. This decrease was offset partially by higher labor and other manufacturing costs, as well as the Coastal Plywood acquisition. However, the MLO rate in our Wood Products segment increased by 890 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 nine months of 2022. However, the BMD segment MLO rate increased 80 basis points primarily due to lower margin percentages on EWP compared with the first nine months of 2022. Depreciation and amortization expenses increased $3.1 million, or 11%, to $31.5 million for the three months ended September 30, 2023, compared with $28.4 million during the same period in the prior year. For the nine months ended September 30, 2023, these expenses increased $23.8 million, or 34%, to $93.4 million, compared with $69.6 million in the same period in the prior year. The increase in both periods was due primarily to the Coastal Plywood acquisition on July 25, 2022, and other capital expenditures. Selling and distribution expenses increased $5.5 million, or 4%, to $147.7 million for the three months ended September 30, 2023, compared with $142.2 million during the same period in the prior year, primarily due to higher base salaries, special bonuses, and incentive compensation expenses of $7.6 million, offset partially by a decrease in sales commissions of $2.8 million. For the nine months ended September 30, 2023, selling and distribution expenses decreased $7.4 million, or 2%, to $415.7 million, compared with $423.1 million during the same period in 2022, primarily as a result of lower sales commissions and incentive compensation expenses of $21.2 million, offset partially by higher employee-related expenses of $6.9 million and increased shipping and handling and occupancy costs of $3.1 million and $1.2 million, respectively. In addition, discretionary expenses related to travel and entertainment and advertising increased $1.3 million. General and administrative expenses for both the three months ended September 30, 2023 and 2022 were $27.6 million. For the nine months ended September 30, 2023, general and administrative expenses increased $2.8 million, or 3%, to $84.2 million, compared with $81.4 million during the same period in 2022. The increase was primarily the result of higher employee-related expenses and professional fees, offset partially by a decrease in insurance expense as the three months ended September 30, 2022 included representations and warranties insurance related to the Coastal Plywood acquisition. Income From Operations Income from operations decreased $113.8 million to $185.6 million for the three months ended September 30, 2023, compared with $299.4 million for the three months ended September 30, 2022. Income from operations decreased $498.9 million to $503.2 million for the nine months ended September 30, 2023, compared with $1,002.1 million for the nine months ended September 30, 2022. Wood Products. Segment income decreased $56.4 million to $99.6 million for the three months ended September 30, 2023, compared with $156.0 million for the three months ended September 30, 2022. The decrease in segment income was due primarily to lower EWP and plywood sales prices, as well as lower LVL sales volumes. These decreases in segment income were offset partially by lower wood fiber costs and higher plywood sales volumes. For the nine months ended September 30, 2023, segment income decreased $227.2 million to $273.0 million from $500.2 million for the nine months ended September 30, 2022. The decrease in segment income was due primarily to lower plywood and EWP sales prices, as well as lower EWP sales volumes. In addition, segment income was negatively impacted by an increase in depreciation and amortization expense related to the Coastal Plywood acquisition. These decreases in segment income were offset partially by lower wood fiber costs and higher plywood sales volumes. Building Materials Distribution. Segment income decreased $57.3 million to $97.1 million for the three months ended September 30, 2023, from $154.4 million for the three months ended September 30, 2022. The decline in segment income was 28 Table of Contents driven by a gross margin decrease of $48.4 million, resulting primarily from lower margins on EWP. In addition, selling and distribution expenses increased $6.0 million. For the nine months ended September 30, 2023, segment income decreased $269.3 million to $265.3 million from $534.6 million for the nine months ended September 30, 2022. The decline in segment income was driven by a gross margin decrease of $275.6 million, resulting primarily from gross margin declines on EWP and commodity products and lower sales volumes across all product lines, offset partially by decreased selling and distribution expenses of $10.5 million. Corporate. Unallocated corporate expenses for both the three months ended September 30, 2023 and 2022 were $11.0 million. For the nine months ended September 30, 2023, unallocated corporate expenses increased $2.3 million to $35.1 million from $32.8 million for the nine months ended September 30, 2022. The increase was primarily due to higher employee-related expenses. Other Interest Income. Interest income increased $10.6 million to $13.8 million for the three months ended September 30, 2023, from $3.2 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, interest income increased $30.3 million to $35.0 million from $4.7 million for the nine months ended September 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 nine months ended September 30, 2023, we recorded $49.0 million and $131.7 million, respectively, of income tax expense and had an effective rate of 25.5% and 25.4%, respectively. For the three and nine months ended September 30, 2022, we recorded $76.0 million and $248.8 million, respectively, of income tax expense and had an effective rate of 25.7% and 25.2%, respectively. For all periods, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes. Liquidity and Capital Resources We ended third quarter 2023 with $1,273.0 million of cash and cash equivalents and $445.1 million of debt. At September 30, 2023, we had $1,668.9 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). We generated $274.6 million of cash during the nine months ended September 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 nine-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. On October 2, 2023, we completed the acquisition of BROSCO for a purchase price of $168 million, inclusive of estimated working capital at closing of $51 million, which is subject to post-closing adjustments. We funded the acquisition and related costs with cash on hand. For further discussion, see Note 5, Acquisitions, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. 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. Nine Months Ended September 30 2023 2022 (thousands) Net cash provided by operations $ 521,129 $ 814,125 Net cash used for investment (96,801) (575,622) Net cash used for financing (149,709) (120,346) Operating Activities For the nine months ended September 30, 2023, our operating activities generated $521.1 million of cash, compared with $814.1 million of cash generated in the same period in 2022. The $293.0 million decrease in cash provided by operations was due primarily to a decrease in income from operations, offset partially by a decrease in cash paid for taxes, net of refunds, of $85.3 million. In addition, working capital decreased $1.1 million during the nine months ended September 30, 2023, compared with a $62.0 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 decrease in working capital during the nine months ended September 30, 2023 was primarily attributable to an increase in accounts payable and decreased inventories, offset partially by higher receivables. The increase in working capital during the nine months ended September 30, 2022 was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities. The increase in accounts payable during the nine months ended September 30, 2023 was related to increased purchasing in response to improved demand compared to fourth quarter 2022 and extended terms offered by certain BMD vendors. During the nine months ended September 30, 2022 the increase in accounts payable and accrued liabilities was primarily related to the increase in inventories. During the nine months ended September 30, 2023 inventories decreased in our Wood Products segment due to improved demand compared to fourth quarter 2022. However, our BMD segment inventories increased during the nine months ended September 30, 2023 due to seasonal building, steady housing demand, and location expansions. During the nine months ended September 30, 2022 inventories increased primarily due to increased cost of inventory purchased for resale for EWP and general line products, the Coastal Plywood acquisition during the third quarter of 2022, and higher production costs for our manufactured products. The increases in receivables in both periods primarily reflect increased sales of approximately 30% and 13%, comparing sales for the months of September 2023 and 2022 with sales for the months of December 2022 and 2021, respectively. Investment Activities During the nine months ended September 30, 2023 and 2022, we used $99.3 million and $61.8 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 nine months ended September 30, 2022, we also used $516.9 million of cash for the Coastal Plywood acquisition. During the nine months ended September 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. Excluding acquisitions, we expect capital expenditures in 2023 to total approximately $190 million to $210 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, spending related to new door shop assembly operations in Kansas City, Missouri, and Denver, Colorado, and the purchase of a distribution center in West Palm Beach, Florida. 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 30 Table of Contents financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases. Financing Activities During the nine months ended September 30, 2023, our financing activities used $149.7 million of cash, including $140.9 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 nine months ended September 30, 2023, we did not borrow under our revolving credit facility and therefore have no borrowings outstanding on the facility as of September 30, 2023. During the nine months ended September 30, 2022, our financing activities used $120.3 million of cash, including $114.0 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards. During the nine months ended September 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 September 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 September 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 October 15, 2023, we had approximately 7,250 employees. Approximately 18% of these employees work pursuant to collective bargaining agreements. As of October 15, 2023, we had ten collective bargaining agreements. Five agreements covering approximately 450 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 September 30, 2023, there have been no material changes to financial market risks disclosed in our 2022 Form 10-K. Environmental As of September 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 September 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.